In its judgment of 27 August 2026, Case No. 21 Cdo 1215/2025, the Supreme Court considered an employee’s entitlement to severance pay agreed in a mutual termination agreement. The parties stated in the agreement that the employment relationship was being terminated on grounds of redundancy under Section 52(c) of the Labour Code and that the employee was entitled to severance pay equal to three times his average monthly earnings. In reality, however, the employer had not adopted any organisational change, and both parties were aware when entering into the agreement that the actual reason for terminating the employment relationship was not organisational.
The Supreme Court addressed the legal consequences of knowingly simulating a statutory ground for termination of employment where the parties had also agreed on severance pay.
The Supreme Court stated that the law does not prevent an employer from providing severance pay to an employee in circumstances other than those specified in Section 67 of the Labour Code. An entitlement to severance pay may therefore arise directly from an agreement between the employee and the employer, including, for example, where employment is terminated by mutual agreement without specifying any reason. The mere fact that the employee was not entitled to statutory severance pay under Section 67 of the Labour Code does not mean that an entitlement to severance pay could not arise on another legal basis.
According to the Supreme Court, a disguised legal act must be assessed according to its true nature and the parties’ common intention. Therefore, if the parties agree on severance pay in a mutual termination agreement in which they knowingly simulate the existence of a ground for termination under Section 52(c) of the Labour Code, the employee may nevertheless be entitled to severance pay if the interpretation of the actual legal act demonstrates that the parties shared an intention to provide severance pay irrespective of whether the statutory ground existed.
The decisive factor is therefore not merely whether the stated organisational reason actually existed, but also the parties’ true common intention when agreeing on severance pay.
HR Legal Update 09/2026 download here.