Settlement Receipt

Term and General Definition of the Discharge Receipt

Die Discharge Receipt is a term from German civil law and refers to the written declaration in which one party (usually within the scope of an obligation, such as an employment relationship or rent payments) acknowledges the complete fulfillment of specific claims by the other party. It plays an especially significant role in connection with the termination of contracts or when settling mutual claims. By issuing a discharge receipt, a so-called ‘balance’ or ‘settlement’ is often confirmed, indicating that no (further) claims exist from the underlying legal relationship.

Legal Classification of the Discharge Receipt

Functions and Legal Effect

The discharge receipt has several functions:

• Evidentiary Function: It serves as documentary proof that a service—for example, payment or delivery of items—has been performed completely and properly.
• Declaratory Function: The declaration can also express that no further claims exist from the legal relationship.
• Legal Certainty and Security: It helps clarify mutual rights and obligations after the execution of a contract.

Legal Effect Regarding Future Claims

In individual cases, the discharge receipt may hinder or prevent the enforcement of further claims if it can be inferred to include a so-called ‘settlement clause’ (‘with this payment all claims are settled’). However, the wording and the discernible intentions of the parties are decisive. Generally, a distinction is made between:

• Simple Receipt of Acknowledgment: Confirmation of receipt of a sum of money or an object without affecting the existence of any remaining claims.
• Receipt of Fulfillment: The declaration that a specific debt has been fulfilled.
• Discharge or Settlement Receipt: The express declaration that all claims are settled by the provided service.

Distinction from Certificates of Receipt and Fulfillment

In German law, a precise distinction must be made:

• Receipt of Acknowledgment (§ 368 BGB): It solely confirms the receipt of a service, such as the acceptance of money, goods, or documents, without making any statement as to whether the underlying debt has been fulfilled.
• Receipt of Fulfillment: It goes a step further and confirms that the underlying debt has been satisfied.
• Discharge Receipt: In addition, it contains a declaration that all resulting claims (from the specific legal relationship) are satisfied and that no further claims exist (similar to a waiver pursuant to § 397 BGB).

Statutory Basis and Case Law

Relevant Statutory Provisions

• § 368 BGB (German Civil Code): Receipt

This provision stipulates that the creditor must issue a receipt upon receiving performance.

• § 397 BGB: Waiver Agreement

If further claims are waived by means of the discharge receipt, this is regarded as a waiver, which must be expressly agreed.

• § 812 BGB: Restitution for Unjust Enrichment

In the case of a discharge receipt issued by mistake, reversal of the transaction may be demanded under certain conditions.

Relevant Case Law

Case law emphasizes that the wording and circumstances of the individual case are decisive for the interpretation of discharge receipts. The prevailing legal opinion is that a general waiver of claims (‘general settlement’) is not readily assumed. In case of doubt, a waiver of further claims is not considered unless this is clear and unambiguous from the statement (see Federal Labour Court, decision of 16.09.2004 – 8 AZR 483/03).

Typical Areas of Application for Discharge Receipts

Employment Law

In employment law, discharge receipts are often used when employment relationships end. The employer, for example, confirms to the employee that all claims from the employment relationship have been fully paid, often using language such as ‘with this payment, all claims from the employment relationship are settled.’

Legal Significance in Labor Law

• An employee who signs such a receipt should bear in mind that any future claims (e.g. for overtime pay or bonuses) may be excluded if the discharge receipt is clearly formulated.
• However, if the statement is ambiguous or unclear, courts tend not to interpret it as a waiver of unknown or not specifically designated claims.

Tenancy Law

In tenancy agreements, the discharge receipt is typically used upon return of the rented premises, confirming to the tenant that all financial obligations (e.g. rent, utilities, damages) have been settled.

Obligations Law and Business Life

The discharge receipt is also commonly used in general obligations law, for instance in the settlement of purchase, work, or service contracts. After full payment, a discharge receipt is often issued as evidence and an advance waiver of further claims to create legal certainty for both contracting parties.

Formal Requirements and Formalities

Written Form and Individual Agreement

• Freedom of Form: In principle, discharge receipts are not subject to any specific formal requirements, so they can be made orally or by conclusive conduct. In practice, however, the written form is usually chosen for evidentiary reasons.
• Individual Agreement Required: Since a comprehensive waiver of claims requires an individual agreement made on a case-by-case basis, pre-formulated general waivers (so-called ‘exclusion clauses’) in standard terms and conditions are invalid to the extent that they exceed what is legally permitted (§ 309 No. 12 BGB).

Clarity and Transparency

For a discharge receipt to validly exclude claims, it must be clear and understandable. Vague or ambiguous wording is at the expense of the drafter, especially in employment law.

Limitations and Restrictions of the Discharge Receipt

Protective Provisions in Favor of Employees

In particular, protective provisions in labor law place strict limits on general waivers and blanket discharge receipts. According to established case law, such waivers are interpreted restrictively. Claims to minimum wage, paid leave, or mandatory statutory claims cannot easily be excluded.

Mistake, Fraud, and Contestation

A discharge receipt given under false or coerced circumstances may be voidable under §§ 119 ff. BGB. The burden of proof for mistake or deception is on the contestant.

Ineffectiveness in Violation of Mandatory Provisions

A discharge receipt is invalid to the extent that it contravenes mandatory statutory provisions. This includes, for example, claims under the Working Hours Act, Maternity Protection Act, or the right to minimum wage under the MiLoG.

Summary and Significance

The discharge receipt is an important document in German legal transactions for the termination and settlement of mutual claims arising from contractual relationships. It serves an important evidentiary function and provides legal certainty, but can, under some circumstances, also lead to the exclusion of further claims if this is stated clearly. Its validity and legal effect always depend on the specific case, the wording and clarity of the declaration, and the applicable statutory framework. In certain areas of law, especially employment law, the protective interests of the weaker contracting party must be given special consideration through restrictive interpretation of such declarations.

Frequently Asked Questions

What are the legal effects of signing a discharge receipt?

Signing a discharge receipt in the employment law context usually means that the parties—typically employer and employee—confirm that all mutual claims arising from the employment relationship and its termination are settled. Legally, however, a distinction must be drawn: A receipt in the strict sense generally only acknowledges the receipt of payment or service (‘confirmation of receipt’), but does not have a comprehensive settling effect. Only when an ‘all claims are settled’ statement is expressly declared does the receipt have far-reaching legal effect in the form of a so-called declaratory acknowledgment of debt (§ 781 BGB). In such cases, the settlement clause generally covers both already existing and known claims, and, depending on the wording, even future or unknown claims. However, claims that are not at the parties’ disposal, such as certain mandatory labor law protections (e.g. claims for pay in lieu of leave under § 7(4) BUrlG, where these are mandatory), are excluded. The scope always depends on the specific wording and the discernible intention of the parties. In case of dispute, a blanket discharge receipt may be subject to a content review under §§ 305 ff. BGB, for instance if it is surprising or unfairly disadvantageous.

Can future claims also be excluded by a discharge receipt?

In German employment law, it is generally possible to exclude future or as yet unknown claims by means of a discharge receipt, provided this is expressly and clearly worded. Many standard texts contain language that is intended to cover not only current but also ‘all future and previously unknown claims arising from the employment relationship and its termination.’ However, the validity of such comprehensive clauses may be reviewed in individual cases: On the one hand, they must comply with the transparency requirement (unreasonable surprise clauses are invalid, § 305c(1) BGB); on the other hand, there are statutory limits for non-waivable employee rights. In particular, totally open-ended formulas are suspected of unduly disadvantaging the employee and are sometimes classified as invalid by the courts, depending on the individual case and the phrasing of the clause. Furthermore, claims for future criminal prosecution are excluded, as are claims arising from intentional harm (§ 202 BGB). Ultimately, the exclusion of future claims depends significantly on the wording, timing, and circumstances of the signing as well as the legal evaluations.

Is it possible to revoke or contest a discharge receipt?

As a rule, a validly signed discharge receipt is binding. Nevertheless, the parties—primarily the employee as often the economically weaker party—may exceptionally have contestation rights. According to §§ 119, 123 BGB, contestation is possible due to mistake (regarding the content or legal consequences of the declaration) or fraudulent misrepresentation. If, for example, there are significant situations involving pressure, threats, or false information about the real scope of the covered claims, this can justify an effective contestation. However, the burden of proof for the grounds of contestation lies entirely with the person contesting. Mere dissatisfaction or ignorance after the fact is not legally sufficient. In principle, a statutory right of revocation does not apply, unless such a right is expressly granted or results from special regulations (e.g. in the case of doorstep transactions or distance contracts, which typically do not apply to discharge receipts in employment law).

What are the requirements for the validity of a discharge receipt?

Several requirements must be met for the legal validity of a discharge receipt. First, both parties must have legal capacity. The declaration must be made voluntarily, without mistake, fraud, or coercion, and with knowledge of its legal implications. Although not prescribed by law, written form is usually chosen for evidentiary reasons. In terms of content, the discharge receipt must be sufficiently specific and make it clear which claims are to be covered; unclear or contradictory language is interpreted in favor of the employee in case of doubt (see also § 305c(2) BGB). General terms and conditions, such as pre-formulated discharge clauses, are subject to strict review under §§ 305 ff. BGB. Moreover, even when expressly excluding claims, any non-waivable claims arising from mandatory statutory provisions cannot be validly excluded.

Which claims remain even after a discharge receipt is signed?

Even after a discharge receipt is validly signed, various claims continue to exist. Typically, these are inalienable rights. These include, for example:

• Claims to the statutory minimum wage under MiLoG,
• non-waivable claims to pay in lieu of leave in accordance with § 7(4) BUrlG (insofar as they must necessarily be paid out after the end of the employment relationship),
• Claims arising from intentional breach of contract or tortious acts,
• Social security claims,
• and claims to occupational pension rights, insofar as these are secured by statutory provisions.

In addition, collective-law claims (e.g. from collective bargaining agreements or shop agreements) in certain cases are non-waivable and therefore cannot be excluded by a discharge receipt. If such claims are nevertheless excluded by a form clause or in error, the clause is ineffective in that respect.

When can discharge receipts be problematic in employment law?

Problems arise in practice particularly with opaque, unexpected, or unilaterally disadvantageous standard form texts. If settlement receipts are presented and signed under significant time pressure or psychological stress, such as immediately upon signing a settlement or termination agreement, this can raise doubts about the voluntariness or intent to enter into the agreement. Especially problematic is the ‘ambushing’ of poorly informed employees who do not grasp the comprehensive legal effects of a settlement receipt. In small and medium-sized enterprises in particular, there is often a lack of adequate information or time to reflect. Today, the courts recognize the need for transparent declarations and assess the validity of the clause, in case of doubt, in favor of the employee. If the settlement receipt proves to be unexpected, incomprehensible, or unreasonably disadvantageous, it may be wholly or partially invalid under Section 307 of the German Civil Code (BGB).

What role does the individual bargaining position play in the context of a settlement receipt?

The individual bargaining position, particularly in regard to opportunities for advice and clarification, is of considerable importance in assessing the validity of a settlement receipt. If the employee has the opportunity to independently review and, if necessary, seek legal advice—such as from a lawyer or the union—it is assumed that there is a conscious and informed decision. The greater the imbalance of power and the less time is given to review the declaration, the more likely the courts are to recognize a need for protection and impose stricter requirements on the validity of the declaration. In individual cases, a lack of individual negotiation may lead to the settlement receipt being treated as general terms and conditions and thus subject to a heightened standard of protection.