Many employment contracts stipulate that employers may place employees on leave following termination – while continuing to pay their salary. This often also means that the company car must be returned immediately or after a notice period, even if the employee was permitted to use it for personal purposes. By placing the employee on leave, the employer aims to immediately formalize the separation.

In a recent case, however, the Federal Labor Court took a different view.

What was the issue?

A field sales representative with a company car authorized for personal use had a standard clause in his employment contract: The employer may suspend him “upon or following termination – regardless of who initiates it.” The employee himself resigned effective November 30, 2024. The employer suspended him immediately and demanded the return of the company car. So far, so good.

However, the employee then demanded compensation for the loss of personal use: a total of 510 euros per month for August through November 2024.

Clauses in employment contracts are subject to what is known as a “substantive review.” If this review yields a negative result, the clause is invalid, and the employer is left empty-handed.

And that is exactly what happened here: the Federal Labor Court (BAG) declared the termination clause invalid. In the opinion of the highest labor judges, blanket termination disadvantages the employee (Section 307(1), first sentence, of the German Civil Code (BGB)). Employee rights are being curtailed without cause – namely, the right to continue working until the end of the notice period and the right to use the company car. The court made it clear that an employee’s constitutionally protected interest in remaining employed until the end of the employment relationship takes precedence over the employer’s general interest in simply releasing the employee from duties.

Conclusion: The recent ruling by the Federal Labor Court makes it clear that blanket release clauses in employment contracts are often legally risky and may therefore be invalid. If employers wish to reserve the right to immediately suspend employees following a termination – regardless of who initiated it – and, for example, to reclaim a company car, the clauses should be formulated in a legally sound manner.

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