Settlement Agreement and Blocking Period: When Are Unemployment Benefits Suspended?

In the case of an employer dismissal, the employer terminates the employment relationship unilaterally.

In a settlement agreement, the employee signs the termination of the employment relationship themselves. From the perspective of the Federal Employment Agency, this may be active participation in their own unemployment.

The Federal Employment Agency then examines whether the employee contributed to their own unemployment without an important reason.

If there is no important reason, a blocking period may occur.

An employee has a permanent employment contract. The employer offers a settlement agreement with immediate termination and severance pay. There is no specific threatened dismissal, or a dismissal would at least be legally uncertain.

The employee signs.

In such a case, the Federal Employment Agency may examine a blocking period. The reason is that the employee actively contributed to the end of the employment relationship even though it was not clear that they would have lost their job anyway.

No. A settlement agreement does not automatically lead to a blocking period.

A blocking period does not apply if the employee had an important reason for signing.

An important reason may exist in particular if the employee would otherwise have faced a lawful employer dismissal for non-conduct-related reasons at the same time.

In simple terms: If the job would have been lost lawfully anyway and the settlement agreement merely replaces the dismissal, this may speak against a blocking period.

An employer closes a site. The employee's position is eliminated. There is no possibility of continued employment.

The employer would probably be able to issue an operational dismissal. The ordinary notice period is three months.

Instead of a dismissal, the parties sign a settlement agreement. The employment relationship also ends only after three months. The employee receives severance pay.

In this case, there are strong arguments that the employee had an important reason for signing the settlement agreement. The employee is not ending the employment relationship "voluntarily" without reason, but is regulating a termination that would probably have occurred lawfully anyway.

Whether an important reason exists depends on the individual case.

The following questions are particularly important:

• Was an employer dismissal actually threatened?

• Would that dismissal probably have been lawful?

• Was the reason operational or otherwise not related to conduct?

• Does the settlement agreement end the employment relationship no earlier than a dismissal would have done?

• Is the ordinary notice period observed?

• Is the reason for termination clearly documented in the agreement?

The clearer these points are, the easier it is to explain to the Federal Employment Agency why the employee had an important reason for signing the settlement agreement.

High severance pay does not automatically lead to a blocking period.

However, the amount of severance pay can play a role in the assessment. In the case of a settlement agreement, the Federal Employment Agency asks whether the employee gave up the employment relationship without an important reason.

If no lawful dismissal was threatened and the employee leaves only in exchange for high severance pay, this may speak against the employee.

The situation may be different if a lawful employer dismissal was unavoidable anyway and the employment relationship would have ended at the same time. In that case, high severance pay is not automatically harmful for the blocking period assessment.

A company is being liquidated. The only employee in Germany loses her job. There is no possibility of continued employment.

The employer would probably be able to issue an operational dismissal. The settlement agreement observes the ordinary notice period and does not end the employment relationship earlier than an employer dismissal would have done.

Even if high severance pay is agreed, there are strong arguments that an important reason for signing may exist in this situation. The decisive point is that the termination would have been unavoidable anyway and the employee is not creating avoidable unemployment at the expense of the unemployment insurance system.

Section 1a KSchG concerns a special situation: the employer issues an operational dismissal and offers the employee severance pay in the dismissal letter if the employee does not file an unfair dismissal claim.

The statutory severance amount is 0.5 monthly salaries per year of employment.

For the blocking period assessment, this rule may have an orienting or privileged effect. If the severance pay does not exceed this amount and an operational employer dismissal is involved, this may support the existence of an important reason.

However, if a higher severance payment is agreed, this does not automatically mean that a blocking period applies. It must then be examined more closely whether an important reason still existed, in particular whether a lawful employer dismissal would have occurred at the same time.

In a genuine Section 1a KSchG case, there is also usually no classic settlement agreement. The employment relationship ends through the employer's dismissal. The employee does not sign a settlement agreement, but lets the claim period expire. This passive conduct must be assessed differently from actively signing a settlement agreement.

The employer issues an operational dismissal and states in the dismissal letter that the employee will receive severance pay if they do not file an unfair dismissal claim within three weeks.

The employee does not file a claim.

In this situation, the employee does not actively end the employment relationship by signing a settlement agreement. The employment relationship ends through the employer's dismissal. This is therefore usually a different situation from a classic settlement agreement.

Special care is required if a dismissal has already been issued and the parties then sign an agreement.

If the employer has already dismissed the employee and the parties only regulate the consequences of that dismissal, such as severance pay, reference letter, release from work duties or return of company property, the situation may be different from a settlement agreement that itself brings about the termination.

However, a separation agreement after dismissal can still be relevant for social law purposes. It does not always terminate the employment relationship itself. But if the employee waives the right to file an unfair dismissal claim in exchange for severance pay or agrees to an earlier termination date, the Federal Employment Agency may examine whether this amounts to participation in their own unemployment.

The individual case must always be assessed. Important factors include whether an employer dismissal had already been issued, whether the notice period is observed and whether the employee actively contributes to an earlier or otherwise disadvantageous termination through the agreement.

More on settlement agreements after dismissal

A blocking period is not the same as suspension because of severance pay and a shortened notice period.

In the case of suspension because of severance pay, the main question is whether the employment relationship ends earlier than it would have ended if the notice period had been observed.

In the case of a blocking period, the question is whether the employee contributed to their own unemployment without an important reason.

Both issues may become relevant at the same time in connection with a settlement agreement.

More on severance pay and suspended unemployment benefits

Yes. During a blocking period, payment of unemployment benefits is not only delayed. The overall duration of the entitlement may also be reduced.

This is an important difference from suspension because of severance pay. In that case, payment is generally shifted to a later date. In the case of a blocking period, part of the entitlement may be permanently lost.

For this reason, a settlement agreement should be carefully checked before it is signed.

If a settlement agreement is concluded, particular attention should be paid to the following points:

• termination at the employer's initiative,

• operational or otherwise non-conduct-related reason,

• no possibility of continued employment,

• observance of the ordinary notice period,

• termination date not earlier than in the event of an employer dismissal,

• clear separation of severance pay and outstanding remuneration claims,

• provisions on vacation, release from work duties and reference letter.

These points do not replace an assessment of the individual case. They show, however, what is often relevant for the social law assessment.

Before signing a settlement agreement, employees should have the following points checked in particular:

1. Was an employer dismissal actually threatened?

2. Would that dismissal probably have been lawful?

3. Is the dismissal reason operational or otherwise not related to conduct?

4. Is the ordinary notice period observed?

5. Does the employment relationship end no earlier than it would in the event of a dismissal?

6. Is the amount of severance pay socially unproblematic or explainable?

7. Are there any unused vacation days or outstanding remuneration claims?

8. Is there an additional risk of suspension because of severance pay and a shortened notice period?

9. Can the blocking period reduce the duration of unemployment benefits?

10. Is health insurance coverage during a possible blocking period clarified?

A settlement agreement does not automatically lead to a blocking period. However, the risk is real.

The decisive question is whether the employee contributes to the end of the employment relationship without an important reason. An important reason may exist if a lawful employer dismissal for non-conduct-related reasons would otherwise have occurred at the same time.

High severance pay is not automatically harmful. However, it may lead to a closer examination of whether an important reason actually existed.

Employees should therefore not look only at the severance amount. The reason for termination, termination date, notice period and the specific wording of the settlement agreement are also decisive.