By Jakob Krueger, Firm: kliemt.de 

A termination agreement can be an effective way to end an employment relationship, but employers need to keep a number of legal requirements in mind: this article sets out five key points.

In comparison to one-sided termination by employer, a termination agreement can be an effective means of ending the employment relationship. In addition to the essential requirement that an agreement on termination must be reached between the employer and the employee, there are a number of other points that must be observed in practice. In this following article, we will give an overview of fundamental and current focal points to take into account in concluding termination agreements.

Written form

Before we come to questions regarding the content of the termination agreement, an agreement in writing is a basic prerequisite for a termination agreement to be valid. A termination agreement is only effective if it fulfils the requirement for written form according to s623, 126 of the German Civil Code (‘BGB’).This includes not only a requirement that the termination agreement is recorded in a separate document, but also that it is signed by both parties personally. Signing in this case means a handwritten signature - ‘wet ink’. Electronic signatures or other alternatives cannot be used in this context.

GTC restrictions in standard form termination agreements

The general terms and conditions (‘GTC’) restrictions in s305 et seq. BGB applies to termination agreements. The German Civil Code will apply unless the terms of the contract were seriously negotiated. However, the main obligations, that is, termination of the employment relationship and a possible severance payment as well as the amount, are not subject to content control. Further regulations in a termination agreement are subject to GTC restrictions if they are model termination agreements. This does not depend on the repeated use of the contract, from the very first use of the agreement the conditions for GTC control can apply.

Revocation, rescission, withdrawal

The general rules for rescission (s123 BGB), and withdrawal (s323 BGB) apply to termination agreements. Again and again, the question arises as to whether the consumer law revocation provisions, s312 et seq. BGB, apply to termination agreements. The Federal Labour Court has opposed this. When negotiating termination agreements, however, the requirement for fair negotiation must be observed.

Post-contractual non-compete clause

If a post-contractual non-compete clause has been agreed with the employee, its fate should be established in the termination agreement. The aim must be a clear and unambiguous regulation between the parties on how to proceed in connection with the termination of the non-compete obligation. They can consider continuing, cancelling or amending a post-contractual non-compete clause.

Business and trade secrets

The inclusion of non-disclosure agreements in termination agreements is often only declaratory in nature, since this obligation already arises from the employee's post-contractual duty of loyalty. Under the new Trade Secrets Act, there are now more far-reaching and concrete regulatory options that go beyond the mere post-contractual duty of fiduciary care. In this respect, the question of whistleblowers should not be underestimated, in particular the implications of the new EU legal protection of whistleblowers.

Conclusion

The five elements above represent only a small part of what has to be considered and regulated in a termination agreement. Ultimately it always depends on the individual case. Further provisions could be needed, for example relating to, gratuities, profit sharing, vacation, expenses, company car, loans, firm documents, certificates, retention rights, certificates of employment, complaint procedures and an outplacement consultation. Employers are therefore well advised to always keep in mind a ‘termination agreement checklist’.