An employee whose employment contract has been terminated for a business reason or reason of incapacity, is entitled to a severance payment. The amount depends on the number of (full) years of service with the employer (including the employment with the employer’s legal predecessors). The basis for calculation is the average monthly salary, which the employee has received or would have received if working in the last three months prior to the end of employment.
Severance pay is calculated as follows:
- 1/5 of the average monthly salary for each year of employment with the employer if the duration of the employment is between one and ten years; or
- 1/4 of the average monthly salary for each year of employment with the employer if the duration of the employment is between ten and 20 years; or
- 1/3 of the average monthly salary for each year of employment with the employer if the duration of the employment exceeds 20 years.
The amount of the severance payment may not exceed ten times of the average monthly salary received in the final three months preceding the termination unless an applicable collective bargaining agreement stipulates otherwise.
In the event of termination of the employment contract for a fixed period concluded for one year or less, generally with few exemptions, the employee is entitled to severance pay in the amount of 1 / 5 of the base (base being the employee’s average monthly salary for full-time in the last three months, or during the working period prior to the termination). If the contract is concluded for a period longer than one year, the severance pay increases proportionally.
The same provisions regarding severance payment as above apply to workers whose employment contract has been terminated in a bankruptcy / liquidation / winding down of the employer or compulsory settlement proceeding. In a compulsory settlement proceeding, however, the employer and worker may stipulate in writing the manner, form or reduction of the severance payment if a greater number of jobs with the employer would be jeopardised by a full payment.
An employee’s entitlement to severance pay will depend on the grounds for dismissal.
For instance, if an employee is dismissed on disciplinary grounds, no severance pay will be due.
If an employee is dismissed due to company liquidation or staff redundancy, he/she will be entitled to severance pay of one month’s average salary on the dismissal date. Furthermore, if the employee does not find a new job within the second month after dismissal, he/she may apply to the employer for one more month’s average salary. Finally, the employer will have to pay the employee one more month’s average salary for the third month of unemployment if the employee applied to the employment service within the first two weeks after dismissal, but failed to obtain a job.