The case
A regional sales manager was allowed to use his company car privately. Under his employment contract, the employer could release him from work “upon or after notice of termination – regardless of which party gives notice” with continued pay, and in that case also withdraw the use of the company car. After he resigned, he was released until the end of the notice period and returned the car. He claimed compensation for loss of use.
The decision
The Federal Labour Court holds the garden leave clause invalid (judgment of 25 March 2026 – 5 AZR 108/25). As a standard business term, it unreasonably disadvantages the employee (§ 307(1) sentence 1 BGB). The employee's constitutionally protected interest in actually being employed outweighs the employer's interest in releasing him until the end of the notice period. The clause deprives the employee of the opportunity to assert an increased interest in employment in the individual case.
Whether the employer was nevertheless entitled to release him in this specific case because its own legitimate interests prevailed must now be examined by the Regional Labour Court.
What this means in practice
- For employers: Blanket garden leave clauses in model contracts should be revised. Release remains possible where overriding interests exist in the individual case, such as protecting trade secrets or customer relationships. These reasons should be documented.
- For employees: Anyone released from work after notice and required to return the company car may be able to claim compensation for loss of use. For executives this is often a significant amount and a negotiating point.
- In the separation agreement: Garden leave and the company car can be settled by agreement. This creates clarity for both sides.
