First of all, the settlement agreement determines the termination date. A termination date in the far future may indicate a fixed-term contract instead of a settlement agreement, if typical provisions are missed (such as severance payment, release from work, holidays). In this case, the fixed-term has to be justified by an objective reason (e.g. temporary needs, representation of a colleague, personal reasons of the employee).

In general, the employer is not obliged to pay a severance payment (except in case of works agreement with the works council, bargaining agreement with the trade union, social plan for alterations of the establishment). It is a matter of negotiations. Without the settlement agreement, a dismissal would be necessary to terminate the employment relationship. The employee could contest the validity of the dismissal in a law suit. The amount of the severance payment depends on the risks of the parties to lose this law suit. Negotiations can start with a half monthly gross salary for each year of service. The employee has to pay tax, but no contributions to the social security system.

Under certain conditions, the employee can be released from work until termination date, i.e. he receives his salary etc. without work. The settlement agreement should clarify whether the employee is allowed to work somewhere else (for a competitor?) and whether the salary is reduced by the other income.

In case of an irrevocable release from work, the employer can grant holidays before termination date to reduce the payoff for untaken holidays at the end of the employment relationship.

The settlement agreement should clarify which payments the employee can expect until termination date (monthly salary, bonus etc.), if he’s allowed to use the company car, the mobile phone etc.

The parties can determine that the employee will receive a very good / good / ... reference letter. They can already stipulate the wording of the reference letter in the attachment of the settlement agreement. As alternative, the employee can get the right to draft the reference letter.

In case the termination date lasts several months, the employee can get the right to quit with short notice, e.g. one week, in particular if he finds a new job before termination date. The salary for the months between the planned termination date and the actual termination date can be paid out in full or in part as (additional) severance payment, i.e. no contributions to the social security system are due.

Furthermore, the settlement agreement can contain clauses on a post-contractual competition restraint (only valid with compensation), company pension (in general, no payoff possible) etc.

Finally, if the parties are sure that they took everything into consideration, they can agree that all claims are settled.

If the employment relationship was already terminated by the employer’s dismissal, the settlement agreement can also include the clause that the employee waives the right to sue and to contest the validity of the dismissal.