Termination hits executives and senior managers differently than other employees. Not because the shock is any smaller, but because far more is at stake: bonus, variable pay, company car, non-compete, reference, garden leave, and reputation. If you are a department head, Head of, VP, or divisional director and receive a termination notice or an offer for an executive severance agreement, relying only on a simple severance formula often leaves a substantial part of the potential result on the table.
This article is aimed at executives and senior managers who want to understand what the law actually says, which negotiation levers are often overlooked, and what a strategically smart approach looks like in an executive termination or manager termination situation.
What Is Legally Different for Executives?
German employment law does not just distinguish between employees and non-employees. It also recognises a third, legally distinct category: the senior managerial employee (leitender Angestellter). Within this category, there are again important differences.
The Three Categories at a Glance
1. Manager without senior managerial status
Team leaders, project managers, or department heads with personnel responsibility who do not have independent authority to hire or dismiss employees fall into this group. They are fully covered by the German Protection Against Unfair Dismissal Act (KSchG), provided they have been employed for more than six months in a business with more than ten employees.
2. Senior managerial employee within the meaning of section 14 KSchG
A senior managerial employee within the meaning of the KSchG is, in particular, anyone who has independent authority to hire or dismiss employees, or who is comparable to such a person due to their role in the company. What matters are the actual tasks and powers, not the job title.
3. Managing director / executive board member
Managing directors of a GmbH and members of the executive board of an AG are not employees for dismissal protection purposes; they are corporate officers. As a rule, the KSchG does not apply to them. Separation is governed by the law on service contracts and the articles of association.
| Feature | Executive (non-managerial) | Senior Executive § 14 II KSchG | GmbH Managing Director (Corporate Officer) |
|---|---|---|---|
| Is the KSchG applicable? | Yes (after >10 employees, >6 months) | Yes, but restricted | No (service contract law) |
| Employer termination petition without cause | No | Yes (Sec. 14(2) in conjunction with Sec. 9 KSchG) | Not relevant |
| Involve works council in the termination? | Yes, fully | Limited | No |
| Three-week deadline for a protection against dismissal claim | Yes | Yes | Not applicable |
| Is severance pay statutory? | Only § 1a KSchG (concerning severance) | Only § 1a KSchG (concerning severance) | Contract negotiations |
| Typical negotiation points | Severance, reference | Severance, bonus, release from duties, non-compete | Severance, D&O, Garden Leave, Duration |
| Social selection in case of termination? | Yes | Limited | No |
Practical note: The label "senior managerial employee" in an employment contract is not legally binding. The term "senior" is often used generously in contracts but is not always accurate in legal terms. Whether someone actually has senior managerial status within the meaning of section 14 KSchG is always a question of the individual case and their real powers - and this can play a decisive role in negotiations about an executive termination or manager severance package.
Termination Protection for Senior Managerial Employees: What Really Applies?
Many executives assume that they enjoy little or no executive termination protection once they are classified as a "senior managerial employee." That is not correct.
Termination protection for senior managerial employees is also governed by the German Protection Against Unfair Dismissal Act. An ordinary termination is therefore only lawful if it is socially justified - that is, based on conduct-related, person-related, or operational reasons.
The key difference lies in the application to dissolve the employment relationship. Section 14 KSchG in conjunction with sections 9 and 10 KSchG provides for a special rule: if the court finds that the termination is socially unjustified, the employer can still apply to the court to dissolve the employment relationship against payment of severance - in certain cases even without giving reasons.
What does this mean in practice? Job protection for senior managerial employees is significantly restricted: you may win on the question of whether the termination was lawful, but it is still very difficult to force your employer to keep you in the role against its will. As a result, the litigation objective in an executive termination often shifts away from "getting the job back" towards securing the highest possible executive severance package and a clean separation structure.
This is not just a legal technicality - it is the core of the negotiation dynamic. If you understand this, you negotiate strategically instead of reacting defensively.
Observe the three-week deadline: Under § 4 KSchG, a protection against dismissal claim must be filed with the labor court within three weeks of receipt of the written termination. If this deadline is missed, the termination is deemed effective from the outset - regardless of whether it would have been legally contestable. This deadline also applies to executives and senior employees.
The formal rules still apply to executives: termination must be in writing. Despite all special features for senior managers, the basic formal rules of German employment law remain: a termination by email or oral notice is invalid.
Severance: Why the Formula Is Only the Starting Point
The well-known rule of thumb - 0.5 gross monthly salaries per year of service - is a guideline, not a legal right. The level of severance in an executive severance package or manager severance package is not fixed by statute. It depends on various factors and is ultimately a matter of negotiation.
What defines a realistic corridor?
- Employer's litigation risk: Is the termination attackable on formal or substantive grounds? The weaker the stated reasons, the stronger your negotiating position in an executive termination or manager termination case.
- Salary level and length of service: For senior managerial employees, significantly higher severance payments may be appropriate, as they usually receive higher salaries and often face longer search periods to find a comparable role.
- Status as senior managerial employee: The employer must substantiate and prove that you actually meet the requirements for senior managerial status. In borderline cases, this uncertainty can be a major bargaining chip for you.
- Market environment and industry: How realistic is it to find a comparable position within a reasonable time frame?
Tax Framework from 2025 Onwards
From 2025 onwards, the so-called "one-fifth rule" for the taxation of severance payments will generally no longer be applied directly by the employer through payroll. The employer will initially withhold income tax according to the normal tariff; you can only apply the one-fifth rule later in your personal income tax return. The impact on cash flow is often underestimated, because the tax relief comes at a later stage. Especially with larger executive severance packages, you should therefore not focus solely on the gross amount, but also factor in the tax framework and its timing.
Vectocon's integrated approach - specialist employment lawyer and tax adviser working together - helps you keep both angles in view at the same time when you are assessing or negotiating an executive severance agreement. You can find more on tax structuring in our article Is There Any Legal Right to Severance in Case of Termination?.
Executive Severance Agreements: More Than Just the Severance Amount
Executive severance agreements for executives and senior managers are more complex than for other employees. They are often part of broader strategic repositioning and internal power shifts. The contract structures regularly involve bonus mechanics, stock options, non-compete covenants, and garden leave compensation.
If discussions about an executive severance agreement or manager severance agreement suddenly start, caution is essential. Do not sign anything without a thorough review - your negotiating position is often stronger than it appears in the first meeting.
The Economic Negotiation Points Every Executive Should Know
The severance payment is often only the most visible part of the outcome. The interactive checklist below shows which issues for executives and senior managers are regularly on the table - and what you should have secured before you sign any executive severance agreement or manager severance package.
Bonus, Commission, and Profit Share
For senior managerial employees, variable compensation is often a significant part of total income. Bonuses, profit shares, stock options, or other performance-based payments may amount to several monthly salaries. Their treatment in an executive severance agreement is therefore crucial.
As a rule, your entitlement to variable compensation ends with the employment relationship for any period thereafter. However, if the bonus entitlement has already been earned, and the employment relationship ends before payment, the question arises whether the bonus is still payable and at what level. The legal assessment depends heavily on the specific contractual arrangements.
Practical recommendation: The executive severance agreement should explicitly state how outstanding bonuses from past periods and pro-rated bonuses for the current year will be handled. For stock options and other long-term incentive plans, the situation is often even more complex. So-called forfeiture clauses can mean that you lose unexercised options when the employment relationship ends.
Garden Leave
Garden leave until the end of the contract term protects you and gives you time to reorient your career. The key question: is the garden leave revocable or irrevocable? Only irrevocable garden leave, combined with full offset of all holiday entitlements, reliably protects you from being called back in at short notice.
Company Car
Executives and senior managerial employees usually have a company car. This is treated as a taxable benefit in kind and must be taxed accordingly. In a separation scenario, the executive severance agreement should set out in detail whether and to what extent the company car can continue to be used - and until when.
Reference and Communication
A qualified reference with a rating of "very good" or at least "good" is far from automatic for executives - it is often a matter of negotiation. Internal and external communication should also be clearly agreed in the executive severance agreement to protect your reputation. A jointly agreed wording guidance helps prevent contradictory or damaging narratives.
Non-Compete Covenant
Employment contracts for senior managerial employees usually contain a post-contractual non-compete covenant. This restricts you from working for a competitor or starting your own competing business for a certain period after the end of the employment relationship.
Such a non-compete covenant is only binding on you if the employer undertakes to pay you garden leave compensation for the duration of the restriction. This compensation must amount to at least half of your last total remuneration. The non-compete is therefore a key negotiation item in any manager severance package: it can be maintained, limited in time or geography, or cancelled entirely - the latter often in exchange for a financial consideration.
By law, post-contractual non-compete covenants are limited to a maximum of two years.
Termination Protection Claims as an Executive: When Are They Worthwhile?
Even if the primary goal in an executive termination is rarely to return to the job, filing a claim for protection against unfair dismissal can be strategically valuable. You must file the claim with the employment court within three weeks - otherwise even an objectively unlawful termination becomes effective. In court proceedings, you can not only challenge the grounds for dismissal but often also negotiate better terms for an amicable separation: higher severance, garden leave clauses, bonus rules, reference wording, and adjustments to non-compete covenants.
In practice, severance payments in an executive severance package are often driven by the employer's desire to avoid litigation risk or to reach an amicable solution. Negotiating power does not come from an abstract right, but from your concrete legal position - in particular, your chances of success in a termination protection claim.
Termination vs. Executive Severance Agreement: The Strategic Trade-Off
Sometimes it is smarter to accept the termination first and then sue - rather than rushing to sign an executive severance agreement. The right approach depends on your specific situation:
- Executive severance agreement: Fast, predictable, no public proceedings - but a waiting period for unemployment benefits is possible if it is not structured correctly.
- Termination plus lawsuit: Builds negotiation pressure and creates opportunities for better terms - but requires time and involves uncertainty up to the initial conciliation hearing.
You will find a detailed comparison and checklist for severance agreements in our article Have Your Severance Agreement Reviewed: Checklist for Employees Before Signing.
Legal Expenses Insurance for Executives: What Is Covered?
Involve legal protection insurance early: If you have legal protection insurance, submit a coverage request as early as possible - ideally before the first attorney consultation. Have ready: the insurance policy certificate, a termination letter (or settlement offer), the employment contract, and, if applicable, the most recent pay slip. Most policies cover proceedings at the labor court, but exclude certain items (e.g., GmbH managing director as a corporate officer).
Legal expenses insurance can significantly reduce the costs of legal advice and employment court proceedings in an executive termination protection case.
For executives and senior managers, the following typically applies:
- Employment legal protection usually covers termination protection proceedings and other employment disputes.
- Exclusions: Many policies exclude managing directors of a GmbH and other corporate officers, as they are not legally treated as employees.
- Executives below corporate officer level (department heads, Heads of, VP level) are usually covered as employees under most policies.
- The request for coverage should be made before any detailed legal advice on the merits to avoid jeopardising insurance coverage.
In our initial consultation, we review whether and to what extent your legal expenses insurance applies - and we prepare and submit the coverage request in a structured way.
A Strategic Approach: What Executives Should Do Now
If, as an executive or senior manager, you are confronted with pressure, an offer for an executive severance agreement, or an outright executive termination, you should not assess the situation purely on a "trust basis". You need to recognise its clear employment law dimension. With timely specialised advice, solid documentation, and a carefully planned litigation and negotiation strategy, many supposedly "inevitable" separations can be shaped far more favourably - financially and in terms of reputation.
Your first steps after a termination or an executive severance agreement offer:
- Record the date of receipt - the three-week filing deadline for a termination protection claim runs from that day.
- Do not sign immediately - even if you are told there is time pressure. Especially for senior managerial employees, the financial stakes in a manager severance package are often high enough that careful review and negotiation pay off.
- Inform your legal expenses insurer - prepare and submit the coverage request.
- Gather your documents: termination letter / severance offer, employment contract (including amendments), recent payslips, bonus agreements, target agreements, company car agreement, non-compete clauses.
- Obtain specialist legal advice - ideally combined with integrated tax input, because severance amount, payment timing, and tax rules (such as the one-fifth rule) are closely interconnected.
Our employment law services provide exactly this kind of specialised support - from first assessment through to signing the final executive severance agreement. Christopher Hutz, specialist employment lawyer at Vectocon | Steuerberater Rechtsanwälte, advises executives and senior managerial employees on executive termination, executive severance agreements, manager severance packages, and restructurings.
What sets the Vectocon approach apart: we do not just check whether a lawsuit is possible - we ask whether it is economically sensible in your specific case. And we do not negotiate based on a standard formula, but based on your actual situation: salary, bonus structure, non-compete covenant, reference wording, company car, unemployment benefit waiting period, and tax structuring. Learn more about our team and advisory approach.
Frequently Asked Questions (FAQ)
Am I as a team leader or department head a 'executive employee' under the KSchG?
Not automatically. The term 'executive employee' under § 14(2) KSchG requires in particular the authority to hire or dismiss employees independently. Merely leadership responsibilities, a Prokura title, or the designation in the contract are not sufficient. What matters are the actual powers, not the job title. A legal review in individual cases is highly advisable.
Do I have a severance entitlement as a manager?
There is generally no statutory severance entitlement - not even as a manager. Exceptions: § 1a KSchG in cases of an operationally based termination with explicit notice by the employer, or a court-ordered dissolution petition under §§ 9, 10 KSchG. In practice, severances almost always arise through negotiation - either via a settlement agreement or in the termination protection process. The stronger your legal position, the better your negotiating outcome.
What happens to my bonus if the employment relationship ends?
That depends heavily on the contractual design. Already earned bonuses (e.g., for completed financial years) generally cannot simply be taken away. Ongoing or future bonuses, on the other hand, expire with the end of employment, unless otherwise agreed. The settlement agreement should expressly specify how to handle outstanding and prorated bonus payments.
Can I negotiate the non-compete clause?
It depends on your concrete insurance contract. Many legal protection policies cover employment-related disputes but exclude certain leadership or executive positions. Important: Before requesting coverage, you should have your policy, the termination letter, and the employment contract ready. We assess early on whether and to what extent your legal protection insurance applies.
Will my legal protection insurance pay out in case of a termination as a manager?
That depends on your specific insurance policy. Many legal protection policies cover employment-related disputes but exclude certain leadership or executive positions. Important: Before requesting coverage, you should have your policy, the termination letter, and the employment contract ready. We will assess early on whether and to what extent your legal protection insurance applies.
Conclusion: For Executives, Strategy Matters More Than Any Standard Formula
An executive termination or an offer for an executive severance agreement is never a standard situation - and it should not receive a standard response. Termination as a senior managerial employee, and the associated severance negotiations, demand a careful legal and strategic approach. The level of your executive severance package or manager severance package depends on many factors and can be significantly improved through skilful negotiation.
The three key takeaways:
- Have your status reviewed: Are you truly a senior managerial employee within the meaning of the KSchG - or do you in fact enjoy full protection against unfair dismissal under general executive termination protection rules?
- Negotiate the full package: Bonus, garden leave, company car, reference, non-compete, and unemployment benefit waiting period all belong in your overall strategy for any executive severance agreement or manager severance agreement.
- Keep the three-week deadline in mind: The clock starts running as soon as you receive the termination.
