Garden Leave Clauses in Employment Contracts: Federal Labour Court Declares Blanket Provision Invalid

The Federal Labour Court has held that an employment contract clause providing for the automatic release of employees from their duties upon notice of termination is invalid—even where remuneration continues to be paid (judgment of March 25, 2026 – 5 AZR 108/25; see also Press Release No. 14/26). According to the Court, such a provision places employees at an unreasonable disadvantage and therefore violates Section 307(1) of the German Civil Code (BGB).

In the Court’s view, an employee’s interest in continuing to work until the end of the employment relationship generally outweighs other considerations. A blanket garden leave clause deprives employees of the opportunity to assert a particular interest in continued employment in the individual case.

The Underlying Case

The case concerned a field sales employee who, after submitting his own resignation, was placed on garden leave until the expiry of his notice period and was required to return his company car. He considered the garden leave unlawful and claimed compensation for the loss of use of the vehicle.

While the Labour Court dismissed the claim, the Higher Labour Court of Lower Saxony ruled in favour of the employee.

Although the Federal Labour Court confirmed the invalidity of the contractual clause in question, it also clarified that it must still be examined whether the garden leave was justified in the specific circumstances of the case, regardless of the clause. The decisive question is whether there were overriding legitimate interests of the employer. As the lower court had not made sufficient findings on this issue, the case was referred back to the Higher Labour Court.

Assessment of the Decision

The ruling does not mean that garden leave following termination is generally impermissible. Such measures remain lawful where, in the individual case, the employer’s legitimate interests outweigh the employee’s interest in continued employment—for example, to protect business operations, customer relationships, or confidential information. However, a specific justification is required.

Implications for Employment Contract Drafting

The decision has the following practical implications:

• Blanket garden leave clauses are legally vulnerable.
• Garden leave may still be permissible even without an express contractual provision.
• Contractual clauses should expressly provide for a case-by-case balancing of the employer’s and employee’s respective interests.

By this decision, the Federal Labour Court strengthens employees’ rights while at the same time requiring a more differentiated and carefully tailored approach to the drafting of employment contracts.

We would be pleased to assist you in drafting appropriate contractual provisions and to advise you on specific individual cases.