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Severance pay questions

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Hello TT! 

 

Due to recent economic turmoil the company that I work for might be looking at some layoffs. I've been looking in the internet but found sometimes contradictory statements. 

 

.1. Is the employee entitled to any severance pay as per German law? 

I see - from what I read - that it is "common" that the employee gets half salary for each year of work. However, if that is the case, why it is "common" to do so? (I doubt the companies are doing this from the goodness of their heart). 

 

.2. Is the compensation tied to last salary or average salary?

The reason why I ask is because the company offers the option to work less hours for less money. However, this may work in employee disadvantage in case of a layoff (lower salary due to reduce work time). Is this the case? 

 

Thank you.

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You are not really entitled to anything, but it is common they offer you some money so you go without making a fuss, specially in big companies where actually firing people might be not so easy.   If it is a big company they can't just say WanWhiteWolf and Krieg have to go.   Instead they will have to cancel two positions due to operational reasons, then they will have to do a social plan and everyone working doing the same as those two positions will get some social points (the points depends on age, years in company and number of dependents).  The two people with lowest points will have to go.   (In case the management wants to "protect" someone with low score in the social points, they are allowed to protect 10% of the employees in the social plan).

 

So, since all of that is a hassle and they might end up having to let go the "wrong" people they might just instead offer some money to the actual people they want to get rid of.    That compensation is done via an Aufhebungsvertrag, in which the employee leaves the company amicable and the company gives some compensation money, which is usually half a month bruto salary for every year or work, but some companies might offer more.    You have to consider if the workers council has already some compensation agreement signed, in that case, even if you are the chosen one after a social plan, you still get money, and sometimes the money is the same as what they offer in the Aufhebungsvertrag, so it might be better just waiting to be retrenched.   But sometimes they offer you as well garden leave (Freistellung) for all the notice period (Kündigungsfrist) to sweeten the deal and convince you to go, for example if you have 6 months notice period, you just stop working now and they pay you your salary for the next 6 months and give you the severance package at the end.

 

If you are let go, you can go to a lawyer and file a disagreement (Klage) and then you go to court, your company might offer you even more money to convince you to go, or if no agreement is reached the judge decides the outcome of the situation.   For this it is recommended to have lawyer insurance.  Actually if you do not have lawyer insurance yet, it would be a good idea to sign one now and to pray nothing happens until the cooling period finishes.   Employee vs employer is one of the few situations in which each party pays his own legal costs and it does not matter who wins.

 

And because sometimes companies do what they want, they might fire you without going through all the process, for this you can as well obviously file a Klage and fight it back if you want.

 

 

P.S., the severance package money is heavily taxed, so you have to consider that as well, with some tricks you will have to pay "only" one third of it in taxes.  And then it will count as income for your fiscal year, so it is very bad to receive it at the end of the year.  And it is bad as well to receive it at the beginning of the year and start working again right away in a new job.   Best scenario at this time of the year is to postpone the payment if possible to January (companies are open to this) and then to take some long "holidays" before finding a new job.

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