The rules on severance pay in detail

Severance payments for employment termination apply under the following conditions: 

For dismissal for a physical and/or mental impairment of an employee that prevents him or her from doing the job, based on a medical decision, the dismissed employee is entitled to compensation on the conditions set out in the applicable collective bargaining agreement or the individual employment contract. The amount of the compensation is, however, not regulated by law.

If there is no internal or contractual provision to determine the amount, employers tend to offer at least one month’s basic salary, to show good will.

For dismissal for reasons not related to the employee (i.e., redundancy), the employee may be entitled to compensation by law, under the applicable collective bargaining agreement, under the company's internal rules or via the individual employment contract. The employer must pay the amount required under these documents but the law itself does not specify an amount. Employers tend to offer at least one month’s basic salary as severance to show good will.

For collective dismissals, severance may be higher, as the amount will be decided based on an information and consultation procedure with employee representatives.

In practice, severance is calculated on a case-by-case basis. For example, in cases of redundancy, to reduce the risk a challenge in court, employers often agree a mutual termination agreement which pays out more to the employee than they would be entitled to under the redundancy rules.

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Author: Nestor Nestor Diculescu Kingston Petersen

Date: December 2018