Germany: Entitlement to default wages in the case of a contradictory offer of employment for the term of the court procedure

After an employer's dismissal, in Germany employees are entitled to file an unfair dismissal claim to have the validity of the dismissal reviewed by the court. If the court finds that the dismissal is invalid, this means that the employment relationship has existed without termination for the entire duration of the unfair dismissal proceedings, notwithstanding the dismissal. In consequence, the question of claims for default wages of the ineffectively dismissed employee for the duration of the unfair dismissal proceedings is of great financial relevance.

According to general principles, an employee is only entitled to remuneration if he performs his work. This does however not apply if the employer is in default of acceptance. This is the case if an employment relationship (which can be fulfilled) exists, the employee has offered to perform his work, the performance of work is possible, but the employer nevertheless does not accept the performance of work. Based on German case law, when an employee files an unfair dismissal claim, this simultaneously indicates the employee’s willingness to perform the work, so that an additional verbal offer of the work performance is not required. From the employer's point of view, this has the consequence that the employer is typically confronted with the situation of bearing the risk of default wages for the duration of an unfair dismissal proceeding.

One way of reducing the risk of having to pay salary without corresponding work performance is to offer a so-called litigation employment relationship. The employer offers the dismissed employee to continue working for the employer for the duration of a dismissal proceeding, so that the principle of salary in return for work performance is restored. If the employee rejects such an offer for a litigation employment relationship, the employee loses the entitlement to default wages.

From the employer's point of view, when making such an offer, care must be taken not to contradict the reasons for the dismissal. For example, in the case of dismissal for operational reasons, it is a prerequisite for the employer to be able to show that the job has been eliminated. In most cases, an offer of continued employment is likely to contradict the argumentation that the job has been eliminated and hence the justification for dismissal for operational reasons.

The Federal Labour Court had to decide on a similar case at the end of March 2023: In this case, the Federal Labour Court had to decide on the claim for default wages after a dismissal for cause. The employer had dismissed the employee due to serious allegations and argued that the employer could no longer reasonably be expected to continue the employment relationship. At the same time, however, the employer offered the employee continued employment within the scope of a litigation employment relationship for the duration of the unfair dismissal proceedings. The employee did not accept the offer and instead asserted a claim for default wages.

In this situation, the Federal Labour Court ruled that the employee did not have to accept the offer and, nevertheless, no default of acceptance arose because the employer's offer to conclude a litigation employment relationship was contradictory. If, on the one hand, the employer argues that the continuation of the employment relationship is no longer reasonable for the employer, but at the same time offers a litigation employment relationship, the employer is behaving contradictory and hence does not make a serious offer. Accordingly, the employee did not have to accept the offer and did not lose his entitlement to default wages as a result.

Even if the offer of a litigation employment relationship can be a tactical move to pass on the risk of having to pay salary with no work performance in return, urgent care must be taken to not jeopardize the justification of the dismissal on one hand and not to behave in a contradictory manner on the other hand. In the worst case, this will not only leave the risk of default pay unchanged, but at the same time the dismissal may become invalid.