Caution advised with exclusion clauses in employment contracts

Exclusion clauses enable the swift clarification of claims and the settlement of open issues, something which the established case law of the German Federal Employment Court (Bundesarbeitsgericht – BAG) has long “recognized as being particularly necessary in working life”. Exclusion clauses are often the last lifeline for employers. Key terms here are “pay in lieu of leave”, “company practice” and “overtime pay”.

In order to fulfil their purpose, of course, these clauses must be valid. Yet, they often fall short of the requirements of Section 307 et seq. of the German Civil Code (Bürgerliches Gesetzbuch – BGB). The German Federal Employment Court (BAG) (judgement of 20 June 2013 – 8 AZR 280/12) last year attempted to enhance the effectiveness of one such clause by interpreting it very broadly. This has since been opposed, however, by Hamm Regional Employment Court (Landesarbeitsgericht – LAG) in its decision of 1 August 2014 (file no.: 14 Ta 344/14) which referred to the case law of the German Federal Court of Justice (Bundesgerichtshof – BGH). Expressly rejecting the position of the German Federal Employment Court (BAG), Hamm Regional Employment Court (LAG) upheld the invalidity of extensive exclusion clauses agreed in a great many employment contracts. The Regional Employment Court allowed no appeal to the Federal Employment Court (BAG) on points of law.

The relevant case involved a clause in an employment contract under which all mutual claims arising from and in connection with the employment relationship would lapse if not asserted in writing to the other party within three months of the salary statement with which they should have been paid.

In the judgement of 20 June 2013 (file no: 8 AZR 280/12), the Federal Employment Court took the view that exclusion clauses of this type should be interpreted in a way that they did not aim to regulate a case either any differently than the law or in violation of a statutory prohibition within the meaning of Section 134 of the German Civil Code (BGB). In contrast, Hamm Regional Employment Court (LAG) does not find such an interpretation acceptable:

• In the Court’s opinion, such a broadly worded clause includes all claims that can be derived from the employment relationship and thus also claims based on intentional or grossly negligent damage to one of the contractual parties by the other (Section 309 No. 7 of the German Civil Code (BGB)).

• A legally compliant, restrictive interpretation on the basis that the parties intended to conduct themselves in accordance with the law goes awry in the Court’s view and, contrary to Section 306 BGB, takes away all risks to the user of general terms and conditions of including a dubiously formulated clause with which he unilaterally attempts to enforce his interests outside the law.

For this reason, Hamm Regional Employment Court (LAG) – following its own case law (cf. LAG Hamm of 25 September 2012 – 14 Sa 280/12; LAG Hamm of 11 October 2011 – 14 Sa 543/11) – deems such exclusion clauses to be invalid altogether, stating that the invalidity arises from violations of Section 202(1) and Section 134 of the German Civil Code (BGB), violations of Section 307(1), sentence 1 and Section 202(1) BGB – because the broad exclusion clause also covers liability claims on grounds of intent – and violation of Section 309(7) BGB. As Section 306 BGB excludes partial nullity in the case of such infringements and as the “control of general terms and conditions” pursuant to Section 306 et seq. BGB prohibits retaining the clause in its minimum admissible scope (“prohibition of reduction to preserve validity”), the Court deems the clause to be invalid altogether.

Even when interpreted within the meaning of the German Federal Employment Court (BAG), Hamm Regional Employment Court (LAG) assumes that the clause violates the requirement of clarity and comprehensibility (Section 307 of the German Civil Code (BGB)) and is therefore invalid, since even the widening of the liability exclusion to cover the employer’s legal representatives and agents – something that Section 309(7) BGB actually restricts – means that the clause is not clear and comprehensible to an employee without legal knowledge.

The decision makes clear that we are still far from reaching any legal certainty where exclusion clauses are concerned and the drafting of employment contracts will remain a matter for specialists. Even if a change in the legal position of the Federal Employment Court (BAG) cannot necessarily be expected, employers should take the decision by Hamm Regional Employment Court (LAG) into account when drafting exclusion clauses in employment contracts and make clear that liability for intent and for damage caused by loss of life, physical injury or damage to health or by gross negligence are not excluded. With effect from 1 January 2015, it should also be made clear that the exclusion clause does not apply to the statutory minimum wage as this is also an easy way to avoid the cost, expense and effort associated with potential lawsuits.