Revocation of the private use of a company car – compensation for loss of use

Federal Labour Court 12 February 2025 - 5 AZR 171/24

If the employer provides an employee with a company car, which the employee may also use privately in accordance with the contractual agreement between the parties, this is part of the employee's contractual remuneration entitlement. The commitment includes a non-cash benefit in the form of a benefit in kind. Particularly in constellations in which the employee is irrevocably released from any obligation to perform work after giving notice and the use of the company car is revoked until the end of the notice period, a dispute often arises and even employers and employees who are willing to compromise often reach their limits.

In its ruling of 12 February 2025, the Federal Labour Court (BAG) once again commented on the admissibility of revoking permission to use a company car that is also used for private purposes. The decision provides specific practical advice on how to structure and exercise the right of revocation.

Facts of the case

The parties were still arguing before the BAG in Erfurt about compensation for the plaintiff for the loss of private use of his company car. According to the provisions of his employment contract, the plaintiff was entitled to a company car, which he was also allowed to use privately. The defendant took this private use into account in the remuneration statements at EUR 457.00 gross per month, which corresponded to one percent of the list price of the vehicle provided at the time of initial registration.

By letter dated 8 May 2023, the defendant duly terminated the employment relationship with effect from 31 August 2023. The effectiveness of the termination was finally legally established. With the letter of termination, the defendant irrevocably released the plaintiff from the obligation to perform work with immediate effect until the end of the employment relationship. At the same time, it demanded the return of the company car on 24 May 2023. The plaintiff complied with this request on 23 May 2023.

The plaintiff was of the opinion that he was entitled to compensation for loss of use for the period from 23 May to 31 August 2023 due to the withdrawal of the company car.

The defendant applied for the case to be dismissed. It was of the opinion that the revocation of the private use of the company car was lawful in accordance with the revocation regulations in the employment contract.

The Labour Court in Cologne (27 October2023 - 7 Ca 2358/23) dismissed the plaintiff's claims for a declaration that the termination was invalid and for payment of compensation for loss of use, among other things, in a partial judgment. The Higher Labour Court (LAG) in Cologne (24 April 2024 - 5 Sa 659/23) dismissed the plaintiff's appeal, which ultimately only related to these matters in dispute. With his appeal, which the LAG allowed to a limited extent, the plaintiff continues to pursue his payment claims for compensation for loss of use.

Decision of the Federal Labour Court dated 12 February 2025

The judges in Erfurt only awarded the plaintiff pro rata compensation for loss of use for the period from 23 May to 31 May 2023. The provision in the plaintiff's employment contract regarding the revocation of the company car stood up to a general terms and conditions review and was effective. In particular, the provision was also compatible with Section 308 No. 4 German Civil Code (BGB). The revocation clause had to be formulated transparently and be clear and comprehensible. The grounds for revocation must at least indicate the direction from which the revocation should be possible. The provision in the plaintiff's employment contract clearly states the release from work after termination as a reason for revoking the private use of the company car. It was also reasonable for the plaintiff, as in the event of a leave of absence, the business use of the company car associated with private use would also cease. A notice of change was not necessary as the private use of the company car accounted for less than 25% of the regular salary. Likewise, a notice period - contrary to the plaintiff's view - is not a prerequisite for the effectiveness of the reservation of revocation.

In the opinion of the BAG, the conditions of the reservation of revocation stipulated in the employment contract were met. The defendant had justifiably released the plaintiff from performing his work. The plaintiff's right to employment did not conflict with this. In a balancing of interests, the business interests of the defendant to enforce its business decision prevailed. However, in the opinion of the BAG, the following must be observed when exercising the reservation of revocation: According to Section 6 (1) No. 4 EStG, the taxable non-cash benefit can only be recognized on a monthly basis and not on a calendar day basis. Therefore, if the company car is returned within the current month, the employee bears the tax burden for the entire month and thus also for the time in which he can no longer use the company car. Against the background of this reduction in income, only a revocation of the private use of the company car at the end of the respective month would normally correspond to reasonable discretion. Accordingly, the BAG made a compensation provision pursuant to Section 315 (3) BGB, according to which the private use of the company car could be revoked by the defendant without compensation as of 31 May 2023. However, no compensation was owed for the period from 1 June to 31 August 2023.

Practical note

The decision of the Federal Labour Court provides specific practical advice on how to draft and exercise the right of revocation: According to this, the clause must be formulated in such a way that it expressly refers to a "justified" or "effective" leave of absence. In this context, the Federal Labour Court expressly clarifies that the "justification" or "effectiveness" of the leave of absence is based on the principles of the general employment entitlement. In addition, it emphasizes - even more clearly than before - the principle that the revocation of permission to use a company car that is also used privately is only permissible without compensation at the end of a calendar month in order to protect the employee from disadvantages in view of the taxation of the private use option.