A Mutual Termination Agreement Instead of a Dismissal—Opportunity or Risk?

When an employment relationship is to be terminated, employers often offer a mutual termination agreement—often claiming that this is “better than a dismissal.” But is that really true? In this article, you’ll learn what a mutual termination agreement entails, what pitfalls to watch out for—and how to protect yourself legally.

---

A severance agreement can be a fair solution—if it’s negotiated properly. However, without legal advice, you risk financial disadvantages. Be sure to seek advice early on, before you sign the agreement.

---

1. What is a termination agreement?

A termination agreement is a mutual termination of the employment relationship between an employer and an employee. It replaces a notice of termination and must be concluded in writing (Section 623 of the German Civil Code).

2. Advantages over termination

A termination agreement can be useful if used strategically.

Typical advantages include:

• flexible termination of the employment relationship;

• agreement on a severance payment;

• arrangements regarding leave of absence and remaining vacation days;

• influence over the content and evaluation of the employment reference.

  
  

However, it is crucial:

These points do not arise automatically—they must be actively negotiated.

3. But be careful: there’s a waiting period for unemployment benefits!

The major risk: If you sign the contract voluntarily, the Employment Agency may impose a waiting period of up to 12 weeks for unemployment benefits

.

Important: A waiting period can only be avoided if you can prove that you had a “valid reason” for signing the contract—e.g., imminent termination for operational reasons.

4. Don't let yourself be pressured

Once signed, the contract is binding—it can only be challenged in rare, exceptional cases. Therefore, be sure to have the contract reviewed in advance, especially if it involves severance pay, a non-compete period, or provisions regarding employment references.

---

A settlement agreement can be a very good solution.

Or a very expensive one.

The difference almost always lies in the preparation and negotiation.

If you have a termination agreement in hand or one has been proposed, it’s advisable to assess the situation early on. Once a concrete offer is on the table, time pressure often arises. It’s worth knowing your own position before you sign.

I offer a brief, free initial assessment (10–15 minutes) for this purpose. During this conversation, we’ll clarify what options are available and what you should focus on right now.

---