Compensation for the withdrawal of the company car after release from work

Lower Saxony Higher Labour Court, 22.05.2025 Ref. 5 SLa 249/25

Is the employer allowed to release the employee after termination of the employment relationship and deprive the employee of the company car, which is also used privately? The Lower Saxony Higher Labour Court had to deal with this extremely practice-relevant question in its decision of 22.05.2025.

Circumstance

The plaintiff was employed by the defendant as an area manager and used a company car, which he was also allowed to use privately. The plaintiff's employment contract contained a clause that granted the employer the right to release the employee without further conditions upon or after notice of termination. In addition, there was a company car contract. This provided that the "permission for business purposes as well as private use [...] can be revoked by the employer with a notice period of one month if there is an objective reason". An objective reason exists in particular if the employee is released from work. No payment of compensation was provided for in this case.

The claimant terminated the employment relationship with effect of 30.11.2024. The Employer, then, released the employee unilaterally until the end of the notice period and requested the return the company car on 30.06.2024. The plaintiff complied with this demand but demanded compensation for the revocation of the private use of the company car for the release period.

Decision of the court:

The Lower Saxony Higher Labour Court ruled that both the release provision in the employment contract and the revocation clause in the company car contract were invalid. According to the Higher Labour Court, the release provision violated Section 307 of the German Civil Code (BGB) because it unreasonably disadvantaged the employee. The release provision was too vague and did not specify any specific conditions for release from work. According to case-law, the employee has a general entitlement to employment until the expiry of the notice period, which may only be restricted if there are concrete, overriding employer interests. The Higher Labour Court was unable to identify such concrete reasons in the present case. The mere dismissal was not sufficient to override the employee's entitlement to employment. The court also considered the provision of revocation in the company car contract to be invalid because it was linked to the invalid release.

Since the release was invalid, there was also no basis for the revocation of private company car use. The plaintiff was awarded monthly compensation of EUR 510 gross for the period July to November 2024.

Practical note

The decision of the Lower Saxony Regional Labour Court confirms the employee's right to actual employment, which is recognised in established case law. Unilateral release from work is only possible in cases where this right to employment must give way to the employer's legitimate interest in not having to employ the employee. In this context, case law generally allows the employee to be released from work within the notice period for the purpose of fulfilling their holiday entitlement. This also applies without a contractual provision.

Although the employer may, in the event of termination of the employment relationship, wish not to employ the employee until the end of the notice period for various reasons, the possibility of granting leave of absence until the end of the notice period, independent of the granting of holiday leave, has not yet been conclusively clarified. This is particularly relevant in cases where a long notice period applies that exceeds the employee's (remaining) holiday entitlement. The Lower Saxony Regional Labour Court takes the view that termination of the employment relationship does not in itself entitle the employer to put the employee on garden leave.

Since the right to revoke the company car in the present case was linked to the plaintiff's exemption, it could not be upheld.

The possibility of private use of a company car is recognised as part of the employee's remuneration, which may not be withdrawn without good cause. However, an unjustified exemption cannot constitute good cause, so that the plaintiff in the present case was entitled to compensation for the unjustified demand for the return of the company car.

The decision is not yet final; an appeal is pending before the Federal Labour Court (5 AZR 108/25). It remains to be seen whether the Federal Labour Court will side with the Lower Saxony Regional Labour Court or allow for the release of the employee due to the mere termination of the employment (regardless of which party declares it).