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It is recommended that the agreement on termination be made in writing. The party who later claims that the termination of employment has been agreed upon must be able to prove the existence and content of the agreement.
If you are offered an agreement to terminate your employment, remember that you are never obliged to sign a termination agreement.
A termination agreement terminates the employment relationship by mutual agreement between the parties. Alternatively, it may be agreed that the employee will resign, but the terms and conditions for this are agreed upon.
Sometimes an employment relationship is terminated by agreement if the conditions for continuing the employment relationship have deteriorated and both parties feel that terminating the employment relationship is the better option.
The employer’s perspective
The advantage or motive for the employer in such an agreement is usually that by agreeing with the employee on the termination of the employment relationship, the employer does not have to unilaterally dismiss the employee. The employer can therefore be sure that the employee will not dispute matters relating to the employment relationship. If the employer terminates the employment contract and there has been no valid and compelling reason for the termination of the employment relationship as defined by law, the employer may be required by a court to pay compensation for the unjustified termination of the employment relationship (an amount corresponding to 0–24 months’ salary).
Employee perspective
The main benefit for the employee in the agreement is the additional compensation that they receive under the agreement.
The disadvantage for the employee is that the termination agreement results in a so-called waiting period of 45 days from the end of the employment relationship in terms of unemployment security. This means that the employee is not entitled to unemployment benefits for approximately 1,5 months from the end of the employment relationship.
On the other hand, the waiting period is not really relevant if the employee receives additional compensation equivalent to at least 1,5 months’ salary. This is because all additional compensation paid to the employee is spread over the unemployment security system. This means that for as many months of salary as you receive in compensation, you will not receive unemployment benefits for the corresponding period. In practice, if you receive six months’ salary as additional compensation, you will not receive earnings-related daily allowance for six months. This period overlaps with the waiting period, as both begin to run from the end of the employment relationship. It is also worth bearing in mind that holiday compensation is also spread out, which also postpones the right to daily allowance.
Another “disadvantage” is, of course, that the agreement usually stipulates that after the agreement has been concluded, neither party has any other claims against the other. This means that after the agreement has been concluded, the legality of events during the employment relationship or the termination of the employment relationship cannot be disputed.
Things to note and consider
It is always worth considering the context in which the agreement is being discussed: what is the situation? Is the employer terminating the employment contract for financial and production-related reasons, or is the company claiming that it has grounds for terminating the employment contract due to the employee’s personal circumstances, or does the employee themselves want to leave? An assessment must therefore be made of what is likely to happen if no agreement is reached. On the other hand, it is also important to consider whose initiative the agreement is being made on.
The situation is usually compared to termination, i.e. a situation where the employer would terminate the employee’s employment contract instead of reaching an agreement. Therefore, when negotiating the salary for the notice period, the starting point is the notice period that the employer would have to comply with if the employer decided to terminate the employment contract. It is particularly sensible to agree that the notice period will be complied with. If it is not observed, the employee will lose pension accrual and annual leave accrual for the period corresponding to the notice period. If the agreement stipulates that the employment relationship will end without a notice period or with a shorter notice period, it is important that the employee takes this into account when assessing the amount of severance pay/additional compensation.
Example
The employee’s notice period would be two months. The agreement stipulates that the employment relationship will end immediately and the employee will be paid severance pay equivalent to six months’ salary. In such a situation, the additional payment will not be equivalent to six months’ salary, but in fact to four months’ salary.
When your employment relationship ends, you are also entitled to receive compensation for unused vacation days and other possible salary components until the end of the employment relationship, such as commissions and working time balances.
If an employee is dismissedfor financial and production-related reasons, any non-competition clause agreed in the employment contract after the end of the employment relationship is not binding on the employee. If an employee is dismissed for these reasons and the company has at least 30 employees and the employee’s employment has lasted at least 5 years, the employee would be entitled to employment promotion coaching or training (worth at least one month’s salary) and occupational health care for six months after the end of their employment. In addition, if the employee is over 55 years of age, they would be entitled to change security training and change security allowance (equivalent to one month’s salary) from the employment authorities if the employment relationship ends for economic and production-related reasons and the employment relationship has lasted for at least five years.
If you sign an agreement, please note that you are not entitled to the above-mentioned benefits, as your employment relationship is not being terminated for financial or production-related reasons, but rather by mutual agreement. If you wish to secure these benefits for yourself, you should expressly agree on them. You should also agree on some form of compensation to cover change security training and change security payments
When agreeing on the termination of your employment, you should ensure that the matters mentioned above that are important to you are mentioned in the agreement. Otherwise, you will not be entitled to them. Please also note that only the amounts exceeding these so-called statutory compensations are additional. You must consider for yourself what you consider to be sufficient additional compensation. It is important to note that additional compensation does not accrue pension. The amount of compensation is affected by factors such as the duration of the employment relationship, whether it is likely that the employer will terminate the employee’s employment contract and, if so, whether this would be unlawful, and the employee’s own desire to terminate the employment relationship. Additional compensation may also include terms other than financial terms.
Please also note that if you have, for example, some kind of insurance against unemployment in your mortgage, it is usually tied to the termination of employment for financial and production-related reasons. Therefore, after signing the agreement, such insurance policies are not valid in principle. It is advisable to check this with the insurer.
Even if the agreement results in a waiting period and any additional compensation is spread over time, it is advisable to ensure that you continue to look for work after the end of your employment relationship. This is because if an employee is “unavailable to the labor market” for too long, i.e., they do not have a valid employment relationship and are not registered as a job seeker, the payment of unemployment benefits may be denied entirely. You must therefore register as an unemployed job seeker as soon as your employment relationship has ended.
From a taxation perspective, it is possible to apply for income equalization for the compensation. If you want to apply for income equalization, the agreement should mention that the amount of compensation is determined based on the duration of your employment relationship. However, it is not possible to guarantee that the tax authorities will approve the income adjustment. This income adjustment is therefore only applicable to the additional compensation. You can obtain more detailed instructions on this matter from the tax authorities.
The termination agreement should at least include:
the end date of the employment relationship and a statement that the salary will be paid until the end of the employment relationship
the definition of the salary, if it is not a fixed monthly salary (i.e., if the salary includes fringe benefits or the employee also receives commission)
the date of termination of the work obligation, if earlier than the termination of the employment relationship
holiday compensation (amount and payment date)
any other items “included” (amount and payment date)
additional compensation to be paid (amount and payment date)
waiver of claims (e.g., “After signing this agreement, neither party shall have any claims against the other arising from this agreement in relation to the employment contract, employment relationship, or its termination between the parties“)
non-competition agreement is not binding, or if it is binding, compensation will be paid for it
other matters important to you, such as a good job reference and transfer of your phone number
The agreement is not legal and does not need to be complied with if the agreement on the termination of employment is invalid. The agreement may be invalid, for example, if the employee has not been given sufficient time to consider the agreement and clarify its implications. It is always worthwhile to determine the possible invalidity of the agreement based on the case. We recommend that you contact and discuss the matter with our lawyer.
As a rule, the invalidity of the agreement is not caused by the employee changing their mind after the agreement has been made. The agreement is usually valid if the matter has been discussed several times before the agreement was made or if the employee has been given sufficient time to consider the matter before signing the agreement at their request.
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