Separations – whether by mutual agreement or unilaterally – are part of working life. It is not uncommon for an employer’s termination to be followed by a (often for months) legal dispute in the labor court. If such proceedings result in a judicial ruling that the termination is invalid, the employer often faces what is known as the so-called acceptance default compensation risk. The employer is then obliged to pay the wages that were not paid after the end of the notice period. Especially in cases where legal proceedings last for years through various instances, the acceptance default compensation risk can reach considerable amounts. Employees (and their representatives) are generally aware of this and often use this risk as leverage in severance negotiations. However, employers can counteract such attempts by being aware of the latest ruling by the Federal Labor Court (BAG) dated February 7, 2024 – 5 AZR 177/23.
What Happened?
The defendant employer terminated the employment of the plaintiff, who had been working as a machine operator since May 1991, in November 2017 with immediate effect and, alternatively, with due notice. After the Regional Labor Court ruled in the second instance that the termination was invalid, the plaintiff claimed acceptance default compensation for the period from January 1, 2018, to August 30, 2020. The plaintiff had informed the employment agency of the termination notice in December 2017 and received unemployment benefits until January 2019. During this time, the employment agency did not offer the plaintiff any job placements because he had informed them via email that he did not wish to receive any job offers and that he would inform potential employers in applications – even before an interview – that he was pursuing dismissal protection proceedings against his previous employer and intended to continue working there. The plaintiff also made no independent efforts to find alternative employment. The defendant employer did not provide the plaintiff with any job offers that he could have applied for and earned a reasonable income from.
Federal Labor Court Ruling
A key issue in acceptance default compensation cases is the extent to which employees must make efforts to apply for jobs to avoid being accused of maliciously failing to earn alternative income. In its latest ruling, the Federal Labour Court further clarified the conditions under which such a failure is deemed malicious. The assessment must be based on a comprehensive evaluation of both parties’ interests, considering all circumstances of the specific case. In this evaluation, the Federal Labour Court includes the following aspects:
First Guidance Through Social Law Obligations: Malicious failure to earn alternative income is generally not assumed if an employee registers as a job seeker with the employment agency after termination and adequately follows up on job offers from the agency. This also applies to suitable job offers provided by the employer. Furthermore, the Federal Labour Court clarified that waiting passively for reasonable job placement offers from the employment agency may not always be sufficient. The employee may also be required to make their own applications if a realistic and reasonable employment opportunity arises. However, the obligation to make job applications does not extend so far that the employee must spend full-time hours searching for a suitable job. In this regard, the Federal Labour Court explicitly rejected a widely discussed opposing decision by the Berlin-Brandenburg Regional Labor Court (Judgment of September 30, 2022 – 6 Sa 280/22).
Active Efforts to Prevent Job Placement: The Federal Labour Court also addressed the issue of how deliberate attempts to prevent alternative employment or job placement offers should be assessed. While an employee is permitted to provide truthful information about the circumstances of their previous employment termination in job applications when asked, the plaintiff’s actions in this case went too far. By notifying the employment agency that he did not wish to receive job offers, he actively aimed to obstruct successful job placement efforts. Such behavior is not worthy of protection and must be taken into account to the employee’s detriment in an acceptance default compensation case.
Defining the Reasonableness of Alternative Employment: The Federal Labour Court further clarified the term "reasonableness" regarding alternative work to earn interim income. Whether a deterioration in working conditions regarding job type, working hours, work location, and salary is acceptable depends on the individual case. However, an alternative job is considered unreasonable if it involves competitive activity that violates a non-compete clause or if the net earnings from it are lower than unemployment benefits.
Procedural Aspects: The Federal Labour Court reaffirmed its existing case law on the burden of proof and supplemented it in light of the facts of this case. If the employer specifically demonstrates that a reasonable alternative employment opportunity existed for the employee during the default period, the employee must then prove that an application for the position would have been unsuccessful. Since the plaintiff actively prevented job placement by the employment agency, he was unable to provide details about job applications and their outcomes.
Conclusion
To assess and minimize the risk of acceptance default compensation, employers should particularly consider the following points:
Employers should already inform employees of their obligation to register with the employment agency under Section 38 (1) of the German Social Code III in the termination letter.
It is also strongly advisable to regularly provide employees with specific and suitable job offers at an early stage and request proof of application efforts. Apart from publicly available job offers from the employment agency, numerous private job portals are available for job searches. The often time-consuming and neglected research process can be made highly efficient and targeted using AI-driven search algorithms.
We are happy to support you in this matter together with our exclusive cooperation partner Talent-Placement. By combining Talent-Placement’s AI tools, access to Europe’s largest job advertisement database (index Anzeigengruppe), and our legal expertise, we can quickly and efficiently identify suitable job offers and present them to employees in a legally compliant manner. In our consulting practice, we regularly achieve excellent results and quick, targeted job matches for clients from various industries using our search tools.
Additionally, employers may consider explicitly waiving contractual non-compete clauses until the dismissal protection proceedings are legally concluded to increase the employee’s chances of finding alternative employment.
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