Is the dismissal invalid? – Federal Labour Court restricts freedom of contract regarding so-called ‘wages for default of acceptance’

In unfair dismissal proceedings, so-called ‘wages for failure to accept work’ regularly rank among the significant cost risks for companies. Under German labour law, ‘wages for failure to accept work’ means that employers must pay employees wages despite a failure to perform work if a duly offered job is not accepted for reasons for which the employee is responsible (Section 615 of the German Civil Code, BGB). If dismissal proceedings drag on through several instances and a dismissal ultimately proves to be invalid, substantial back pay may therefore be incurred. Attempts to limit this risk through the drafting of employment contracts have now been significantly curtailed by a recent ruling.

Facts of the case

The case concerned a dismissal dispute involving an employee resident in Germany who was employed by a US-based airline. The employment contract contained a choice of law clause in favour of US law, which did not provide for claims arising from default of acceptance. Following the notice of termination, the employee brought an action for unfair dismissal and claimed wages for default of acceptance for the period up to the actual termination date. Whilst the lower court had rejected the claims on the basis of the agreed choice of law, the appeal before the Federal Labour Court raised the question of whether claims for wages due to default of acceptance can be validly excluded in advance in the event of an invalid or premature termination.

The decision

The Fifth Senate of the Federal Labour Court (BAG) clarified that the decisive provision providing for wages for default of acceptance (Section 615(1) of the German Civil Code (BGB)) remains, in principle, subject to derogation. However, in the event of an invalid termination or one that only becomes effective at a later date, a complete derogation is inadmissible. Such a contractual arrangement – including the choice of a foreign legal system – would undermine the mandatory provisions on protection against dismissal and would be invalid under Section 134 BGB. Employers may not be completely exempted in advance from claims for wages due to default of acceptance in the event of an invalid termination or one declared with an incorrect notice period.

Implications for practice

The decision strengthens protection against dismissal and confirms that the economic risk of an invalid or incorrectly declared dismissal remains with the company. Although the reasoning is debatable and appears to be guided by the desired outcome, significant limits are defined for practice which employers should take into account in future when drafting contractual clauses.

However, the Federal Labour Court’s statement that only a ‘complete’ waiver is to be invalid leaves room for interpretation. This means that whilst companies and employees cannot agree on a comprehensive waiver, there remains scope for targeted and legally permissible adjustments to individual contractual elements, provided that the core of statutory protection against dismissal and the protection afforded by Section 615(1) of the German Civil Code (BGB) are not undermined.

Practical tip

Employers should prepare notices of termination with particular care and ensure that notice periods are strictly adhered to. Choice of law clauses are not a suitable means of shifting the risk of default on acceptance to the employee. However, the principles regarding the deduction of alternative earnings or the wilful refusal to perform reasonable work remain valid. Employees should therefore continue – even whilst the notice period is still ongoing – to regularly submit job offers via secure channels and await a response. To this end, a duty to disclose interim earnings from other gainful employment or, within reasonable limits, a duty to actively seek other employment opportunities may be included in the employment contract.