Term Explanation: Severance in the Legal Context
The term Severance originates from Anglo-American law and refers to various acts of separation or dissolution in legal contexts. Colloquially, the term is gaining increasing significance in employment law, but it is also used in other legal fields such as real estate law or civil procedure law. In German usage, translations such as “compensation”, “separation” or “division” can be found, with the specific application area being decisive in each case.
Severance in Employment Law
Separation from Employment Relationships
In the context of employment law, Severance primarily refers to the termination of an employment or service relationship, and any payment of a severance (severance pay) that may be associated with it. This generally depends on the length of employment, salary level, and the conditions stipulated by contract or statute. In Anglo-American law, there is not necessarily a right to severance; however, it can be regulated contractually or by company agreement.
Calculation and Structure
The amount of a severance payment can be determined contractually or by common company practice. Factors such as age, length of service, or position in the company are taken into account. In some legal systems, there are statutory minimum requirements, while in others severance is entirely discretionary. Severance agreements are often the subject of settlement discussions or negotiations in the context of redundancies.
Legal Consequences and Significance
A severance agreement regulates not only the financial aspects of ending the employment relationship, but may also include further provisions. Examples include non-compete clauses, confidentiality agreements, or rules regarding the return of company property. Especially in international situations, the precise formulation and legal enforceability of a severance agreement are of great importance to prevent legal disputes.
Severance in Civil Procedure Law
Separation of Proceedings and Claims
In civil procedure law, Severance this refers to the splitting off of individual disputed matters or claims into separate proceedings. This serves procedural efficiency and, in complex cases, can improve clarity and effectiveness. The decision to separate is made by the court if it believes it will expedite the resolution of part of the overall dispute.
Procedural Foundations
In common law systems, procedural rules such as the Civil Procedure Rules (United Kingdom) or the Federal Rules of Civil Procedure (USA) allow the severance of individual claims or parties. In German law, this corresponds roughly to the separation under § 145 ZPO, although the term “severance” is rarely used here.
Impact on Proceedings
Through severance, autonomous parts of proceedings arise that can be independently continued, decided, or settled. This can be procedurally advantageous, for example, if different substantive or local jurisdictions are relevant, or if part of the dispute is ready for decision more quickly.
Severance in Real Estate Law
Separation of Ownership Rights
In real estate law, Severance this refers to the termination of a joint ownership situation, for example, in cases of co-ownership by shares, collective ownership, or joint tenancy (Anglo-American law). Severance can take place voluntarily by agreement of the parties, or by partition order of a court (so-called partition proceedings).
Forms of Severance
- By Agreement: Contractual agreement between the parties concerning the dissolution of joint ownership
- By Action: Court order for dissolution, particularly in the event of a dispute
- By Unilateral Act: Unilateral declaration by a co-owner, for example, taking out a mortgage on their share under common law
Legal Consequences
Severance regularly leads to the creation of sole ownership or ownership by shares, with corresponding legal consequences regarding disposal authority, liability, and allocation of assets.
Severance in Corporate Law
Division of Business Units
In the context of corporate law, Severance this may refer to the separation of a part of a company or the dissolution of an existing legal relationship. Examples include demergers, dilution of shares, withdrawal of shareholders, or termination of joint ventures.
Corporate Contractual Foundations
The possibility of a severance should be precisely regulated in company charters or articles of association in order to avoid legal uncertainty. It typically includes provisions on the allocation of assets, liabilities, and rights, as well as any compensation or reimbursement.
Other Areas of Application
Criminal Law
In criminal procedure, severance may refer to the separation of individual counts or defendants, particularly where this is required to ensure the principle of a fair trial.
Contract Law
In multi-part contracts, severance can be used to declare a single clause void, while leaving the remainder of the contract intact. Clauses to this effect are commonly found as severability clauses in international contracts.
Summary
The term Severance comprises various legal means to separate, dissolve, or divide legal relationships, rights, or relationship structures. Depending on the legal field, different requirements, procedures, and consequences must be observed. In an international context, it is essential to ensure precise use of terms and legally certain contract drafting in order to meet the relevant legal requirements and protective goals.
Frequently Asked Questions
What legal requirements must be met for a claim to severance?
For an employee to have a legal claim to severance, certain prerequisites must generally be met, which vary by country. In Germany, severance (Abfindung) is not automatically provided by law, but usually arises from a contractual agreement, a social plan, or as a result of a court settlement in dismissal protection proceedings. Typically, a claim requires that the termination of the employment relationship is initiated by the employer and that the employee has not committed any serious misconduct (e.g., conduct-related dismissal). In other jurisdictions, such as the USA, severance may be part of an employment contract or based on company policy. Seniority and company size may also play a role, for example, in social plans under the Works Constitution Act (§ 112 BetrVG). In addition, collective agreements or tariff contracts may contain relevant provisions. The individual employment contract should be carefully reviewed for relevant severance clauses, at the latest when notice is given.
How is the amount of severance legally determined?
The calculation of the severance sum depends on various legal factors. A fixed statutory amount is rare; instead, in Germany, the so-called “standard severance” (Regelabfindung) is often used as a benchmark, which is set at half a gross monthly salary per year of service according to § 1a KSchG. Deviations frequently result from court settlements, company practice, or collective bargaining agreements. In other countries, salary, seniority, and hierarchical level may likewise be relevant. In addition, information in the social plan, internal severance rules, or individual employment contracts can be binding. It should also be noted that severances may be taxable; the social security status, in turn, depends on whether the payment is considered remuneration for lost earnings or as damages.
What formal requirements must a severance agreement meet?
A severance agreement should generally be concluded in writing – in Germany, this is mandatory under § 623 BGB for the termination of employment contracts. The agreement typically includes provisions on the type of termination (e.g., termination agreement), severance amount, payment modalities, testimonial entitlements, return of company property, and, where applicable, non-compete clauses or other post-contractual effects. Both parties should ensure that any ancillary agreements are put in writing, as later oral assurances are generally unenforceable. Statutory cancellation periods, especially for termination agreements under § 312g BGB, must also be observed. The contract must be signed by both parties to be legally valid.
Can a severance agreement be revoked or contested?
The possibility to revoke or contest a severance agreement is only provided by law under narrow conditions. Revocation under § 355 BGB is possible for termination agreements concluded outside business premises, under certain conditions. For a challenge under § 123 BGB, deception or coercion must have occurred. Legal disputes are common where employees signed under surprise or significant pressure. It is advisable to consult a lawyer before signing in order to check the effectiveness and fairness of the agreement.
What tax and social security aspects need to be considered with severance?
Severance payments are generally subject to taxation in Germany as other income under § 24 No. 1a EStG, where the so-called one-fifth rule may apply if the payment is considered compensation for lost earnings. Social security contributions do not have to be paid on severance, as it is not considered income from employment. In other countries, divergent tax and social security rules may apply. It is particularly important to note that certain severance models may result in suspension periods for receiving unemployment benefits, for example if the employment relationship is terminated before the end of the ordinary notice period. Therefore, advice on both labour law and tax or social security issues should be sought.
What effect does accepting severance have on existing claims or waiting periods for unemployment benefits?
Accepting a severance payment may have a direct impact on the receipt of unemployment benefits. In Germany, the Employment Agency may impose a waiting period of up to twelve weeks if, for example, the employee precipitated their own unemployment by agreeing to a termination agreement (§ 159 SGB III). A severance granted in the case of early termination of employment may also be offset against unemployment benefits or delay the start of payments. Exceptions exist, for example, if the termination was based on redundancy followed by a compensation settlement. Employees should therefore check carefully before signing whether a waiting period can be avoided, and seek legal or professional advice if necessary.
