Withdrawal of a company car during suspension on the basis of a blanket suspension clause gives rise to compensation

Employees are generally entitled to actual employment until the end of the notice period. Companies must refine their standard suspension/exemption/release clauses and check whether a company car provided for private use may be withdrawn without compensation during the notice period. 

Facts of the case

A regional manager employed in the field sales force had a company car that could also be used for private purposes. The employment contract contained a clause stating that the employer was entitled to suspend the employee ‘upon or following the giving of notice of termination – regardless of which party gave it’ whilst continuing to pay remuneration. At the same time, it was stipulated that, in the event of suspension, the use of the company car could be revoked.

After the employee had resigned, the employer suspended him with immediate effect and demanded the return of the company car. The employee then claimed monthly compensation for loss of use. 

The decision 

The Federal Labour Court ruled that the blanket exemption clause unreasonably disadvantaged the employee and was invalid as a general term and condition under Section 307(1) of the German Civil Code (BGB). The constitutionally protected interest of employees in actual employment until the end of the employment relationship generally outweighs the interest of companies in blanket suspension following termination.

A contractual clause permitting a suspension ‘always’ and without further conditions upon a termination notice deprives employees of the opportunity to assert an increased interest in continued employment in individual cases. Such clauses are therefore invalid. Exemption is only permissible if, in the specific case, overriding interests of the company worthy of protection justify it, such as the protection of trade secrets or particular competitive risks.

The Federal Labour Court nevertheless referred the matter back to the lower court, as it remained to be examined whether such overriding interests existed in the specific individual case and whether the suspension (irrespective of the blanket suspension clause) could be justified. If the employee had been lawfully suspended, the use of the company car could also be revoked. The entitlement to compensation for loss of use therefore depends on the lawfulness of the suspension.

Implications for practice

For employers, this means that a blanket suspension clause does not permit either immediate suspension from work or the demand for the return of the company car. Even if the suspension is permissible in an individual case, this does not mean that the company car must be surrendered (without compensation). Rather, the withdrawal of the company car must also be clearly regulated in the employment contract and linked to a valid basis for the suspension or to clear, objective grounds for revocation.
Many standard clauses used in employment contracts, which link automatic suspension to the giving of notice of termination and link the return of the company car to the suspension, are therefore no longer tenable. 

Practical tip

Companies should review existing employment contracts and company car policies. Suspension clauses should not be blanket provisions, but should be linked to objective grounds that are at least exemplified in the contract. It remains to be seen whether the Federal Labour Court will provide helpful guidance in its reasoning on what such suspension clauses should look like.

In each individual case, careful consideration must be given to, and documentation provided regarding, whether overriding employer interests (e.g. access to strategic information, specific client contacts) justify the suspension. The grounds for revoking a company car (e.g. a change in role, long-term illness, justified leave of absence) should also be set out in any relevant clauses.

Managers should be aware that a knee-jerk suspension involving the immediate withdrawal of a company car carries legal and financial risks. They should consider whether the withdrawal of the company car, which usually leads to legal disputes, is truly in the company’s best interests. A suspension that does not result in a loss of salary is, in the vast majority of cases, not contested. As a general rule, a mutually agreed leave of absences can avoid many problems, including with regard to other variable remuneration components.