Negotiating severance pay: how to get the maximum out of it

Is there actually a right to severance pay?

Let’s start with the most important and most overlooked truth: in Germany, there is no general legal right to severance pay (Abfindung) just because you’ve been dismissed. Anyone who believes a certain amount is automatically owed after a dismissal negotiates from a false assumption, and loses.

There are only a few exceptions where a right arises from the law or an agreement:

• Offer under § 1a KSchG: If, in an operational dismissal, your employer expressly offers severance pay on condition that you don’t file an unfair dismissal claim, a right arises amounting to half a month’s salary per year of employment. But this is an offer from your employer, not an automatic entitlement.
• Social plan (Sozialplan): In a business change involving a works council (Betriebsrat), a social plan can provide for severance payments. It sets minimum standards for everyone affected.
• Court dissolution order (§§ 9, 10 KSchG): If the dismissal is invalid but continuing the employment relationship is unreasonable, the court can dissolve it in return for a severance payment. A rare special case.
• Individual or collective agreement: Sometimes severance pay is promised under an individual contract or collective agreement.

In the vast majority of cases, none of these exceptions apply. And yet severance payments are made every day. The reason: they’re negotiated.

How severance pay really comes about

A typical severance payment is the result of a settlement in unfair dismissal proceedings. The mechanism behind it is simple: after a dismissal, you file an unfair dismissal claim in time. This puts the possibility that the dismissal is invalid on the table. If the employer loses the case, they must continue employing you and may have to back-pay wages for the entire duration of the proceedings (employer’s default of acceptance). Hardly any employer wants to carry that risk.

So the employer buys their way out. Both sides agree on a clean ending: the employment relationship ends on a set date, and severance pay is handed over in exchange. Severance pay is therefore neither a gift nor a statutory compensation, but simply the price the employer pays, within a settlement, for a secure, predictable end to the employment relationship. The greater their risk of losing the case, the higher the price.

This also explains why the amount varies so much. It doesn’t depend on a formula, but on a sober risk assessment. This is exactly where skilful negotiation comes in.

The three decisive levers

1) The unfair dismissal claim as leverage

The most important lever is the claim itself. It turns a non-binding request for severance pay into a real economic risk for your employer. Without a claim, they have little reason to pay anything. The three-week deadline is crucial: from receipt of the written dismissal, you have only three weeks to file a claim with the labour court (§ 4 KSchG). If the deadline passes, the dismissal is deemed valid, and your strongest lever is lost. Our deadline calculator can tell you exactly how much time you have left, down to the day.

How vulnerable the dismissal is determines how strong this lever is. Strong points of attack include a flawed or missing works council consultation, a questionable social selection (Sozialauswahl) in an operational dismissal, a missing warning notice (Abmahnung) for conduct-related accusations, or a thin justification. Every error increases your employer’s litigation risk, and with it, your severance pay.

2) Timing

In employment law, time is money, and it works against both sides. For you, the deadline to file is ticking, which forces quick action. For the employer, cost risk is ticking instead: the longer proceedings drag on, the higher the potential back-pay for default of acceptance, and the greater the uncertainty. The conciliation hearing, which the labour court usually schedules just a few weeks after the claim is filed, is therefore the classic moment for a settlement.

The end date is also negotiable. A later end date extends your salary payments, secures entitlements, and can pay off on top of the severance itself. Conversely, an employer who wants matters settled quickly may be willing to pay more for an earlier end date.

3) The social plan

If a larger company draws up a social plan due to a business change, it usually includes a formula for severance payments. Important: a social plan sets minimum standards, not a ceiling. It doesn’t rule out an individual unfair dismissal claim. If your dismissal is also vulnerable to challenge, a settlement can produce more than the flat social-plan amount. It’s almost always worth checking.

The rule of thumb: a guide, not a right

Almost every negotiation starts with the same number: half a gross monthly salary per year of employment. This rule of thumb is useful as a shared starting point, but it’s constantly misunderstood. It is not a legal entitlement. In the law, this figure only appears as the standard severance amount for the special case of a severance offer under § 1a(2) KSchG; § 10 KSchG only sets upper limits for a court-ordered severance payment, not the formula itself. In free negotiation, it’s simply a reference point.

In practice, the formula is multiplied by a factor that reflects the strength of your position. In reality, this often lies between 0.25 and 1.5:

• Low factor (roughly 0.25 to 0.5): the dismissal looks barely vulnerable, the employer sits comfortably in the saddle.
• Medium factor (roughly 0.5 to 1.0): the usual case where there are recognisable points to challenge the dismissal.
• High factor (roughly 1.0 to 1.5 or more): clear errors, special protection against dismissal, or an employer who wants the matter off the table at any cost.

A quick example: with a €4,000 gross salary and ten years of employment, the rule of thumb produces €20,000. At a factor of 1.0, that’s €40,000; at 0.3, only €6,000. Same starting position, a difference of more than €30,000, purely down to negotiating position. For how the formula applies in detail to your case, see our guide on severance amounts; for a quick first estimate, use the severance calculator.

How the negotiation unfolds

A severance negotiation isn’t a bazaar, it follows a predictable pattern. In the vast majority of cases, it looks like this:

1. Have the dismissal reviewed. First, it’s established whether and where the dismissal is vulnerable to challenge. That determines your entire negotiating position.
2. File the claim within the deadline. Within the three-week period, the unfair dismissal claim is lodged with the labour court. This signals that you’re not accepting the dismissal.
3. Conciliation hearing. The court invites both sides to an early attempt at agreement. Many proceedings already end here with a settlement, often including severance pay, an end date, garden leave, and a good reference.
4. Settlement or continuation. If no agreement is reached, written exchanges and a full chamber hearing follow. A settlement remains possible right up to the end, but the risk increases for both sides.

A settlement is a recorded agreement that replaces a judgment and usually becomes binding immediately. However, it’s often concluded with a right of revocation: you can then still withdraw within a period stated in the record. So the rule is: only agree once every point is cleanly settled, meaning severance pay, end date, garden leave, outstanding holiday, and reference.

Negotiation tactics: what really drives up the amount

Negotiating doesn’t mean demanding loudly. It means knowing your own position coolly and keeping the overall value in view. The most effective approaches:

• Never treat the first offer as final. An employer’s first offer is almost always the lower end of what’s possible. A well-reasoned counterproposal is normal, and expected.
• Negotiate overall value, not just the figure. A later end date, paid garden leave, explicit payout of outstanding holiday, and a very good reference are all worth cash and improve your starting position for your next job.
• Factor in the benefit suspension period and tax. A cleanly worded settlement avoids a benefit suspension period (Sperrzeit) on unemployment benefit. And the one-fifth rule together with the fact that severance pay is exempt from social security contributions determines what actually lands net, more on this under taxing severance pay.
• Calm as a weapon. Anyone not under time pressure negotiates better. That’s why it’s so important to have the dismissal reviewed immediately, rather than signing in a rush at the end.

The costliest mistakes

These mistakes cost the most money in severance negotiations:

• Letting the three-week deadline pass. The costliest mistake of all. Without filing in time, the dismissal is deemed valid, and your most important lever is irrevocably gone.
• Signing a termination agreement on the spot. A termination agreement (Aufhebungsvertrag) is practically impossible to undo, there’s no right of withdrawal. Signing without review often means voluntarily giving up your claim lever, and also risks a benefit suspension period. Take the draft away and have it reviewed.
• Waiving your right to claim too early. A waiver of claim in exchange for a small offer gives up your position before negotiations have even started.
• Focusing only on the gross figure. Ignoring tax and social security rules means celebrating a big number, then wondering why the net amount is so small.

What you should do now

1. Note the date you received it. The three-week deadline runs from this day. It’s the hard limit for every lever.
2. Sign nothing. Neither a termination agreement nor a settlement agreement, before the dismissal has been reviewed.
3. Gather your documents. The dismissal letter, employment contract, recent payslips, anything that proves your length of service and salary.
4. Get your chances of success assessed. Only once you know how vulnerable the dismissal is do you know your factor, and therefore your negotiating target.
5. Get an initial estimate. The severance calculator shows you in 2 minutes what order of magnitude is realistic as a guide in your case.

How can we help you?

Negotiating works best from a position of strength, and that comes from two things: a sober assessment of how vulnerable the dismissal is, and the certainty that you’re not carrying the cost risk alone. This is exactly where we come in. We review your case together with lawyers specialising in employment law, file your claim within the deadline, and negotiate for the best possible outcome on your behalf.

We carry the risk: purely success-based, no upfront cost. We fund the proceedings, and only if you actually receive severance pay in the end do we keep an agreed share of it. If the negotiation produces no result, you pay nothing. Start with an initial estimate using our severance calculator, it only takes 2 minutes. And remember the three-week deadline: it runs from the day you receive the dismissal.