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Dismissals and Severance Agreements

Date

28 Sept 2025

Category

Payroll
Handling a dismissal requires more than formal correctness – it demands both professional precision and human understanding. In this post, we guide you through the legal and practical considerations you need to make – especially when illness or changing working conditions come into play. We also show how a severance agreement can be a dignified and legally sound alternative. Whether you're a payroll officer or a managing director, you’ll receive clear and professional guidance to help you navigate complex HR situations – ensuring the best possible outcome for both the company and the employee. 

What is a dismissal? 

A dismissal marks the end of an employment relationship between employer and employee. For it to be valid, the dismissal must be based on a fair and justifiable reason. 

Reason for dismissal 

It is crucial to have a valid reason for dismissal. As a general rule, any employee can be dismissed as long as the reason is fair and well-founded. 

Illness as a reason for dismissal 

When dismissing an employee due to illness, it is important to consider all relevant factors before making a decision. For instance, you can use this checklist: 
  • Duration of illness: How long has the illness lasted to date?
  • Cause of illness: Note that you must not enquire about the cause unless it is relevant and legal to do so.
  • Prospect of returning to work: Assess if and when the employee can return to normal duties – e.g. via a fit note.
  • Pattern of illness: Consider whether the illness is recurring or intermittent.
  • Operational impact: Does the employee’s absence significantly affect operations or increase colleagues’ workload?
  • Nature of the role: Is it possible to find a temporary replacement?
  • Work-related illness: Consider whether the illness could be work-related.
  • Employee seniority: As a rule of thumb, more caution should be exercised when dismissing long-serving or older employees. 
A dismissal may still be justified despite illness – if the absence represents a significant and real burden, and if a comprehensive assessment has been carried out, taking into account factors such as duration, likelihood of return, and seniority. 
In cases of illness-related dismissal, extra caution is advised, especially where the illness may fall under disability legislation – which can afford the employee additional protection against dismissal.

What is a severance agreement

An alternative to dismissal may be a severance agreement, where the employer and employee mutually agree to end the working relationship. However, it is important to note that an employee cannot be forced to accept a severance agreement, and there is usually an expectation of compensation – for example, an additional month’s salary. The agreement must be clearly and thoroughly drafted to ensure it is valid. 

Need help?

Are you facing an employee dismissal or other legal HR challenges? We offer expert advice to help you as an employer manage difficult situations while complying with current laws and regulations.

FAQ about Dismissals and Severance Agreements

A dismissal marks the end of the employment relationship between an employer and an employee. It must be based on a fair and justifiable reason to be valid. 

An employee can be dismissed if there is a fair reason – for example, business-related factors, employee performance, or significant changes to terms and conditions. 

Yes – but only if their absence constitutes a significant and genuine burden on the business and the dismissal is fair and justifiable. In such cases, a comprehensive assessment must be made, including considerations of seniority and potential disability protection.

A severance agreement is a voluntary contract between employer and employee to end the employment on agreed terms – often more favourable than a standard dismissal – but it must not leave the employee worse off than they would be under applicable laws or collective agreements.

It should cover the termination date, garden leave, financial compensation, unused holiday, return of company property, any post-employment restrictions, and potential support such as counselling or outplacement. It should ensure the employee is treated at least as fairly as they would be under a regular dismissal.

It is important to follow current regulations and draft agreements precisely to avoid them being deemed invalid.

Lisbeth Lindorff Riis

Lisbeth Lindorff Riis holds a Cand.merc.jur degree from the Aarhus School of Business and later obtained a Cand.jur degree from the University of Copenhagen. Lisbeth has over 21 years of experience in legal advising within HR, including issues related to data protection law - GDPR, employment law, and maternity leave. In Azets, Lisbeth is the Head of HR Legal.