• 22.05.2026
• Current case law

Bundesarbeitsgericht, Judgement of 25 March 2026 - 5 AZR 108/25

(In-)Validity of contractual garden leave clauses in employment contracts

Facts of the case (simplified)

The parties are in dispute over compensation for the withdrawal of a company car following the employee’s release from duties during the ongoing notice period. The claimant was employed by the defendant as a regional sales manager in field sales and was provided with a company car, which he was also permitted to use for private purposes. The employment contract provided that the employer was entitled to place the employee on garden leave, with continued remuneration, “upon or after notice of termination being given – regardless of which party gives notice.” It further stipulated that, in such a case, the right to use the company car could be revoked. After the claimant himself gave ordinary notice of termination, the defendant unilaterally placed him on garden leave for the remainder of the notice period and demanded the return of the company car. The claimant complied, but subsequently claimed compensation for the loss of the private use benefit.

Court's decision

The Bundesarbeitsgericht made clear that the contractual clause presented by the employer constituted standard terms and conditions (Allgemeine Geschäftsbedingungen – AGB), which are subject to strict judicial review of their content. The garden leave clause was held to be invalid under Section 307 of the German Civil Code (BGB), as it placed the employee at an unreasonable disadvantage contrary to the requirements of good faith. In its reasoning, the Court emphasised that employees have a constitutionally protected interest in remaining employed until the termination of their employment relationship takes effect. A blanket contractual provision granting the employer a unilateral right to place the employee on garden leave, irrespective of the circumstances of the individual case, fails to adequately take this interest into account. Such a clause deprives the employee of the opportunity to assert a particularly strong interest in continued employment in the specific circumstances of the case.

Practical implications

Many employment contracts contain standardised garden leave clauses intended to grant employers broad discretion following the termination of an employment relationship. In light of the ruling of the Bundesarbeitsgericht, blanket provisions of this kind are likely to be invalid in many cases. Employers should therefore review their existing contract templates and amend them where necessary. Particular caution is required in relation to clauses that permit garden leave without specifying any qualifying conditions, as these are likely to entail significant legal risks going forward. This is especially relevant where a garden leave arrangement has further economic consequences, such as the withdrawal of a company car available for private use, a company mobile phone, or other employment-related benefits.