German Federal Labor Court Emphasizes Case-by-Case Assessment of Release Clauses

Quick Hits

• The German Federal Labor Court held that blanket release clauses in employment contracts that entitle the employer to grant a release upon termination constitute an unreasonable disadvantage and are invalid.
• An employee’s interest in continuing employment until the termination of the employment relationship generally outweighs an employer’s interest in granting the employee a leave of absence in a terminated employment relationship until the expiration of the notice period.
• Exemption is also possible without a contractual basis if the employer’s interests worthy of protection preclude continued employment until the end of the notice period.

Nevertheless, an exemption may be justified if, in the specific case, the employer’s overriding interests worthy of protection conflict with the employment relationship, the BAG said.

Case Background

The employee had been working as a regional manager in the field sales department since January 2022 and used a company car, which was also provided for private use. The standard employment contract contained a clause stating that the employer was entitled to release the employee from work “upon or following the issuance of a notice of termination—regardless of which party issued it”—while continuing to pay compensation. After the employee resigned, the employer granted him leave and demanded the return of the company car. The employee returned the car but claimed compensation for loss of use in the amount of EUR 510 per month due to the withdrawal. The Oldenburg Labor Court (Arbeitsgericht (ArbG)) (Ref. No. 5 Ca 370/24) dismissed the claim, while the Lower Saxony Regional Labor Court (Landesarbeitsgericht (LAG)) ordered the employer to pay the compensation for loss of use (Ref. No. 5 SLa 249/25).

Decision

The BAG’s Fifth Senate opinion clarifies that the agreed-upon leave-of-absence clause, which provided for a blanket option for leave of absence upon termination, is subject to the review of standard terms and conditions under Section 307 (3) sentence 1 of the German Civil Code (Bürgerliches Gesetzbuch (BGB)) and is invalid under Section 307 (1) sentence 1 of the BGB.

Such a blanket clause deprives the employee of the constitutionally protected interest in employment until the end of the employment relationship. Such an interest generally outweighs the employer’s general interest in exemption. Nevertheless, in the opinion of the BAG, a release of the employee may be considered even without a contractual basis if, in the specific case, overriding employer interests worthy of protection precluded continued employment. Since this had not been examined by the LAG, the legal dispute was referred back to the LAG. The BAG did not rule on compensation for loss of use.

Key Takeaways

It comes as little surprise that blanket leave-of-absence clauses in standard-form employment contracts are invalid. However, granting an employee a leave of absence following termination is still possible if, in the specific case, the employer’s overriding interests worthy of protection preclude continued employment. This raises the question of whether it is even necessary or sensible to include release clauses in employment contracts, since the decision will come down to a balancing of interests on a case-by-case basis anyway. Nevertheless, in our view, appropriate release clauses in employment contracts are sensible, as they increase the acceptance of such releases in practice. However, such clauses do not replace a balancing of interests in individual cases. The employer will only be able to effectively withdraw benefits, such as the private use of a company car, during the leave of absence if such a withdrawal is also effective in the specific case, i.e., if the employer has an overriding interest in the leave of absence. This may be the case, for example, if an employee moves to a competitor and trade and business secrets are at risk, or if an employment opportunity no longer exists due to the elimination of the position. In practice, employees rarely object to the leave of absence, but they are more likely to do so if benefits are withdrawn during the leave.

Outlook

With this decision, the BAG confirmed the employee’s overriding interest in continued employment until the end of the notice period. Since the legal dispute has been referred back to the LAG, it remains to be seen which specific employer interests could justify a suspension in this particular case and whether such interests existed. It will then also be determined whether the employer must pay compensation for loss of use due to the withdrawal of the company car.

Ogletree Deakins’ Berlin and Munich offices will continue to monitor developments and will post updates on the Cross-Border and Leaves of Absence blogs as additional information becomes available.

Dr. Ulrike Conradi is managing partner in Ogletree Deakins’ Berlin office.

Lela Salman, a law clerk in Ogletree Deakins’ Berlin office, contributed to this article.

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