Severance pay
Severance pay / Abfindung
April 01, 2026
Severance pay is a monetary payment made in connection with the termination of an employment relationship. Under German employment law, however, there is no general statutory entitlement to severance pay. In practice, severance pay is usually agreed by contract or negotiated in the course of an unfair dismissal claim. What matters, therefore, is not expectation, but the specific legal position, applicable deadlines, and the right negotiation strategy.
When is there an entitlement to severance pay?
The termination of an employment relationship does not automatically give rise to severance pay. Whether there is an entitlement depends on the legal basis on which the payment is claimed.
Most commonly, severance pay is agreed by mutual consent, in particular in a termination agreement or a settlement agreement following termination. In such cases, the payment does not arise automatically by law, but through negotiation. The decisive factors are the strength of the grounds for termination, the risks each side faces, and the economic interests connected with ending the employment relationship.
In employment practice, many severance payments also arise only after notice of termination has been given and an unfair dismissal claim has been filed. The subject of those proceedings is not the severance payment itself, but whether the dismissal is legally effective. It is precisely this uncertainty that often creates the basis for agreeing termination in return for a severance payment.
A statutory entitlement exists only in exceptional cases. Under sec. 1a of the German Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz – KSchG), an entitlement to severance pay may arise if the employer dismisses the employee for urgent operational reasons, expressly refers to the severance payment in the notice of termination, and the employee allows the time limit for bringing a claim to expire. In practice, this scenario is far less common than is often assumed.
How much is severance pay?
There is no general statutory standard amount of severance pay. As a rule, the amount is a matter of negotiation. It depends in particular on how vulnerable the dismissal is to challenge, how long the employment relationship lasted, the level of remuneration, and the relative bargaining position of the parties.
As a rough guideline, severance pay is often calculated on the basis of half a gross monthly salary per year of service. However, this formula is only a rule of thumb. It does not replace a legal assessment of the individual case. Depending on litigation risk, special dismissal protection, errors in the social selection process, or the employer’s economic interest in termination, the severance payment may be significantly higher or lower.
For the special case under sec. 1a para. 2 KSchG, the following applies: the severance payment amounts to 0.5 monthly earnings for each year of the employment relationship. A period of more than six months is rounded up to a full year.
In which cases is severance pay typically paid?
Severance pay is particularly relevant in three typical constellations.
Severance pay in a termination agreement
A termination agreement ends the employment relationship by mutual consent. In many cases, severance pay is agreed in order to financially compensate for the loss of employment and to offset the waiver of dismissal protection rights. Employees should be particularly cautious here. Anyone who signs too quickly often gives up substantial room for negotiation.
Severance pay after dismissal and legal action
If notice of termination has been given and is challenged in time by filing an unfair dismissal claim, proceedings often end in a court settlement. In that case, severance pay forms part of a broader agreement. Other issues such as a reference letter, garden leave, outstanding holiday, bonus claims, or the return of company property are also regularly addressed.
Severance pay in restructuring and redundancies
Severance pay is also frequently offered in connection with restructurings, site closures, or redundancy measures. This is particularly the case where employers seek to implement separations in a predictable and low-conflict manner. In such situations, affected employees should examine whether the offer accurately reflects their actual employment-law position.
Which deadlines must you observe?
In employment law, deadlines often determine the economic outcome of the entire matter. This also applies to severance pay.
After receipt of a notice of termination, an unfair dismissal claim generally must be filed within three weeks, sec. 4 sent. 1 German Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz – KSchG). If this deadline is missed, the dismissal is generally deemed legally effective. Anyone who merely hopes for a better severance offer and lets the deadline expire will often seriously weaken their negotiating position.
A termination agreement also requires careful timing. Although the same strict statutory claim deadline does not usually apply as in dismissal cases, the risk is precisely that an economically and legally disadvantageous agreement may be signed too quickly.
What practical risks are there?
No general entitlement to severance pay
One of the most common misconceptions is that every dismissal automatically gives rise to severance pay. That is not the case. Anyone who assumes otherwise will regularly underestimate the importance of obtaining legal advice at an early stage.
Waiting period for unemployment benefits
Anyone who enters into a termination agreement or actively contributes to ending the employment relationship must expect that the Employment Agency may impose a waiting period for unemployment benefits. This consequence may be economically more significant than the severance payment itself. For that reason, not only the amount of the payment, but also the social security consequences should be carefully reviewed.
Severance payment too low
Not every severance offer is appropriate. The decisive question is not whether the amount appears acceptable at first glance, but whether it properly reflects the actual bargaining position. Key factors include the effectiveness of the dismissal, possible errors in the social selection process, any special dismissal protection, and other economically relevant side issues.
Unclear ancillary provisions
Severance pay is rarely the only decisive point. In many cases, issues such as garden leave, payment in lieu of holiday, bonus payments, company car arrangements, references, post-contractual restrictive covenants, or confidentiality clauses are equally important. Anyone focusing only on the severance amount will often overlook the real risks.
How does severance pay differ from a termination agreement?
Severance pay is not the same as a termination agreement. The termination agreement is the agreement by which the employment relationship is ended. Severance pay is merely one possible provision within that agreement.
This distinction is important in practice. There are termination agreements without severance pay. Conversely, severance pay may also be agreed outside a termination agreement, for example in a court settlement following an unfair dismissal claim.
What should you review when you receive a severance offer?
Anyone who receives a notice of termination, a termination agreement, or any other separation offer should in particular review the following points:
- Is there any actual entitlement to severance pay?
- How vulnerable is the dismissal to challenge?
- Which deadlines are already running?
- Is there a risk of a waiting period for unemployment benefits?
- Are the reference, garden leave, bonuses, holiday entitlements, and other ancillary issues properly regulated?
- Does the offer adequately reflect the actual bargaining position?
Early review is regularly decisive, especially in long-term employment relationships, for executives, or in economically sensitive separation scenarios.
Conclusion
In German employment law, severance pay is not an automatic consequence of termination, but usually the result of negotiation or a procedural settlement. There is no general statutory entitlement. Whether and in what amount severance pay can be achieved depends above all on the effectiveness of the dismissal, the applicable deadlines, the bargaining position, and the social security consequences. Anyone who receives a notice of termination or a termination agreement should therefore review the legal and economic implications at an early stage. Contact us.
* If, for reasons of readability, we use only the generic masculine or the generic feminine in future, this expressly includes all genders.