Monthly Dose Employment Law 04/2026

General Clauses Allowing Release from the Obligation to Work upon Termination Are Invalid

BAG judgement of 25 March 2026, 5 AZR 108/25

A standard-form clause which grants the employer a general right to release the employee from work upon or following the giving of notice of termination places the employee at an unreasonable disadvantage and is invalid. The mere issuance of a notice of termination does not, in principle, affect the employee’s general right to employment. This was clarified by the BAG in its judgement of 25 March 2026 (5 AZR 108/25).

Facts of the case

• The plaintiff had been employed as a regional sales manager in the field sales force since January 2022 and was entitled to a company car, including for private use. The company car agreement provided that the employer was entitled to revoke permission for private use on objective grounds; one such ground specified was, amongst others, the employee’s release from work. The employment contract also contained a standard form clause stipulating that the defendant was entitled to ‘release the plaintiff from work, with continued payment of remuneration, upon or following the giving of notice of termination – regardless of which party gave it’.
• Following his resignation with effect from 30 November 2024, the defendant released the plaintiff from work until the end of the notice period and demanded the return of the company car. The plaintiff claimed compensation for loss of use for four months and contended that both the release clause and the revocation clause were invalid. Whilst the Labour Court dismissed the claim, the Regional Labour Court upheld it; the defendant lodged an appeal against this decision.
  

Reasons for the decision

• The defendant’s appeal was successful. BAG set aside the appeal judgment and referred the case back to the Regional Labour Court for a fresh hearing. The revocation clause in the company car contract stands up to scrutiny under the rules governing standard terms and conditions. It specifies the ground for revocation (release from work) with sufficient clarity and makes the economic consequences for the employee calculable. Furthermore, it is to be interpreted as meaning that only a justified release from work can constitute an objective ground for the revocation of private use.
• General standard-form release clause invalid: By contrast, the standard-form release clause in the employment contract is invalid. The employee’s general right to employment generally continues even during the notice period; the mere giving of notice does not extinguish it. The clause completely precludes the balance of interests required in individual cases and deprives the employee of any possibility of asserting a particular interest in continued employment. As a result, it places the employee at an unreasonable disadvantage within the meaning of Section 307(1), s. 1, and (2) No. 1 of the German Civil Code (Bürgerliches Gesetzbuch, BGB). The continued payment of remuneration cannot compensate for this interference, particularly as the release from work could simultaneously lead to the withdrawal of a component of remuneration – the private use of a company car.
• Admissibility of a release from work in individual cases: However, a unilateral release from work remains admissible even in the absence of a valid contractual clause if, in the specific individual case, the employer has overriding interests worthy of protection. The BAG cites, by way of example, the protection of trade and business secrets, the threat of competitive activity or the poaching of customers, facts which may constitute good cause for dismissal, as well as cases in which employment is no longer possible due to a closure of the business, a lawful reorganisation or the cessation of employment opportunities. As the Regional Labour Court had not made sufficient findings in this regard, the case was remanded.

Implications for practice

The judgement has significant implications for the drafting of standardised release clauses. It is not the release clauses as such that are invalid, but general clauses which grant the employer a right of release solely on the basis of the notice of termination being given, without any weighing up of interests. At the same time, the BAG makes it clear that a release from work during the notice period may still be permissible if, in the individual case, there is an overriding legitimate interest on the part of the employer.

When drafting contracts, it is therefore advisable to adapt release clauses to the standards set out by the BAG. The clause should expressly require a balancing of interests on a case-by-case basis and specify examples of objective grounds that may justify a release from work. These include, in particular, the protection of trade or business secrets, the threat of competitive activity or the poaching of customers, the loss of an employment opportunity as a result of a business closure or a valid reorganisation leading to the premature loss of the employee’s post before the expiry of the notice period or before the relevant termination date, as well as other circumstances on the basis of which it would be unreasonable to expect the employer to continue the employment until the end of the contract.

Failure to give notice of collective redundancy continues to render the dismissal invalid

BAG judgement of 1 April 2026, 6 AZR 157/22

In its judgement of 1 April 2026 (6 AZR 157/22), the BAG has once again clarified that failure to give notice of a collective redundancy, as required under Section 17(1) of the German Employment Protection Act (KSchG), renders the dismissals issued in this context invalid. Furthermore, it reiterates that the number of regular employees is decisive for calculating the threshold. The Sixth Senate confirms the restrictive approach taken to date and emphasises that the outcome is also in line with EU law.

Facts of the case

• The plaintiff had been employed by the insolvent company since 1994. The insolvent company employed 25 employees until September 2020. In September 2020, provisional insolvency administration was initially ordered and the defendant was appointed as provisional insolvency administrator. On 1 December 2020, insolvency proceedings were opened and the defendant was appointed as insolvency administrator.
• The 22 employment relationships still in force with the insolvent company in October 2020 were terminated by the company through notices of termination and mutual termination agreements, which were issued or concluded between 12 November 2020 and 29 December 2020. On 2 December 2020, the defendant terminated the employment relationship with the plaintiff without first giving notice of collective redundancy to the relevant Employment Agency. At the time of termination, 19 employees were still employed by the insolvent debtor.
• The plaintiff brought an action against the dismissal, arguing that it was invalid due to the failure to give the notice of collective redundancy required under Section 17(1) KSchG. In the legal proceedings, the defendant took the view that, in the case of the closure of the business at hand, contrary to the previous case law of the BAG – which was incompatible with EU law – the normal size of the business could not be determined by looking back at the previous number of employees. Rather, a cut-off date rule should be applied. The decisive factor was the number of employees present on the date of dismissal – in this case, this stood at 19 employees at the time of the opening of insolvency proceedings; and, as this fell below the threshold of 20 employees, the mass redundancy notification procedure was no longer required.
• The Hamburg Labour Court and the LAG Hamburg upheld the claim. The BAG stayed the proceedings and referred the legal questions relevant to the decision - concerning the interpretation of the EU Mass Redundancies Directive (Directive 98/59/EC, MERL) - to the ECJ; specifically, amongst other things, whether the validity of a notice of termination in the context of a mass redundancy under the MERL is conditional upon prior notification of the mass redundancy. The ECJ answered the questions referred in its judgment of 30 October 2025 (C-134/24; see our discussion of this in our Monthly Dose 10/2025) and affirmed, amongst other things, that prior, proper notification of collective redundancy is necessary for the validity of the dismissal. Following the ECJ’s judgment, the BAG handed down the present decision.

Reasons for the decision

• The BAG upheld the claim and declared the dismissal invalid. The dismissal constituted a dismissal subject to notification within the meaning of Section 17(1), s. 1 KSchG. The threshold specified in Section 17 (1) s. 1 no. 1 KSchG had been exceeded. In the absence of a proper notice of collective redundancy, the dismissal was invalid.
• Regular employment as the benchmark for the threshold under Section 17(1) KSchG: For the calculation of the threshold under Section 17(1) KSchG, it is not the number of employees in the undertaking at the time the notice of dismissal was given that is decisive, but rather how many employees the employer regularly employs.
• What matters is the number of employees in the ordinary course of business. In the ordinary course of business, the insolvent debtor had still employed 25 employees. By contrast, the 19 employees whom the insolvent debtor had employed at the time the notice of dismissal was given are not relevant.
• With regard to the consequence of invalidity, the BAG refers to the ruling of the ECJ in its judgement of 30 October 2025, according to which a dismissal in connection with a collective redundancy cannot take effect before it has been notified to the competent authority. Compliance with the minimum period specified in the MERL for the redundancies to take effect is intended to enable the authority, on the basis of all the information provided to it by the employer, to respond to collective redundancies and to initiate appropriate measures in the labour market at an early stage, including the provision of follow-up employment.
• This interpretation by the ECJ must be taken into account through an interpretation of Section 18 (1) KSchG that complies with the Directive. The term ‘dismissal’ is to be understood as ‘termination of employment’. In such cases, it is no longer necessary – as previously assumed by the BAG – to rely on Section 134 BGB, which stipulates that legal transactions that contravene a statutory prohibition are invalid. It follows directly from Section 18 KSchG, when interpreted in accordance with the MERL, that terminations can only take effect one month after notification of the collective redundancy to the authority, provided that the authority does not shorten or extend the one-month dismissal moratorium provided for in Section 18 (1) KSchG. As the defendant had not given notice of a collective redundancy in the present case, the notice of termination could not have terminated the employment relationship.

Implications for practice

The BAG has once again clarified that the notification of a collective redundancy is a prerequisite for the validity of notices of termination issued in the context of a collective redundancy where the threshold set out in Section 17 KSchG has been reached. The judgement shows that even the closure of a business due to an employer’s insolvency does not justify an exception. Even in the case of a gradual reduction in the number of employees following a business closure, the decisive factor is the regular number of employees, meaning that the requirement for a notice of collective redundancy must be determined on the basis of this figure.

Employers must therefore, in the case of any dismissal declared in the context of further dismissals and other terminations, assess whether a notice of collective redundancy is required and, if so, submit the notice of collective redundancy to the competent Employment Agency in accordance with the content requirements set out in Section 17 KSchG.

Overpayment of remuneration in an employment relationship: Application of exclusion periods to the claim for repayment

LAG Baden-Württemberg judgment of 28 January 2026, 4 Sa 41/25

In its judgment, the LAG Baden-Württemberg ruled on the question of whether an exclusion period under an employment contract also applies if a claim filed within the time limit is dismissed as inadmissible and the employer brings a new – admissible – claim only after the exclusion period has expired

Facts of the case

• The parties were in dispute over the repayment of overpaid remuneration following the termination of the employment relationship. The defendant employee had been employed by the plaintiff employer as a project manager since 2019. The employment contract contained a two-stage exclusion period provision, under which claims must be asserted against the other party within three months and, if not brought before the courts within a further three months following a rejection, lapse.
• On 19 January 2023, the employer terminated the employment relationship with immediate effect on extraordinary grounds, or alternatively with notice at the next permissible date.
• However, due to an external payroll process for the employee’s remuneration that had been initiated prior to the notice of termination being given, the employer nevertheless paid the employee the full monthly salary for January 2023.
• The employee brought an action for protection against dismissal challenging the termination. In the dismissal protection proceedings, the employer filed a counterclaim for the repayment of the overpaid remuneration for the period from 20 January 2023 to 31 January 2023.
• The Labour Court found that the extraordinary dismissal was invalid, but that the ordinary dismissal had terminated the employment relationship. It dismissed the counterclaim as inadmissible. The employer lodged an appeal against the judgment in so far as it declared the extraordinary dismissal to be invalid. The dismissal of the counterclaim became final.
• On appeal in November 2024, LAG held that the employment relationship had been terminated by the extraordinary dismissal on 19 January 2023. Subsequently, in January 2025, the employer brought a further claim for repayment of the overpaid remuneration for January 2023.

Reasons for the decision

• The LAG Baden-Württemberg ruled that the employer had no claim to repayment of the overpaid remuneration.
• Admittedly, a claim for repayment of the overpaid remuneration did exist in principle under Section 812(1) of the German Civil Code (BGB), and such a claim was not precluded by Section 814 BGB, according to which a payment made in the knowledge that no debt existed cannot be reclaimed. However, the repayment process in this case had already been initiated before the employer became aware of the extraordinary dismissal.
• An inadmissible claim does not permanently preserve the exclusion period: However, the claim for repayment is precluded by the exclusion periods set out in the employment contract. Whilst the employer had originally complied with the second stage of the exclusion period by bringing the counterclaim, an interpretation of the clause suggests that a claim is precluded in the present case. According to the wording of the exclusion period clause, it is true that it is sufficient for legal action to be brought at some point within three months; however, the purpose of exclusion periods is to ensure legal certainty and clarity with regard to the claim in question. A substantive assessment of the claim should therefore have been carried out in a timely manner. While the employer had initially satisfied the requirements of the second stage by timely filing a counterclaim, this effect of preserving the time limit did not persist indefinitely after the counterclaim was dismissed with final effect as inadmissible. After the expiry of 13 months until the new action was brought, the employee could no longer have expected the employer to actually still be asserting the claim. The employer should have extended the appeal to include the counterclaim or brought a new action in a timely manner.

Implications for practice

The decision clarifies the purpose of exclusion periods and that, even if the period is initially observed by bringing an inadmissible action, a substantive examination of the claim must be pursued promptly. Otherwise, there is a risk of the claim being lost entirely.

The judgement also demonstrates that a claim for the recovery of overpaid remuneration does not necessarily fail on the grounds of Section 814 BGB, provided that the act of will triggering the payment process took place before the date on which the notice of termination was given.

However, the legal question has not yet been conclusively resolved. An appeal on points of law against the decision is pending before the BAG under case number 5 AZR 48/26.

Burden of proof and burden of presentation in pay-scale classification disputes

LAG Niedersachsen judgment of 23 March 2026, 15 SLa 86/25

In its judgment of 23 March 2026 (15 SLa 86/25), the LAG Niedersachsen decided that, in a dispute concerning pay grading, the employee bringing the claim bears, in accordance with the general principles of civil procedure, the burden of presentation and, in the event of a dispute, the burden of proof for the facts demonstrating that the job characteristics of the higher pay grade sought are met. This applies in particular to qualifying job characteristics which distinguish the higher pay grade from the initial pay grade.

Facts of the case

• The parties were in dispute over the correct pay grading of the plaintiff under the collective agreement. She had been employed since February 2020 by the defendant employer, a financial services company, as an HR Business Partner. The employment relationship was governed by collective agreement provisions which provided for different pay grades.
• The job description stipulated pay grade 15 for operational HR support and – where this role was performed on her own responsibility– pay grade 17. The intermediate pay grade 16 represented an experience-based grade.
• The plaintiff had been classified in pay grade 15 since April 2023 and, in the interim, in pay grade 16. She sought remuneration at pay grade 17 with retroactive effect from April 2023. In support of her claim, she argued, amongst other things, that she performed her duties on one's own responsibility. In this regard, she referred to the independent advice she provided to senior managers, her involvement in HR processes and restructuring measures, her support for a managing director, the powers of attorney granted to her, and positive feedback forms.
• The defendant contested these arguments and took the view that the level of independent responsibility and qualifications required for this were not present to the extent stipulated by the collective agreement. The Labour Court dismissed the claim. The plaintiff lodged an appeal against this decision.

Reasons for the decision

• The LAG dismissed the appeal. It first clarified that, in a dispute concerning pay classification, in accordance with general principles of civil procedure, the plaintiff employee must set out - and, in the event of a dispute, prove - the facts which allow the conclusion that the collective agreement requirements for the sought pay grade, including any qualification criteria, have been met for the required period of time.
• The interpretation of the collective agreement provisions and the application of the law to the facts presented are a matter for the court. The employee, however, must set out the facts that enable the court to make this legal assessment. To this end, the tasks assigned must, in principle, be described in detail.
• Special requirements for progressive pay groups: If the higher pay group is based on a lower one and requires an additional qualification criterion, a mere description of one’s own work is not sufficient. The employee must explain how their work differs from the ‘standard work’ of the starting pay group. Their submission must enable the court to make an evaluative comparison between the two types of work. In the case in question, the relevant pay grades 15 and 17 differed essentially in that the work in pay grade 17 had to be carried out ‘on one’s own responsibility’.
• ‘On one’s own responsibility’ is more than ‘independently’: In the opinion of the LAG, the plaintiff had not sufficiently demonstrated this qualification criterion. In the context of collective agreements, ‘on one’s own responsibility’ cannot be equated with ‘independently’, as the role of an HR Business Partner at pay grade 15 is already characterised by independent advisory work. Rather, what is required is a level of responsibility for the outcomes of one’s own work and the decisions made in this context that goes beyond mere independence. In particular, the plaintiff had not specifically set out which personnel decisions she herself had made and taken responsibility for, nor how her work differed from that of other HR Business Partners in pay grade 15. Nor was advising a managing director sufficient for this purpose.
• Powers of attorney and feedback forms insufficient: Nor did the powers of attorney granted provide evidence of personal responsibility. Whilst they did expand her legal capacity, without further submissions they did not allow any conclusion to be drawn regarding her legal authority or the decision-making powers actually exercised. Nor were the positive feedback forms sufficient to establish such evidence. The independent working style attested to in those forms did not allow a conclusion to be drawn regarding ‘personal responsibility’ within the specific meaning of the collective agreement. In the absence of sufficient submissions, the plaintiff was therefore not entitled to remuneration under pay grade 17.

Implications for practice

The decision clarifies the substantive requirements regarding the burden of presentation in disputes over pay grading. Employees must describe their work in sufficient detail to enable the court to verify that the job characteristics set out in the collective agreement are met.

In the case of progressive pay groups, a mere description of one’s own work is not sufficient. Rather, it must be specifically set out how this work differs from that of the base pay group with regard to the relevant qualification criterion.

General assessments such as ‘independently’, ‘on one’s own responsibility’ or ‘responsibly’ are not sufficient for this purpose. The decisive factors are the specific tasks, decision-making powers and responsibilities. Even job descriptions, powers of attorney or positive performance appraisals do not automatically prove that a collective agreement qualification criterion has been met.

Effective sanctions for the misuse of successive fixed-term employment contracts

ECJ judgment of 14 April 2026, C-418/24

In its judgment of 14 April 2026 (C-418/24), the ECJ clarified the requirements for sanctioning the abusive use of successive fixed-term employment contracts under Article 5 of the Framework Agreement on Fixed-Term Work (Annex to Directive 1999/70/EC). Measures must adequately penalise the abuse and effectively remedy its consequences; a mere continuation of the employment relationship in a form that remains precarious is no more sufficient than flat-rate compensation or merely abstract sanction mechanisms.

Facts of the case

• The plaintiff had been employed as a childcare worker at a public educational institution in the Autonomous Community of Madrid since March 2016. Her employment was based on six consecutive fixed-term employment contracts, each of which had been concluded to fill a vacancy or to cover for an employee.
• In July 2021, she brought an action seeking a declaration of a permanent employment relationship or, in the alternative, an ‘open-ended but not permanent’ employment relationship. The court of first instance found that there was an ‘open-ended but not permanent employment relationship’ because the employment had continued for more than three years without the post having been duly filled on a permanent basis. This decision was upheld on appeal.
• Under Spanish law, public sector employees can, in principle, only attain the status of permanent staff if they have successfully passed a selection procedure in accordance with the principles of equality, merit and competence. In the event of an abusive fixed-term contract, the employment relationship is therefore, according to Spanish case law, merely converted into an ‘open-ended but not permanent employment relationship’.
• This employment relationship continues until the post is finally filled following a selection procedure. It ends when the post is filled; the employee generally receives compensation amounting to 20 days’ pay per year of service, up to a maximum of twelve months’ pay.
• The Spanish Tribunal Supremo essentially referred the question to the ECJ as to whether this system – in particular the conversion into an 'open-ended but not permanent employment relationship’, the compensation provided for, a liability regime for public authorities and special selection procedures – satisfies the requirements of Article 5 of the Framework Agreement.

Reasons for the decision

• The ECJ ruled that this is not the case. The Spanish package of measures does not constitute a sufficiently effective sanction against the misuse of successive fixed-term contracts.
• Requirements for the sanction: The Framework Agreement does not oblige Member States to mandatorily convert abusively fixed-term employment relationships into permanent employment relationships. However, the measures provided for at national level must be proportionate, effective and dissuasive, and must actually eliminate the abuse and its consequences.
• Insufficient sanction due to the continued precarious nature of the employment relationship:
• Conversion to an 'open-ended but not permanent employment relationship’ does not satisfy these requirements. As the employment relationship ends when the post is finally filled, it remains temporary in nature and the employee’s precarious situation persists. This applies even if the employee is treated on an equal footing with permanent staff in terms of remuneration and promotion.
• Lump-sum compensation: Lump-sum compensation may, in principle, also constitute an appropriate sanction. However, it must provide adequate compensation for the damage caused by the abuse. Rigid double caps – in this case, 20 days’ pay per year of service up to a maximum of twelve months’ pay, or 33 days’ pay up to a maximum of 24 months’ pay – do not suffice, particularly in cases of long-term abuse.
• Liability provisions and selection procedures: Liability provisions for public administrations can only constitute an appropriate sanction if they are clear, predictable and practicable, and are accompanied by further effective measures. A merely abstract and unforeseeable possibility of liability is not sufficient. Nor do selection procedures eliminate the abuse if the employee concerned is given no guarantee of permanent employment and the consideration of experience and length of service does not specifically benefit employees who have been affected by the abusive use of fixed-term contracts.

Implications for practice

The ruling directly concerns Spanish public sector law, but at the same time confirms the requirements under EU law regarding sanctions for the abusive use of successive fixed-term contracts. Whilst Member States are not generally obliged to convert abusively fixed-term employment relationships into permanent contracts, the measures provided for must effectively and deterrently sanction such abuse and actually remedy its consequences.

In this respect, there are no fundamental changes to German law on fixed-term contracts: if the fixed term of an employment contract is invalid, the fixed-term contract is deemed to have been concluded for an indefinite period in accordance with Section 16 s. 1 of the German Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz, TzBfG). This also applies in the case of an invalid fixed term within a chain of successive fixed-term employment contracts. German law thus essentially provides for the permanent elimination of the employment insecurity caused by the fixed-term clause – precisely the measure recognised by the ECJ as an effective response.