Updates on compensation for default of acceptance

Since 2020, however, the German Federal Labor Court (BAG) has readjusted its case law. As a result, the crediting has become more relevant in practice. However, it is not yet clear whether this is a reason for employers to rejoice. Too many cases remain unresolved.

The change in case law began with the BAG decision of May 27, 2020 (5 AZR 387/19). In this decision, the court for the first time gave the employer a right to information from the employee about the employment agency's job offers if there is evidence that the employee is likely to have willfully failed to find employment elsewhere. 

A number of decisions were also made on this topic in 2021 to 2023. These involve the clarification of various individual issues.

Several more decisions followed in quick succession at the beginning of 2024: On January 24, 2024 - 5 AZR 331/22 - the Federal Labor Court ruled on the compensation for default of acceptance of an external managing director during her leave of absence. During the period of leave of absence, the plaintiff worked as a managing director with sole power of representation in a new company without remuneration claims, but only with a profit-sharing commitment. The BAG ruled in favor of the employer: If an employee commits to a new employment or service relationship in the course of the dismissal protection proceedings and deliberately settles for too low a salary or provides a service free of charge that is regularly only provided in return for remuneration, this constitutes a willful failure, and fictitious earnings must be taken into account.

The next decision on this topic followed just two weeks later: On February 7, 2024 (5 AZR 177/23), the court ruled that a breach of social law obligations by the employee must be taken into account in the context of the willful failure if, for example, the employee does not register as seeking employment in good time.

In this decision, the Federal Labor Court refers to the fact that timely and proper registration with the Federal Employment Agency first of all ensures for the employee to have met all corresponding requirements. In addition, however, the employee remains obliged to submit their own job applications, independently of the Federal Employment Agency, but is not obliged to “tirelessly” look for reasonable work. The burden of presentation and proof of willful failure generally remains with the employer, but must be adapted to the individual case. Such an individual case is given if the employee’s behavior causes the employment agency to actually not submit any job offers to him. If there are actual indications that the employee is not interested in a reasonable position, this may be an indication of ill will.

Overall, according to the Federal Labor Court, there are certain circumstances that can lead to an increased or decreased effort to look for employment. The decisive factor in this context is the duration of the period of default of acceptance or the forwarding of suitable job offers by the employer. On the one hand, the employee must not remain completely inactive. On the other hand, they do not have to apply “tirelessly”. The benchmark for a corresponding assessment is, in particular, the respective labor market situation.

In the decision, the BAG also clarified the requirements for the reasonableness of other employment. The decisive factors are the type of work, the person of the employer or the other working conditions. Unreasonableness does not result solely from lower earnings in relation to the previous employment relationship. It must be determined on a case-by-case basis whether the deterioration in working conditions is acceptable to the employee. The employee does generally not have to accept a significant deterioration in working conditions.

In this decision, the Federal Labor Court also points out that the employer can obtain official information from the employment agency if the employee has intentionally thwarted the placement. The employment agency may generally provide information about suitable jobs. If the employer has failed to forward reasonable job offers to the employee himself, he can use such information to support his pleading. 

In its last decision in February 2024, the Federal Labor Court clarified various individual issues. The lower courts will have to abide by this.

On May 3, 2024 (9 Sa 4/24), even before the reasons for the ruling of  February 7, 2024 were published, the Baden-Württemberg Higher Labor Court issued a ruling to the effect that there is no willful failure to generate other earnings if the employee waited until a chamber hearing on the action against unfair dismissal was scheduled in a timely manner before applying for the vacancies notified by the employer and the notice period has not yet expired. On May 12, 2023, the employer had sent the plaintiff, who had been dismissed with effect from June 30, 2023, over 40 job offers for comparable positions with recognized employers. 

It had also released the employee from an existing non-competition clause. The plaintiff applied for a job offer for the first time on June 28, 2023. The defendant refused to pay the salary for June 2023. In particular, the plaintiff had stated he wanted to return to his previous job. The Baden-Württemberg Regional Labor Court considered this to be “decent”. In addition, the Regional Labor Court conceded that the plaintiff did not have to allow himself to be “burned” on the job market by submitting applications that were not meant seriously. The Baden-Württemberg Higher Labor Court has allowed an appeal against this decision. It remains to be seen whether the decision can be upheld in light of the Federal Labor Court’s decisive decisions from earlier this year. 

Practical advice

The aforementioned decisions of the Federal Labor Court have occasionally prompted employers to issue notices of termination for no apparent reason due to the (still) favorable situation on the labor market, as the financial risk is low if one ensures that a willful failure to generate income from another employment is to be assumed in the case of default of acceptance. This sweeping view can lead to nasty surprises. On the one hand, it is not the aim of the crediting provision to leave ineffective terminations without consequences. On the other hand, although the balance of power has shifted in favor of employers as a result of the new decisions, the Federal Labor Court is still clearly endeavoring to take into account both parties’ interests that are worthy of protection in each individual case. The decisions of the Federal Labor Court are fragmented and there is no one-size-fits-all solution for every case. Therefore, a better predictability is generally not to be expected. Clarifying the question of whether or not compensation for default of acceptance is to be paid can still take a considerable amount of time and, therefore, money.