Garden leave following termination – No guarantee despite leave clause

It is standard practice for employers, upon issuing notice of termination, to place employees on irrevocable leave of absence with continued salary payments and the offsetting of holiday and time-off entitlements.
Employers may have legitimate reasons for doing so, such as protecting trade or business secrets, especially in the case of suspected competitive activity, a breakdown in the relationship of trust, or simply the absence of further employment opportunities.

In most instances, employees do not object to being released from their duties. This arrangement allows them to take a paid career break, which can be used to seek new employment. Only in exceptional cases do employees wish to continue working after notice has been given, and may seek to enforce continued employment through a preliminary injunction. In such proceedings, the legal validity of the release from duties is contested, and employees must demonstrate a particular interest in remaining employed (detailed information on the criteria applied in preliminary injunction proceedings regarding continued employment can be found here).

Requirements for a release clause

Employees have, by virtue of their fundamental right to free personal development, not just a duty to perform their work but also a right to work. Accordingly, employers cannot generally release employees from their duties without an appropriate contractual provision. For this reason, many employment contracts include so-called exemption clauses, which are intended to permit the employer to place the employee on leave, at least in the event of termination.

In principle, following notice of termination, an employer’s legitimate interest in placing an employee on leave is recognised in contrast to an ongoing employment relationship. However, this legitimate interest should be carefully set out in the relevant exemption clause. Clauses that allow the employer to release the employee without further conditions may be deemed invalid, even if their application is limited to cases of termination. Such blanket provisions are considered equivalent to an unrestricted advance waiver by the employee of their right to work.

It is unfortunate that the Federal Labour Court has yet to issue a definitive ruling on the validity of such release clauses, which are subject to strict scrutiny under the law on standard terms and conditions. In recent years, however, lower courts have increasingly found exemption clauses to be invalid if they do not specify the employer’s objective reasons for the release in a sufficiently restrictive manner. In summary, it is often held that an employer cannot impose ‘compulsory leave’ solely on the basis of a contractual provision. The courts are less stringent only in the case of employees in senior positions, such as chief physicians, and even more so for managing directors, where the employer’s interest in a release typically outweighs the employee’s interest in continued employment during the notice period.

What should employers consider?

Employers are well advised to review the exemption clauses in their current employment contract templates and, where necessary, to limit them both in terms of duration and, in particular, content. Doing so increases the likelihood that such clauses will withstand judicial scrutiny in the event of a dispute.