Germany: German Federal Labour Court Confirms Salary Entitlement of Dismissed Employees on Garden Leave Despite Lack of Job Search Efforts

If an employer terminates an employee’s employment relationship and releases him from his work obligations until the end of the notice period, he cannot expect the employee to make an effort to enter into a new employment relationship before the end of the notice period. The employer may not suspend payment of remuneration on the grounds that the employee has maliciously failed to earn money elsewhere.

 

Background

In the case before the Federal Labour Court, the employer had terminated the employment of an employee employed as Senior Consultant and had placed the employee on irrevocable garden leave until the expiry of the notice period. During the garden leave period, the employer sent the employee a total of 43 job offers from internet portals. The employee only applied for seven of these offers at the end of his notice period. The employer withheld the employee’s monthly remuneration for the last month of the notice period as a reaction.

 

Key Issues

Pursuant to Section 615 sentence 1 of the German Civil Code, the party obliged to provide a service can demand the agreed remuneration for services not rendered if the beneficiary is in default of acceptance. Therefore, if the employer places the employee on garden leave and did not accept his services, he remains obligated to pay the contractually owed remuneration. However, pursuant to Section 615 sentence 2 of the German Civil Code, remuneration acquired or maliciously failed to acquire through other use of his services can be offset against the employee’s remuneration claim. Until now, it has been legally controversial whether an employee’s failure to apply for a job in the event of dismissal and garden leave is to be considered a malicious omission within the meaning of this provision.

The Federal Labour Court now clarified that this is not the case. A fictitious crediting of unearned income in accordance with Section 615 sentence 2 of the German Civil Code requires that the employee has remained inactive contrary to the principles of good faith. The provision contains an equitable rule that requires a comprehensive consideration of the overall situation. According to this, the employer’s obligation to pay remuneration only ceases to apply if it would be unreasonable to expect the employer to fulfil the obligations resulting from the employment relationship until the end of the notice period despite the default in acceptance.

The court found that the defendant had not presented any circumstances for such unreasonableness in the specific case, meaning an exception to the obligation to pay remuneration could not be considered in the specific case. The court, in particular, established the principle that, as a rule, employees are not obliged to enter into another employment relationship before the end of the notice period in order to relieve the employer financially and to earn money from it.

Practical Point

• The ruling clarifies a previously disputed point. Employers can generally not expect to be relieved from the obligation of paying the contractual remuneration during the employee’s notice period.
• However, employers should still actively send job offers to dismissed employees, as this can have significant impact on default of acceptance claims for time periods after the notice period in dismissal protection cases.