Severance payments
I am very frequently confronted with the following question by employees:
"I have received a termination notice - how much is my severance pay?"
Conversely, employers ask: "What will it cost me if I want to fire my employee?"
It should be noted that German dismissal law – unlike Luxembourgish employment law – does not recognize a statutory right to severance pay. However, most unfair dismissal claims end with settlement agreements.
The employee accepts the validity of a dismissal and in return receives compensation for the loss of their job – a severance payment. Apart from the rare cases of a court-ordered termination with severance pay and severance claims based on a social plan, severance payments are always the result of amicable agreements.
The employer pays severance to avoid the financial risk of lengthy litigation and the potential obligation to continue employing the employee. Depending on the circumstances and the likelihood of success in any potential lawsuit, this severance payment may be higher or lower than the so-called rule of thumb (number of years of service x half gross salary). If the court deems the dismissal legally valid, the employer does not owe any severance payment at all.
