Severance Agreement: A good alternative to redundancy?
On this page, you’ll find answers to the questions about severance agreements that our legal advisers are frequently asked by members.
A severance agreement can offer you more flexible and favourable terms during the notice period and may therefore be a good alternative to dismissal.
However, you must pay close attention to the terms of the severance agreement, as you are often waiving your right to make further claims against your employer at a later date, such as a claim for compensation due to unfair dismissal.
Always ensure IDA’s legal advisors review your severance agreement before you sign.
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What is a Severance Agreement?
In short, a severance agreement is a mutual agreement between you and your employer in connection with the termination of an employment relationship. In other words, it sets out the terms under which you will leave your position.
When either you or your employer is considering whether the employment relationship should end, this can take the form of a one-sided termination by one of you or a mutual agreement in the form of a severance agreement.
Your employer may also choose to offer you a severance agreement as an alternative to a dismissal. In this case, the decision to dismiss you is initially taken unilaterally by the employer, but the terms of your departure are subsequently agreed upon mutually in a joint agreement.
A severance agreement is therefore more flexible, as it allows for deviations from the general legislation in this area and the terms of your contract. The purpose may also be to reward an employee by offering better terms of termination than those that would otherwise apply.
However, a severance agreement is typically also used to settle any claims between you and your employer once and for all, thereby ensuring that you cannot make any further claims against your employer beyond what is set out in the agreement.
You should therefore only sign a severance agreement if it offers you better terms, or at least terms that are as good as those to which you are otherwise entitled.
You can refuse to sign a severance agreement, but in that case you risk being dismissed instead.
Am I Entitled to a Severance Agreement?
A severance agreement is a mutual arrangement between you and your employer. It is not something you are automatically entitled to.
Read about your rights if you are made redundant
Can I negotiate a severance agreement in the public sector?
Yes, as a public sector employee, you can negotiate a severance agreement. However, some public institutions may generally avoid entering into such agreements.
If you are a public sector employee and want to discuss your options, you should contact IDA’s legal team.
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How do I negotiate a severance agreement?
You cannot demand that your employer enters into severance negotiations. However, if you wish to explore the possibility, IDA’s legal experts can help you prepare and start the process.
Generally, it is best if you negotiate directly with your line manager, but in some cases, IDA’s legal advisors may negotiate on your behalf.
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When should I ask for a severance agreement?
It might be a good idea to ask for a severance agreement if you have already been dismissed and want to negotiate better terms than those given in your notice.
It may also be appropriate if you are experiencing poor wellbeing or conflicts at work.
The terms of the severance agreement will typically reflect the reasons behind the agreement and the interests of both your employer and yourself in terminating the employment relationship.
Before requesting a severance agreement, you should always speak to one of IDA’s legal advisors.
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Can I negotiate a severance agreement while on sick leave?
Yes, you can negotiate a severance agreement while on sick leave, but it may not always be advisable. As a salaried employee, you are entitled to pay during sickness, which provides financial security.
However, if your illness is caused by specific conditions at work, a severance agreement may be the best option.
If you are considering this – or if your employer presents you with an agreement during your sick leave – always consult IDA’s legal team first.
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What should a severance agreement include?
Your severance agreement should address several key points to ensure you are not worse off than if you had simply been dismissed by your employer.
You should always compare the terms of the severance agreement with your employment contract. You should therefore send your employment contract to IDA’s legal advisors together with the draft severance agreement, so that they can review both documents before you sign the severance agreement.
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Here are some points you may want to negotiate in your agreement:
1. Background for the agreement: To avoid benefit sanctions from you A-kasse, it must be clear that your employer initiated the termination.
2. Notice period: Read more about notice periods here.
3. Are you obligated to work during the notice period?
It must be stated whether, during the notice period, you will:
- continue to work,
- be suspended (must remain available but not attend work as usual)
- or be placed on garden leave (do not have to attend work).
In the event that you are placed on leave, the following should be specified:
- when the leave takes effect
- whether any new work undertaken may be offset against your pay.
Read more about garden leave and suspension
4. Salary, bonus and fringe benefits
5. Bonus
Read more about bonuses after dismissal
6. Payment of time off in lieu/flexitime (if relevant)
7. Holiday and extra holiday entitlements
Read more about holidays and dismissal
8. Competition and non-solicitation clause (if applicable)
The agreement should specify whether the clause remains in force or lapses, and, where applicable, the right to compensation for the obligation.
9. Employee shares (if relevant)
The agreement should clarify the implications for your share options upon termination of employment.
10. Severance pay
If you are a salaried employee and have been employed at that workplace for a considerable period of time, you may be entitled to compensation if you are made redundant.
11. References and public statements
- Agreement on whether you may use your manager or other colleagues as references in future job applications
- Agreement on internal and external communication regarding your departure
12. Confidentiality and fair treatment
Mutual confidentiality regarding the agreement is often agreed, along with an obligation to fairly represent one another.
13. Return of company property
The deadline for returning items such as a computer, telephone, access card, keys, documents and a company car, as well as the financial implications of returning taxable assets.
14. Full and final settlement
The severance agreement will often be a ‘full and final settlement’, meaning that no claims may be brought against the employer regarding matters other than those covered by the severance agreement.