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ΕλληνικάIs there a right to severance pay?
No — in Germany, there is fundamentally no legal entitlement to severance pay upon termination. Many people believe this, but it is a widespread misconception.
However, in practice, many employees receive severance pay. Why?
When is severance pay paid?
| Situation | Severance Pay? |
|---|---|
| Settlement agreement | Often — as an incentive to leave voluntarily |
| Wrongful termination lawsuit — settlement | Very often — employer wants to avoid litigation risk |
| § 1a KSchG — offer in termination notice | Legally provided (0.5 monthly salary/year) |
| Social plan | Yes — in case of mass layoffs, negotiated between works council and employer |
| Collective bargaining agreement | Sometimes — some agreements provide for severance |
| Regular termination (without lawsuit) | Usually no |
How much is typical severance pay?
The rule of thumb
The common formula is:
0.5 gross monthly salary × years of employment
Calculation example
- Monthly salary: €4,000 gross
- Years of employment: 8 years
- Severance: 0.5 × €4,000 × 8 = €16,000
What determines the amount?
| Factor | Higher Severance | Lower Severance |
|---|---|---|
| Reason for termination | Weak justification | Strong reason (e.g., theft) |
| Litigation risk | Termination likely invalid | Termination likely valid |
| Age | Older employee (hard to place) | Younger employee |
| Employment duration | Long tenure | Short tenure |
| Company size | Large company | Small company |
| Industry | Financial sector, automotive | Hospitality, retail |
In practice, severance pay typically ranges from 0.25 to 1.5 gross monthly salaries per year of employment — sometimes higher.
Wrongful termination lawsuit — the path to severance
Why sue?
If your termination could be unlawful (e.g., improper selection for redundancy, weak grounds), you can file a wrongful termination lawsuit with the labor court.
Important deadline: 3 weeks!
You must file the lawsuit within 3 weeks of receiving the termination notice — otherwise the termination is valid, even if it was unlawful!
Procedure
- Receive termination → contact attorney immediately
- File lawsuit (within 3 weeks)
- Settlement conference — approximately 2–4 weeks after filing, judge attempts reconciliation
- Settlement — in approximately 60% of cases, parties agree on severance
- Judgment — if no settlement: hearing (after 3–6 months)
Costs
| Item | Cost (example: €4,000 salary, €16,000 severance) |
|---|---|
| Attorney fees (first instance) | approximately €2,000–3,000 |
| Court costs (in case of settlement) | €0 (no court costs with settlement!) |
| Legal aid | If low income: free |
| Legal expense insurance | Covers all costs (if employment law protection included) |
Tip: Legal expense insurance must be obtained before the conflict arises!
Severance pay and taxes
Severance pay is taxable
Severance pay is regular income and must be taxed. However, there is the one-fifth rule (§ 34 EStG), which reduces tax liability.
One-fifth rule — how it works
Severance pay is taxed as if you had received it over 5 years:
- Your normal annual income: €48,000
- Severance: €20,000
- Without one-fifth rule: Tax on €68,000 → higher tax rate
- With one-fifth rule: Tax on €48,000 + €4,000 (1/5 of severance) = €52,000, additional tax × 5
- Savings: often several thousand euros
Since 2025: The one-fifth rule is no longer automatically applied by the employer, but only in your tax return. Plan for the tax accordingly!
Severance pay and social insurance
- No social contributions on severance (no health, pension, or unemployment insurance)
- No employer contribution — severance is exempt from social insurance
Severance pay and unemployment benefits
Avoid waiting periods
If you sign a settlement agreement, the employment agency typically imposes a 12-week waiting period — you receive no unemployment benefits.
Exceptions: No waiting period if:
- You faced termination anyway (for operational reasons)
- The severance does not exceed 0.5 monthly salary per year of employment
- The notice period is observed
Benefit suspension period
If the severance is very high and the notice period is not observed, a benefit suspension period may be imposed (unemployment benefit eligibility is delayed, but not reduced).
Settlement agreement — what to check?
Before signing, verify
- [ ] Severance amount — adequate? (at least 0.5 salary per year)
- [ ] Paid leave — will you be paid through the end?
- [ ] Work reference — is a "good" or "very good" reference agreed upon?
- [ ] Accrued vacation — is unused vacation time paid out?
- [ ] Overtime — are outstanding overtime hours paid?
- [ ] Non-compete clause — is there compensation for a restriction?
- [ ] Severance payment date — when will severance be paid?
- [ ] Waiting period — is the wording worded to avoid a waiting period?
Take your time!
You do not have to sign a settlement agreement immediately. Take it home and have an attorney review it. The employer must give you reasonable time to consider.
Tips for foreigners
- Know the 3-week deadline — contact an attorney immediately upon receiving termination
- Legal expense insurance — employment law protection is worthwhile (approximately €15–25/month)
- Trade union — as a member you receive free legal advice on employment law
- Don't rush to sign a settlement agreement — always seek advice first
- Check your residence status — termination can affect your status (work permit, Blue Card EU)
As of March 2026. All information without guarantee.