In Germany, employees frequently refuse to sign separation agreements for fear that the Employment Agency (Agentur für Arbeit) will disqualify them from receiving unemployment benefits. A revision of the Employment Agency's internal directives has created some new leeway.

Background

A disqualification period may be imposed in any case in which the unemployed person "terminated the employment relationship or gave cause for the termination of the employment relationship by acting in breach of the employment contract and thereby brought the unemployment about intentionally or by gross negligence." (Section 159 (1) of the German Code of Social Law III (SGB III)). However, a disqualification period is not imposed if the employee had "good cause" for leaving the job.  In some ways, this treatment is comparable to the U.S. concept of “constructive discharge,” which is recognized and applied by agencies and courts in a number of settings.

What Constitutes "Good Cause"?

The legislature has not provided a definition for what establishes "good cause." According to the jurisdiction of the Federal Social Court, good cause is given if, following an informed consideration of the interests of the insured's community, the employee could not reasonably have been expected to continue in the employment relationship, as this would have unduly damaged the employee’s interests.

Previous Directives of the Employment Agency

The Employment Agency has issued directives on assessing whether a disqualification period should be imposed. These are binding on the case workers who determine whether a disqualification period is warranted, but not on the courts. Nevertheless, these directives provide specific decision-making assistance with regard to the design of termination agreements. According to previous directives, no disqualification period should be imposed if:

• the employee had been led to expect that he or she would be terminated through a layoff,
• at the employer’s instigation, the separation agreement did not terminate the employment relationship prior to the expiration of the ordinary notice period,
• the employee did not have special protection against dismissal, and
• the expected termination would have been considered "socially justified."

The "social justification" of the hypothetical termination is assumed, according to the internal directive, if the employee receives severance pay of 25-50% of his gross monthly salary per year of employment.

"Personal reasons" for leaving employment are sufficient only if the employee is unable to continue carrying out the work activities for health reasons, which can be proven by medical certificate.

A termination of the employment relationship by way of judicial settlement should not, according to the internal directive, trigger a disqualification period if the conclusion was not preceded by conduct in breach of the employment contract, i.e., a dismissal for misconduct. For this reason, employee representatives press for termination by the employer and termination of the employment by judicial settlement, the latter including no conduct-related reasons (instead, citing "redundancy" or "operational" reasons for termination), prior to a termination by common consent.

New Directive

As of January 25, 2017, the Employment Agency no longer insists on the lower limit for severance payments of 25% of gross monthly salary per year of employment. Going forward, no disqualification period is to be imposed if:

• the employee was definitely threatened with termination by the employer;
• this impending termination was based on operational or personal (but not conduct-related) reasons;
• the notice period was observed;
• the employee did not have special protection against dismissal, and
• the employee – in reference to Section 1a of the German Employment Protection Act (KSchG) – is paid severance of a maximum of 50% of gross monthly salary.

Conclusion

The updated directive gives employees and employers greater leeway in settling an out-of-court severance without a disqualification period. Therefore, no minimum severance pay has to be paid in order to avoid a disqualification period. Personal reasons (including termination for health reasons) are possible grounds for leaving the job, alongside operational reasons. In contrast to termination for conduct-related reasons, which always triggers a disqualification period, termination by judicial settlement as a rule continues not to trigger disqualification.