Default of acceptance and malicious failure of other earnings

Default of acceptance as a cost risk in unfair dismissal proceedings

At the beginning of the year, the Federal Labour Court [Bundesarbeitsgericht, BAG] had to decide a case in which it dealt in detail with the question of the circumstances under which it can be assumed that an employee has maliciously failed to earn money elsewhere after being dismissed by the employer (judgement of 07.02.2024 – 5 AZR 177/23).

For the employer, there is always the risk in dismissal protection proceedings that a court will consider a dismissal to be invalid. In these cases, according to the BAG's established case law, the employer is directly in default of acceptance without the need for an offer of employment from the employee – even a verbal one – as is otherwise the case (established case law of the BAG, e.g. judgement of 29.03.2023 – 5 AZR 255/22, para. 13). The court's reasoning assumes that an employer's notice of termination already contains the declaration that it will no longer accept the employee's work performance after the notice period has expired or, in the case of dismissal without notice, after it has been received. The consequence of the employer's default of acceptance is that the employer must continue to pay the employee's salary, even if the employee no longer actually performs any work. Depending on the employee's salary, this can result in considerable amounts of default of acceptance wages over the course of several months or even years in dismissal protection processes, meaning that there is a considerable risk of default of acceptance wages. 

However, the entitlement to compensation for default of acceptance does not exist without exception or preconditions; rather, the employee must consider actual other earnings and, in certain cases, hypothetical other earnings. For cases in which a court has already legally established that the dismissal was invalid, the offsetting of other earnings or omitted earnings is governed by Section 11 of the German Act Against Unfair Dismissal [Kündigungsschutzgesetz, KSchG].

According to Section 11 No. 1 KschG, actual other earnings are to be taken into account, while Section 11 No. 2 KSchG stipulates that what the employee could have earned if he had not maliciously failed to accept reasonable employment must be taken into account. According to Section 11 No. 3 KSchG, public law benefits, such as those from social security or unemployment insurance, must also be considered. The offsetting already prevents the claim for default of acceptance from arising and does not merely lead to a set-off situation (established case law BAG, e.g. judgement of 19.5.2021 – 5 AZR 420/20).

The focus of this article is on the requirements for the malicious omission of reasonable work (pursuant to Section 11 No. 2 KSchG). In this context, the creditability of the omitted earnings depends on the one hand, on the question of the maliciousness of the omission and, on the other hand, on the question of the reasonableness of other work. In this respect, the interests of the employer are considered by the fact that the employee may not simply ‘sit back and take things easy’ in reliance on the payment of wages for default of acceptance without at least endeavouring to earn money elsewhere. However, the interests of the employee are considered by the fact that the employee's obligation to accept other work does not include any other work, but only reasonable other work. 

Malicious is only who - after balancing interests – acts evil 

Both malice and the reasonableness of other work are undefined legal terms, i.e. terms that still need to be interpreted. 

According to established case law by the BAG (e.g. judgement of 12.10.2022 – 5 AZR 30/22, judgement of 11.10. 2006 – 5 AZR 754/05), the employee maliciously fails to earn money elsewhere if he can be accused of deliberately remaining inactive during the delay in acceptance despite knowledge of all objective circumstances and he does not take up other work that is reasonable for him in good faith, taking into account the fundamental right to free choice of employment under Article 12 of the German Constitution [Grundgesetz, GG], or deliberately prevents this. Similarly, he may not prevent a job from being offered to him in the first place. In all cases, it is irrelevant whether the employee deliberately intended to harm the employer by not accepting other work; however, the employee must act wilfully, i.e. with knowledge of all objective circumstances and at least accepting them. Merely careless, negligent behaviour is not sufficient (BAG, judgement of 22.03.2017 – 5 AZR 337/16).

Even this definition by the court is certainly ambiguous and requires a differentiated approach. As is so often the case, the practical cases to be covered by it must be assessed based on a comprehensive overall assessment of the interests of both parties in each individual case. In this respect, there are already some recognised social law obligations for employees, the breach of which can influence the weighing of interests to their disadvantage. Such a breach of duty can be, for example, a failure to register as a jobseeker in accordance with Section 38 para. 1 of the German Social Code Book III [Sozialgesetzbuch III, SGB III], but also a failure to actively cooperate in avoiding or ending unemployment in accordance with Section 2 para. 5 SGB III (BAG, judgement of 12.10.2022 – 5 AZR 30/22; judgement of 27.05.2020 – 5 AZR 387/19).

There are no ‘absolute’ reasons for assuming malice

It is particularly important to emphasise that none of the aforementioned characteristics can justify malice as such, i.e. ‘absolutely,’ irrespective of other circumstances of the case. Rather, a comprehensive overall assessment must always be conducted, which also pays sufficient attention to all other aspects and circumstances of the individual case as well as the conflicting interests (BAG, judgement of 23.02.2021 – 5 AZR 213/20). 

As part of such an overall assessment, according to the reasons of the BAG decision discussed here, the behaviour of an employee who is preventing the Employment Agency from fulfilling its placement mandate must also be considered (to his disadvantage) in the overall assessment. In the present case, the employee had told the Employment Agency that he would inform a potential employer in all applications – even before a job interview – that legal proceedings were ongoing with his last employer and that he absolutely wanted to continue working there. This behaviour was the reason the Employment Agency did not make any job placement proposals to him for over a year. He also did not make any independent efforts during this time. The previous, partially upholding judgement of the Regional Labour Court [Landesarbeitsgericht, LAG] Baden-Württemberg, which was based on the fact that no malice could be inferred from the employee's behaviour, was overturned by the BAG, as it had disregarded or failed to take sufficient account of the employee's behaviour as described in the context of the assessment carried out. The judgement of the LAG was therefore overturned due to legal errors and the case was referred back for a new hearing.

An employee who registers as a jobseeker and pursues job placement offers from the Employment Agency cannot normally be accused of wilful inactivity. In individual cases, however, there may even be an obligation to make their own offer if the employee is offered a realistic, reasonable job opportunity (BAG, judgement of 22.03.2017 – 5 AZR 337/16). In other cases, the BAG has denied malice, for example, if an employee insists on their right to continued employment, which they have previously won in court, and they reject an offer from the employer to conclude a merely temporary employment contract (BAG, judgement of 08.09.2021 – 5 AZR 205/21). However, the situation may be different if the employee does not accept the employer's offer to continue the previous employment with the acquirer in the context of a transfer of business by way of a fixed-term temporary employment contract with otherwise unchanged working conditions (BAG, judgement of 19.05.2021 – 5 AZR 420/20).

Significantly worsened working conditions are not reasonable  

Further potential for discussion in connection with wages for default of acceptance is always the question of when other work is ‘reasonable’ for the employee. In this respect, rulings have already emphasised that (un)reasonableness – again, when considering the circumstances of the individual case - is measured by the extent to which working conditions are likely to deteriorate, particularly with regard to the type of work, working hours or place of work. The person of the employer or the other working conditions can also be included in this assessment (BAG, judgement of 19.05.2021 – 5 AZR 420/20). 

However, unreasonableness cannot be inferred solely from lower earnings in relation to previous earnings. The LAG Lower Saxony, for example, considers losses of 12 - 15 % to be reasonable – at least in individual cases and for ‘higher earners’ (judgement of 18.01.2006 – 6 Sa 1533/04).

At the same time, however, it must be emphasised that a significant deterioration in working conditions is not acceptable, as the BAG once again confirmed in its recent ruling. 

A significant deterioration in working conditions exists, for example, in the case of activities that would involve a breach of an existing non-competition clause or otherwise conflict with the obligations arising from the terminated employment relationship (BAG, judgement of 07.02.2024 – 5 AZR 177/23), which involve a journey of more than two hours each way (LAG Cologne, judgement of 21.06.2005 – 13 (5) Sa 179/05), which could make a return to the previous workplace more difficult or impossible (BAG, judgement of 18.06.1965 – 5 AZR 351/64) or which is accompanied by a shortening of notice periods (LAG Schleswig-Holstein, judgement of 28.10.2014 – 1 Sa 110/14). 

Conclusion: There is no such thing as a ‘killer argument’ 

Overall, it can therefore be stated that the accountability of omitted earnings during an ongoing dismissal protection process depends on a comprehensive consideration and weighing up of all circumstances of the individual case. As is so often the case, the various aspects of each individual case determine whether the employee can be accused of maliciously failing to earn money elsewhere and whether this must be considered. The employer may therefore not rest on a single and absolute ‘killer argument’ – without considering all other relevant circumstances – despite the case law on default of acceptance wages, which has become somewhat more employer-friendly in the meantime; instead, all circumstances must be presented and evaluated.