How employers can reduce the risk of paying remuneration due to default in acceptance during employee transfers

Changes in employment such as being assigned different tasks, a different place of work, or even an (intended) transfer to a new employer due to restructuring often lead to disputes or even end up in court. The employee’s bargaining chip in such situations is usually the employer’s obligation to pay remuneration due to default in acceptance, i.e. if the employee is not being employed by the employer in accordance with their contract for reasons the employer is responsible for, then the employer is in default of acceptance (of the employee’s work performance) pursuant to the first sentence of section 615 German Civil Code. In other words, the employer remains required to pay remuneration even though the employee is not doing any work (known as remuneration in the case of default in acceptance). Especially in lengthy court proceedings, the financial risk for the employer is high. But it can be greatly reduced using the drafting options opened up by the case law of the Federal Labour Court. In addition to the drafting options highlighted in our article on 22 January 2021, the Federal Labour Court recently confirmed the following employer’s drafting options.

Employer strategy: Employee wilfully failed to earn other income

The employer’s duty to pay remuneration during the period of default in acceptance lapses, according to the second sentence of section 615 German Civil Code, if the employee “wilfully” fails to earn other income during that period. “Wilful” failure in this sense always exists if the employee is offered a reasonable job but turns it down. In that case, the employee must allow what they could have earned if they had accepted the offer to be deducted from their remuneration in the case of default in acceptance.

Even a job contrary to contract terms is reasonable

In the event of a dispute about the effectiveness of a transfer where the employee claims the transfer is ineffective because they do not have to work in the position they are to be transferred to, the offer (not the instruction) to work in the “new” position for the duration of a legal dispute about the effectiveness of the transfer is an important drafting option for companies. According to the case law of the Federal Labour Court (FLC), even employment that is contrary to the terms of the employment contract may be reasonable (see FLC on 7/2/2007-5 AZR 422/06, paragraph 16). The Federal Labour Court expressly confirmed this in a recent decision (FLC on 23/2/2021-5 AZR 213/20, paragraph 17):

“The ineffectiveness of the transfer which has been established with non-appealable effect and the non-binding nature of an unfair instruction [...] do not necessarily exclude wilfulness within the meaning of section 615 sentence 2 German Civil Code. [...]. The fact that the employee does not have to follow an unfair instruction under contract law [...] does not say anything about whether the employee is obliged, in the case of default of acceptance pursuant to section 615 sentence 2 German Civil Code, to temporarily perform non-contractual work out of consideration (section 241(2) German Civil Code) and thus to earn reasonable other earnings. […].”

In the event of a dispute about the effectiveness of a transfer, companies should therefore always consider offering the employee the opportunity to work in the “new” position first. That also applies in the context of notices of termination pending a change of contract.

Possible other earnings through deployment as a temporary worker

This option might even be used in case of notices of termination for business reasons if the other employment opportunity is not with the employer to date, but with a third-party company. It might even be reasonable for the employee to be assigned by the contracting employer to a position with another company , so that the remuneration due to default in acceptance can be avoided. This must be taken into account especially in the context of restructuring. The Federal Labour Court recently confirmed this option in its judgment of 19/5/2021 (5 AZR 420/20):

In the case in question, the seller and purchaser had agreed that the employees objecting to a transfer of business under section 613a(6) German Civil Code could be deployed at the purchaser as temporary workers for a period of 12 months in order to compensate for the vacancy resulting at the purchaser company due to the objection. This agreement did not involve any additional changes for the employees concerned. They were supposed to have performed the same work in the same premises with the same remuneration – only the right to issue instructions would have been divided between the contractual employer as lender and the purchaser as borrower. The Federal Labour Court rightly considered this to be reasonable and therefore rejected a claim for remuneration due to default in acceptance (judgment of 19/5/2021-5 AZR 420/20, paragraph 17):

“The defendant’s offer of employment for a period of 12 months was, as such, reasonable for the plaintiff. Neither the nature of the work nor the place of work nor the remuneration received by the plaintiff was to change. She would not have had to temporarily switch to a “traditional” temporary employment contract, but only to do her previous work for a third party on the previous terms. It is true that, insofar as it relates to the performance of work, she would (also) have been subject to that company’s right to issue instructions. However, the plaintiff did not raise any doubts as to the identity of the purchaser. It is not clear what specific and unreasonable disadvantages for the plaintiff would have been associated with the “divided right to issue instructions […].”

Conclusion

The case law of the Federal Labour Court also allows the employer to minimise its risk of having to pay remuneration for default in acceptance by offering reasonable alternative jobs. The financial pressure this puts on the employee can be leveraged for negotiations with the employee, especially since the employer could cease salary payments until a final judicial clarification is reached if it is willing to bear the risk of default interest.