Executive severance negotiations refer to negotiations on the conditions of an amicable separation at executive level, i.e. the negotiation of a termination agreement or separation agreement between the employer and the executive. These negotiations differ structurally from ordinary employment law separation scenarios: the subject matter of the negotiations is more complex, the amounts are higher, and the legal as well as strategic risks weigh more heavily. Anyone who, as managing director, management board member, senior executive or authorised signatory (Prokurist), is confronted with a separation should understand the course of these negotiations precisely before attending the first meeting with the company. As a law firm with decades of experience in advising on dismissals and termination agreements, we support executives in exactly these situations.
Not every executive function is legally identical. As a rule, the Protection Against Dismissal Act (KSchG) does not apply to managing directors of a GmbH (§ 14 para. 1 no. 1 KSchG). Senior executives within the meaning of § 5 para. 3 Works Constitution Act (BetrVG) do enjoy employee status and, in principle, protection against dismissal under the KSchG, albeit with special rules (cf. § 14 para. 2 KSchG). Authorised signatories (Prokuristen) and members of upper management are often subject to the full protection of the KSchG, provided the company meets the threshold values. Whether and to what extent statutory protective provisions apply already determines which negotiation strategy is sensible.
The severance amount is the most visible negotiation result, but not the only one. Legally, there is no obligation to pay severance in the case of termination agreements; it is the result of negotiation. The rule of thumb of half a gross monthly salary per year of service applies only to the so-called offer of severance for waiving a lawsuit in the context of a redundancy dismissal. It is not a benchmark for executive severance negotiations. At executive level, significantly higher amounts can be negotiated. Variable remuneration components, outstanding bonuses and profit shares as well as long-term incentive programmes must be considered separately.
Whether the executive continues to work until the end of the contract or is released from duty (garden leave) has practical and legal consequences. Irrevocable garden leave with continued payment of remuneration is preferable in many cases. Post-contractual non-compete covenants must be carefully structured. For employees and senior executives, §§ 74 et seq. Commercial Code (HGB) apply directly: the covenant must be agreed in writing, provide compensation for post-contractual restraint of at least 50% of the most recently received benefits, and be reasonably limited in time and geographical scope; otherwise it is non-binding or void.
For executives, the external perception of the separation is often more important than for regular employees. Who initiated the separation? How will it be communicated internally and externally? What reference letter (Arbeitszeugnis) will be issued, and with which wording? These points are the subject of targeted negotiation. It is therefore advisable to explicitly agree on the desired wording in the course of the separation negotiations.
Almost every separation agreement at executive level contains a confidentiality clause as well as a so-called settlement clause (“full and final settlement”), by which both parties mutually waive further claims. Such clauses may have considerable scope. They should be legally reviewed before signing.
The most frequent mistake: entering into talks too early and without legal advice. Many companies prepare separations strategically. An executive who goes into the first meeting unprepared discloses information that later weakens his or her negotiating position. Another typical mistake is underestimating entitlements: outstanding bonuses, LTIP payouts, occupational pension schemes and company car arrangements are often lost when a termination agreement is signed without review. In addition, there is time pressure: employers set deadlines for signing the termination agreement. These deadlines are often not mandatory, but without legal support they feel that way.
We begin with a thorough status analysis: What claims does the executive have? What is their legal position: employee, senior executive or corporate body (Organ)? What risks does the company bear? On this basis we develop a negotiation strategy. We analyse the draft separation agreement presented, sentence by sentence, identify clauses that are one-sided to the detriment of our clients, and formulate counterpositions. In many cases, we conduct the negotiations directly with the employer’s side, which relieves the executive and improves the results.
For executives with international contractual elements, such as foreign assignments, secondment contracts or employers abroad, the first question is which law applies. The EU Rome I Regulation governs which law applies to the employment contract: according to Art. 8 Rome I, in the absence of a choice of law, the law of the state in which the employee usually carries out their work applies; mandatory protective provisions remain unaffected even in the case of a choice of law. Our law firm is multilingual, offering advice in German, English and Turkish, and regularly handles mandates with an international dimension.
The answer is clear: as early as possible. Ideally, as soon as the first signs of an impending separation appear: a change in tone in discussions with management, the absence of customary invitations, initial signs of restructuring. Those who only seek support after the first formal meeting have already shared information. Early advice offers protection, both legally and strategically.
Executive severance negotiations are not routine discussions. They equally affect professional future, reputation and economic security. Those who leave the negotiation to chance or give in too early lose out. Those who prepare well, obtain legal support and understand the logic of negotiation can significantly influence the outcome. We are at your side in this situation – confidentially, in a structured manner and with the aim of achieving the best possible result for you. Arrange an initial consultation now.
Teilen
