Termination Agreement (Aufhebungsvertrag) – Definition, Requirements & HR Tips

A termination agreement (Aufhebungsvertrag) ends an employment relationship by mutual written consent between employer and employee – without notice of termination and without observing statutory notice periods. It offers both parties planning certainty, but carries the risk of a temporary suspension of unemployment benefits for the employee. HR professionals should draft termination agreements in a legally sound manner and always allow employees adequate time to consider before signing.

What Is a Termination Agreement?

A termination agreement (Aufhebungsvertrag, also referred to as Auflösungsvertrag or Auflösungsvereinbarung) is a written agreement through which employer and employee jointly and voluntarily settle the ending of the employment relationship at a specified date. Unlike a dismissal, it is not a unilateral declaration – it is a mutual contract requiring the consent of both parties.

The legal basis is §623 of the German Civil Code (BGB), which mandates written form for the termination of employment relationships. A verbally concluded termination agreement is therefore invalid – both parties must sign the document by hand.

In practice, termination agreements are commonly used when both sides wish to part ways amicably – for example, during operational restructuring, in cases of personal conflict, or when an employee wants to move on without waiting out their notice period.

Termination Agreement vs. Dismissal – Key Differences

The key advantage of a termination agreement from an HR perspective: it is fast, flexible, and avoids the complex dismissal protection procedure. The key disadvantage from the employee's perspective: statutory employment protection does not apply – and the risk of an unemployment benefit suspension is real.

Mandatory Content: What Must a Termination Agreement Include?

To ensure a termination agreement is legally valid, certain points must be addressed. The following checklist supports HR professionals in drafting the document:

Formal Requirements

Under §623 BGB, written form is mandatory. This means:

• Both parties must sign the document by hand
• An email or WhatsApp message is not sufficient
• Electronic form (qualified electronic signature under §126a BGB) is only permissible in exceptional cases where the employment contract contains no written form clause

Checklist: Provisions Every Termination Agreement Should Include

Mandatory information:

• Date of termination of the employment relationship
• Confirmation that the separation is mutually agreed

Strongly recommended provisions:

• Severance pay: Amount, due date, tax treatment
• Garden leave / release from duties: Paid or unpaid release until the termination date
• Holiday compensation: Compensation for remaining holiday entitlement in cash (§7 para. 4 BUrlG) or through paid leave
• Employment reference: Type of reference (basic or qualified), agreed overall grade
• Full and final settlement clause (Generalquittung): Both parties declare that no further mutual claims from the employment relationship exist
• Return of company property: Laptop, company car, access credentials
• Non-compete clause: If applicable, with compensation for the restraint period (§74 HGB)
• Confidentiality: Obligation to keep the terms of the agreement confidential

HR tip: If the holiday provision is missing, the company automatically owes financial compensation for untaken leave. If the full and final settlement clause is absent, future claims cannot be excluded.

Severance Pay in Termination Agreements

When Is There an Entitlement?

There is generally no statutory entitlement to severance pay in the context of a termination agreement. An exception is provided by §1a KSchG: if the employer issues an operational redundancy notice and simultaneously waives the right to contest the dismissal in court, a statutory severance entitlement arises. However, this applies to the dismissal – not automatically to a termination agreement.

In practice, severance pay is nonetheless frequently part of negotiations, as employees waive the right to pursue an unfair dismissal claim and give up certain protective rights in exchange for the mutual separation.

How Much Severance Pay Is Appropriate?

There is no legally prescribed formula. The following rule of thumb has established itself in practice:

0.5 gross monthly salaries per year of service

For an employee with 10 years of service and a monthly salary of €4,000, this would equate to a severance payment of €20,000 (gross). The actual amount is a matter of negotiation and depends, among other things, on:

• Length of service
• Negotiating position of both parties
• Likelihood of an unfair dismissal claim
• Applicable collective agreements or social plans

Tax note: Severance payments are generally taxable but may under certain circumstances benefit from the one-fifth rule (Fünftelregelung, §34 EStG). HR professionals should recommend that employees seek individual tax advice.

Unemployment Benefit Suspension – What HR Professionals Need to Know

This is the aspect that concerns employees most when considering a termination agreement – and one that HR professionals should be well informed about.

Anyone who signs a termination agreement has actively contributed to the ending of their employment. Under §159 SGB III, the Federal Employment Agency (Bundesagentur für Arbeit) therefore generally imposes a 12-week suspension period, during which no unemployment benefit (ALG I) is paid. Additionally, the overall entitlement period for unemployment benefit may be reduced.

When Is the Suspension Waived?

The suspension can be waived or shortened if a "good cause" (wichtiger Grund) exists. Recognised grounds include:

• An operational redundancy dismissal was imminent (and would have been unavoidable)
• The termination agreement contains wording indicating a threatened operational redundancy
• Health reasons made continuation of the employment relationship unreasonable
• A relocation to be with a life partner was the primary reason

HR recommendation: When a termination agreement is concluded in the context of operational measures, the agreement should include appropriate wording – for example: "The parties agree that the termination of the employment relationship is due to operational reasons." This can significantly reduce the risk of a suspension period for the employee.

Important: HR professionals should inform employees of the suspension risk before signing. Failure to do so may expose the company to contestation claims.

Cooling-Off Period and Withdrawal – What Applies?

In Germany there is no statutory minimum cooling-off period for termination agreements. However, the Federal Labour Court (Bundesarbeitsgericht) has repeatedly held that employers may not pressure employees into signing immediately during a meeting (BAG, 07.02.2019 – 6 AZR 75/18). Anyone who surprises an employee, applies pressure, and demands an immediate signature risks the contestability of the agreement on grounds of unlawful duress or fraudulent misrepresentation (§123 BGB).

HR recommendation: Allow at least one week for consideration. For complex agreements, two weeks is appropriate. Actively inform employees that they have the right to seek independent legal advice.

There is generally no statutory right of withdrawal from a termination agreement. Exceptions apply only where contestability is established (duress, misrepresentation, error).

Frequently Asked Questions about Termination Agreements

What is the difference between a termination agreement and a dismissal?

A dismissal is a unilateral declaration – either by the employer or the employee. A termination agreement is a mutual arrangement: both parties must consent. The most important practical difference: statutory employment protection does not apply to a termination agreement. Employees who enjoy special protection – for example due to pregnancy, severe disability, or works council membership – waive that protection by signing.

Does a termination agreement always result in an unemployment benefit suspension?

In principle, yes. Under §159 SGB III, the Federal Employment Agency generally imposes a 12-week suspension period, as the employee has actively contributed to the end of their employment. The suspension can be waived if a good cause exists – for example, a threatened operational redundancy. The termination agreement should contain appropriate wording in such cases.

What must be included in a termination agreement as a matter of law?

Under §623 BGB, written form with handwritten signatures from both parties and the termination date are mandatory. The following should also be addressed: severance pay, release from duties, holiday compensation, employment reference, and a full and final settlement clause. Missing provisions can lead to later disputes.

How much time for consideration are employees entitled to?

There is no statutory minimum cooling-off period. However, the Federal Labour Court requires that employees be given sufficient time to reflect and seek legal advice. In practice, HR professionals should allow at least one week – this also protects the company against contestation claims.

Are employees entitled to severance pay?

There is no general statutory entitlement. Under §1a KSchG, a severance entitlement only arises if the employer threatens an operational redundancy dismissal and the employee refrains from bringing a claim. In practice, severance pay in the context of a termination agreement is frequently negotiable – the common rule of thumb is 0.5 gross monthly salaries per year of service.

Can a termination agreement be withdrawn?

Generally no – there is no statutory right of withdrawal. Contestation is possible if the agreement was concluded through unlawful duress, fraudulent misrepresentation, or a material error (§§119 ff., 123 BGB). The risk of a successful contestation increases if the employee was caught off guard and pressured into signing immediately.

What happens to the employee's holiday entitlement?

Any remaining holiday entitlement that cannot be taken before the termination date must be compensated (§7 para. 4 BUrlG). The termination agreement should explicitly state whether remaining holiday will be granted through paid release from duties or paid out in cash. If no provision is made, the employee automatically acquires a financial claim.

Does the employer need the works council's approval?

No. The works council has no co-determination rights regarding the conclusion of individual termination agreements. A works council consultation under §102 BetrVG is not required. Exception: when large numbers of termination agreements are offered simultaneously as part of mass redundancies, consultation obligations may arise.

Conclusion

The termination agreement is a flexible and widely used instrument for ending employment relationships by mutual consent. For HR professionals, the guiding principle is: legal certainty comes first. A well-drafted termination agreement addresses all relevant aspects – from severance pay and holiday compensation to the full and final settlement clause – grants employees adequate time to consider, and, where the separation is operationally motivated, includes appropriate wording to avoid the unemployment benefit suspension.

Handling termination agreements professionally and respectfully protects the company from legal risks while preserving a fair culture of separation – an important factor for employer branding.

Would you like to design your recruiting and HR processes using scientifically validated methods? Visit the Aivy HR Lexicon for further practice-oriented articles on HR topics and employment law.

Sources

• §623 BGB – Written form for termination of employment. Federal Ministry of Justice, 2024. https://www.gesetze-im-internet.de/bgb/__623.html
• §159 SGB III – Suspension of benefits (Sperrzeit). Federal Ministry of Justice, 2024. https://www.gesetze-im-internet.de/sgb_3/__159.html
• §1a KSchG – Severance pay entitlement for operational redundancy. Federal Ministry of Justice, 2024. https://www.gesetze-im-internet.de/kschg/__1a.html
• §7 BUrlG – Holiday entitlement and compensation. Federal Ministry of Justice, 2024. https://www.gesetze-im-internet.de/burlg/__7.html
• Information Leaflet 1 for Unemployed Persons – Suspension periods and obligations. Federal Employment Agency (Bundesagentur für Arbeit), 2024. https://www.arbeitsagentur.de/datei/merkblatt-1-fuer-arbeitslose_ba015368.pdf