Employers Cannot Withhold Salary from Employees on Notice Who Fail to Find New Employment
A recent ruling by the Federal Labor Court in Erfurt, Germany (5 AZR 127/24), has clarified the issue of salary payments to employees who have been given notice of termination but have not secured new employment during their notice period. According to labor law experts, this issue has been a frequent source of dispute between employers and employees, which has now been settled by the highest labor court in the country.
Background of the Case
The precedent-setting case involved a senior consultant who received formal termination of employment from his employer. During his three-month notice period, he was released from active duty by the employer, which meant he was not required to perform any work duties.
Court’s Decision
The decision by Germany’s highest labor court states: "In cases where an employer issues a formal notice of termination and subsequently releases the employee from active duty despite their entitlement to work, the employee is generally not acting in bad faith by failing to seek alternative income, unless they secure another employment relationship before the end of the notice period."
While on leave, the employer sent the plaintiff a total of 43 job offers from various job portals. The employee applied for seven of these positions, which he did towards the end of his notice period, as he was also challenging his termination in court. The employer argued that the employee was obligated to apply for the provided job ads during his release period. As such, the employer withheld the consultant’s salary for the last month of his employment.
The employer’s argument was based on a provision in the German Civil Code, which addresses whether an employee is acting "in bad faith" by not seeking alternative employment while on leave from their employer, effectively declining their offer of work.
Employee’s Argument
The terminated employee argued that taking on new employment during his release period could create a conflict of interest between his former and new employers. Additionally, he asserted that it is unlikely to secure a permanent position within a few weeks.
Court’s Reasoning
The employee’s claim for payment of his unpaid salary (6,440 euros gross plus interest) was ultimately successful. The court held that the employer failed to demonstrate that it was unreasonable to fulfill the employee’s employment entitlement, even during the notice period. The court reasoned that "under these circumstances, there was no obligation for the plaintiff to enter into another employment relationship before the end of the notice period in order to financially relieve the defendant and generate income."
Implications
The decision by the Federal Labor Court provides clear guidance to employers and employees regarding salary payments during notice periods. Employers cannot simply withhold salary from employees on leave who have not yet found new employment.
This ruling protects employees’ financial security during the transition period and ensures that they are not financially penalized for exercising their right to challenge their termination in court. It also clarifies the boundaries of an employee’s obligation to seek alternative employment while on leave.
Professional Advice
Employees and employers are advised to seek professional legal advice when navigating issues related to employment termination and notice periods. Labor law experts can assist in understanding the legal rights and obligations of both parties, ensuring a fair and equitable outcome.
