Termination of Employment by Agreement

A unilateral termination of an employment requires a statutory termination ground. However, if the parties agree on a termination of the employment relationship, the grounds for the termination will not be a matter potentially considered by the courts. Agreements regarding terminations are commonly concluded at the employer’s initiative in situation when the employer has to consider whether to terminate or cancel the employment agreement. The advantage of a termination by an agreements is that all issues related to the termination are solved at once, without the need to wait for a potential court decision. Employment agreements may always be terminated by agreement between the employer and employee provided both parties agree on the terms. The agreement may be concluded either orally or in writing. Although both types of agreements are equally valid, a written agreement is always recommended taking into account the possible interpretation of disagreements.

The purpose of the agreement is to confirm the termination of the employment relationship. The parties are free to agree the termination method, i.e. if it ends immediately or after a notice period. It is also possible to agree whether or not the employee will work during the notice period or if he/she is freed from the work obligation. The parties may also agree on the schedule of different payments. The agreement also often includes provisions regarding compensation. The employer may e.g. agree to pay the employee a one-time payment calculated on the basis of the employee’s monthly salary.

In the agreement it is customary to include a condition stating that neither party has any further employment relationship related claims or demands from the other party. This ensures that the other agreement party will not at a later stage commence court proceedings in respect of issues related to the employment relationship. If the agreement provides for a monetary compensation for the employee, the employee’s right to unemployment allowance may be affected. This must be taken into considered when concluding the agreement.