Terminating an employment relationship by mutual agreement

A mutual agreement is a sometime-used alternative to a conventional termination. There are no special provisions on the form or terms of an agreement to terminate an employment relationship. It should nevertheless always be made in writing; in addition, it should be reviewed with a lawyer in respect of the terms and resulting consequences, such as unemployment security, no later than before signing the agreement. One should exercise great care when making such agreements.

People often hand in notices themselves or agree on the termination of their employment; in such cases, the employer is not obligated to offer employment or re-employ the person; there is also no period of notice or the period of notice is shorter, and the annual holiday is accumulated from a shorter period of time.

A 90-day suspension period for unemployment security is a very likely consequence. The suspension period begins when the employment relationship ends. A suspension period is usually imposed when an employee themselves hands in their notice or if the employee has agreed on the termination of their employment relationship. During the suspension period, the person is not eligible for earnings-related unemployment allowance, basic unemployment allowance or labor market subsidy.

A one-time payment is periodised to correspond with unemployment allowance days on the basis of the person’s salary; the one-time payment is periodised along the initial period of unemployment, and the person is not entitled to unemployment benefit for the duration of the periodisation. Annual holiday compensation or holiday bonuses are not periodised, due to which they should be itemized in the agreement.

The suspension period and the periodisation occur simultaneously.

Despite this, the person must register as an unemployed job seeker with the TE Office. If a person is absent from the labor market for a period of six months without a legitimate reason, they forfeit their right to the unemployment allowance and must re-accumulate the employment condition. The Union recommends registering with a TE Office on the very first day of unemployment.

Any non-competition clause included in the employment contract will remain in effect, unless otherwise agreed in the termination agreement.

There is no right of complaint for any possible illegal termination or other matters related to the employment relationship. Check your receivables from the employer before you enter into the agreement. These may include annual holidays not taken, overtime receivables, bonuses, etc. Itemize these in the agreement. The agreements usually include a clause by which the parties renounce any claims other than those mentioned in the agreement.

If the employment relationship terminates immediately, the person loses their pay and other benefits for the period of notice (occupational health care, pension contributions, company car).

Occupational health care may become weaker; employers are obligated to organize occupational health care for six months as of the end of the obligation to work for employees whose employment has been terminated. This obligation applies only to employers who employ at least 30 people on a regular basis. The employment relationship of an employee whose employment is terminated is required to have been continuously valid for at least five years by the end of the employment relationship.

With the aforementioned conditions (30 employees and five-year employment relationship), the employer is obligated to provide an employee whose employment has been terminated due to financial and production-related grounds with coaching or training that promotes employment.

A one-time payment does not accumulate pension.

The one-time payment is taxable income. It may be possible to spread a one-time payment over a number of tax years, but the Tax Administration makes a decision on this separately, on a case-by-case basis. If the matter is not agreed upon with the Tax Administration, the tax is withheld upon payment.

Check the terms and conditions of any possible loan protection before signing the agreement. The terms and conditions of banks’ loan protection often require the employer to have terminated the employment on financial and production-related grounds.

Training/packages for finding work: check the content; the Union provides many of the same services as a membership benefit (career, CV and salary counselling).