Employment Law2026-10-22

Offering a Termination Agreement: The Duty to Negotiate Fairly and How to Meet It

A termination agreement ends the employment relationship without a dismissal and without litigation. It only holds, however, if you as the employer negotiate fairly. Here is what the Federal Labour Court means by that, what belongs in the agreement, and what you need to know about the benefit suspension period.

You want to part ways with an employee, but without a dismissal, without a time limit for bringing a claim, and without a conciliation hearing. That is exactly what the termination agreement is for: both sides agree on the end of the employment relationship, on the date, on a severance payment, and on everything that goes with it. The advantage for you as the employer is legal certainty. The price is that the agreement only holds if it came about fairly. The Federal Labour Court has developed its own rule for this, and anyone who knows it can easily comply with it.

In brief

Under § 623 BGB, a termination agreement requires written form, with both signatures on a single document. It is valid even if the employee signs it on the spot, had no time to reflect, and had no lawyer present. It becomes invalid if you breach the duty to negotiate fairly: if you create or exploit a situation of psychological pressure that makes it considerably harder for the employee to decide freely. The employee can then demand to be put in the position they would have been in had they never signed, and the employment relationship continues. They have no right to withdraw from the agreement. The subject of negotiation is almost always the benefit suspension period for unemployment benefit, because by entering into the termination agreement the employee is giving up their own employment (§ 159(1) sentence 2 no. 1 SGB III).

The legal position

The duty to negotiate fairly. The Federal Labour Court developed this in 2019 as an ancillary duty arising from § 241(2) BGB. It is breached where one party creates or exploits a situation of psychological pressure that makes a free and considered decision by the other party considerably harder or impossible. In the case decided, the employer had visited an employee who was off sick at her home and presented her with the agreement there for immediate signature. The legal consequence of a breach is damages: the employee is to be put in the position they would have been in had the agreement not been concluded, so the employment relationship continues (BAG, judgment of 7 February 2019, 6 AZR 75/18, bundesarbeitsgericht.de). At the same time, the court made clear that a termination agreement cannot be withdrawn under the rules on doorstep transactions; § 312g BGB does not apply to it.

What remains permissible. Three years later, the Federal Labour Court drew the line. An employer had, in the presence of his lawyer, presented a termination agreement to an employee he accused of granting unauthorised discounts, stating that the offer was open for immediate acceptance only. She signed after about ten minutes. The court saw no breach of the duty to negotiate fairly in this: the employer need grant neither time to reflect nor a right of withdrawal, and an offer that is open “only now” does not in itself create an impermissible situation of pressure (BAG, judgment of 24 February 2022, 6 AZR 333/21, bundesarbeitsgericht.de). The line is crossed where additional circumstances come into play that curtail the employee’s freedom of decision: a recognisable illness, an ambush in a place where they cannot defend themselves, deception about the facts, or a threat you would not be entitled to make.

Threatening dismissal. Holding out dismissal as the alternative is permissible. The employee can rescind the agreement under § 123(1) BGB only if the threat was unlawful, and it is unlawful where a reasonable employer could not have seriously contemplated the dismissal threatened. So anyone who threatens summary dismissal when plainly only a written warning would be in order risks rescission. Anyone who threatens the dismissal they would actually have examined stays within bounds.

Written form. § 623 BGB applies to the termination agreement just as it does to a dismissal: written form, electronic form excluded. An agreement by email or a handshake does not end the employment relationship. Both signatures must appear on the same document, or on identical copies that are exchanged.

What belongs in the agreement. The end date. The severance payment, with its due date, as a rule with the final payslip. A release from work until the end, irrevocable and with the remaining holiday set off against it, so that no payment in lieu of holiday arises under § 7(4) BUrlG. The reference with an agreed overall grade and a promise of a closing paragraph. The return of company property, the treatment of any company car and occupational pension, a confidentiality clause. Finally, a settlement clause under which, once the agreement is performed, all claims arising from the employment relationship are discharged. Exempt from this are claims the employee cannot waive, such as the minimum wage (§ 3 MiLoG) and the reference.

The severance payment. Outside § 1a KSchG and a court-ordered dissolution under §§ 9, 10 KSchG, there is no statutory entitlement to a severance payment. The amount is a matter for negotiation. The rule of thumb in § 1a(2) KSchG serves as a guide: half a gross monthly salary per year of service. The stronger your position would be if you dismissed, the less you need to offer; the shakier the dismissal, the more. The severance payment is taxable for the employee but free of social security contributions; since 2025 the employee claims the “one-fifth rule” under § 34 EStG in their own tax return, no longer through your payroll.

Time limits

There is no time limit for the termination agreement itself; it can be concluded today and take effect tomorrow. Two periods do, however, determine whether the employee suffers disadvantages with their unemployment benefit, and thus whether they sign.

Benefit suspension period. Someone who ends their employment by a termination agreement acts contrary to the purposes of the insurance under § 159(1) sentence 2 no. 1 SGB III; the unemployment benefit is suspended for twelve weeks under § 159(3) SGB III unless they had good cause. Under its official guidance, the Federal Employment Agency recognises good cause where a dismissal by the employer was imminent, the ordinary notice period is observed, the employee was not protected against ordinary dismissal, and the severance payment falls within a range of 0.25 to 0.5 gross monthly salaries per year of service. That is why many agreements contain the sentence that the termination takes place at the employer’s instigation in order to avoid a dismissal on operational grounds that would otherwise have been given. Whether the agency accepts this is for the agency itself to decide; you cannot promise it.

Suspension where the notice period is shortened. If the employment relationship ends earlier than it would have ended had your ordinary notice period been observed, and the employee receives a severance payment, their entitlement to unemployment benefit is suspended under § 158(1) SGB III up to the day on which the notice period would have expired. The notice period under § 622 BGB or the employment contract is therefore the natural minimum period up to the end date. Anyone who wants out sooner offers a premium for forgoing the notice period.

You are under no duty to advise the employee about the suspension period and the benefit suspension. But if you do give information, it must be correct; incorrect information can give rise to damages. The safe course is to point out that they should clarify the consequences for their unemployment benefit with the Employment Agency or a lawyer.

How to proceed

Clarify the alternative. Could you dismiss, and how certain would that be? That determines what you have to offer.
Set the key terms. End date no earlier than the expiry of the notice period, severance payment by the rule of thumb, release from work, reference grade.
Arrange the meeting. On the premises, during normal working hours, with one person across the table, not four. Not at the sickbed, not on a Friday evening, not as a surprise after a celebration.
Present the offer and explain it. Factually, with the point that dismissal is the alternative, if it is.
Offer time to reflect. You do not have to, but a few days cost you nothing and take the ground from under any later argument about pressure. Name a date up to which the offer is open.
Sign, hand over, settle up. One original each for both sides, severance payment as agreed, reference as at the leaving date.

Example

A business with 25 employees wants to part ways with an employee who has been there for six years and whose performance has not been up to standard for months, without that being enough for a dismissal. The managing director offers him a termination agreement on the premises: an end at the expiry of the two-month notice period under § 622(2) no. 2 BGB, release from work with immediate effect and the remaining holiday set off against it, a severance payment of three gross monthly salaries, a reference with the grade “good”. He gives him a week to reflect and recommends that he have the consequences for his unemployment benefit checked. The employee signs after five days. The agreement holds: no situation of pressure, notice period observed, severance payment within the rule of thumb, written form satisfied. Had the managing director presented the agreement at the sickbed and pressed for immediate signature, the employee would be back at the business six months later.

Common mistakes

Ambush. Illness, grief, alcohol, late in the evening, with lawyer and management against one person alone. That is the very case the duty to negotiate fairly was made for.
Threatening a dismissal that is not seriously in contemplation. It opens the door to rescission under § 123 BGB.
An oral agreement. Without both signatures on paper, the employment relationship carries on, with all its wage claims.
Ending before the notice period expires without compensation. The employee feels the suspension under § 158 SGB III and turns to a lawyer.
Incorrect information about the suspension period. “This won’t trigger a suspension” is something you must not promise.
Forgetting the holiday. Without an irrevocable release from work with the holiday set off against it, you end up paying it out on top at the end.
A settlement clause without exceptions for non-waivable claims. It is then invalid to that extent and breeds disputes instead of ending them.

Frequently asked questions

Do I have to give the employee time to reflect?

No. The Federal Labour Court requires neither time to reflect nor a right of withdrawal. An offer open for immediate acceptance only does not, in itself, breach the duty to negotiate fairly. All the same, time to reflect is the cheapest insurance against the accusation of having applied pressure.

Can the employee withdraw from the termination agreement?

No. There is no right of withdrawal as there is with doorstep transactions; § 312g BGB does not apply to termination agreements. The employee can only attack the agreement by rescinding it for deception or unlawful threat, or by way of the duty to negotiate fairly.

Do I have to involve the works council?

No. A termination agreement is not a dismissal; § 102 BetrVG does not apply. The employee may, however, bring a works council member to the meeting if they wish.

Will the employee receive unemployment benefit after a termination agreement?

In principle yes, but as a rule with a suspension period of twelve weeks under § 159 SGB III, because they themselves ended the employment relationship. The agency waives this where there is good cause, for example where a dismissal was imminent, the notice period is observed, and the severance payment stays within the usual range.

How high should the severance payment be?

There is no fixed entitlement. The range runs from zero to half a gross monthly salary per year of service, the latter being what § 1a(2) KSchG provides for the case of a dismissal on operational grounds. The amount shifts up or down according to how certain a dismissal would be and how quickly you need the separation.

Your next step

A termination agreement is the right tool where, in the end, it also holds. That depends less on the price than on the route: a meeting on the premises, a genuine alternative, time to reflect, the notice period observed, written form satisfied. For businesses I prepare the offer, draft the agreement with all its ancillary points, and sit in on the meeting if you wish, nationwide, by video or by telephone. You can read how I represent employers in employment law on my topic page. Tell me who you want to let go and on what terms; I will tell you what the agreement has to contain and what it will cost.

This article provides general information and is no substitute for legal advice in an individual case. Last updated: 2026-10-22.

Christian Czirnich, Rechtsanwalt (attorney at law), Kirchseeon near Munich

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