Germany: Termination Agreement for Immediate Acceptance – Requirement of Fair Negotiation
In the case at hand employer and employee disagreed as to whether their employment relationship had been validly dissolved by means of a termination agreement. The employee and later plaintiff was employed as sales team coordinator. The employer accused the employee of manipulating purchase prices in the computer system to pretend a higher sales profit. At the end of 2019, a meeting was held to discuss these allegations. The managing director of the employer, the employee and her lawyer were present at this meeting. After a break of ten minutes, during which the three persons sat at the table in silence, the employee signed a termination agreement prepared by the employer. The termination agreement provided for a mutually agreed termination of the employment at the end of the month.
The employee later went to court, claiming the employment relationship continues beyond the termination date stipulated in the termination agreement. She claimed to have been threatened with extraordinary dismissal and the filing of criminal charges if she did not sign the termination agreement. Her request to think about the termination agreement and seek further legal advice had been denied.
However, the court found that the employment relationship had been effectively terminated by the termination agreement. In particular, the Federal Labour Court did not see any violation of the principle of fair negotiation with regard to the termination agreement. If this principle is violated, a termination agreement is considered invalid if challenged. This is the case, for example, if the employer visits the sick employee at home unannounced and takes advantage of a weakening due to illness to conclude a termination agreement.
In the case at hand, the court found the threat of the employer towards the employee with further legal consequences, in particular extraordinary dismissal, to have been legitimate. The employer was allowed to seriously consider both the extraordinary dismissal and criminal charges in light of the facts of the case. In the opinion of the court, the employee’s freedom of decision with regard to the termination agreement was not violated by the fact that the employer only submitted the termination agreement for immediate acceptance and the employee therefore had to make an immediate decision.
With this ruling, the Federal Labour Court has specified the requirement of fair negotiations in case of negotiating termination agreements. Presenting a termination agreement to the employee for immediate acceptance does not per se violate the principle of fair negotiations. Exceptions apply if the employee is in a weaker position, e.g. due to sickness. To be on the safe side, it remains recommendable to allow the employee a few days to consider the offer and seek legal support. This reduces the risk that the employee later regrets the decision to sign the agreement and tries to challenge it. Employers may also communicate towards the employee that they will take further legal action if the employee does not accept the termination agreement, as long as this further action seems reasonable considering the facts of the case.
Key Action Points for Human Resources and In-house Counsel
- Only in exceptional cases, signed termination agreements can retroactively be considered invalid due to a violation of the principle of fair negotiations. In particular, employers may not threaten or deceive the employee during the negotiation process. However, communicating to the employee that criminal charges will be filed and/or an extraordinary termination will be issued in case the termination agreement is not accepted is permissible if such measures seem reasonable considering the facts of the case.
- When negotiating a termination agreement, employers do neither have to deny their own interests nor create a particularly pleasant negotiation atmosphere. Negotiations do not have to be announced in advance and offers can also be made for immediate acceptance only. However, the safest approach is to grant the employee a few days to consider the offer and seek legal advice.