Granting time off during the notice period is often sensible and advisable for employers, for example to avoid tension in the workplace or to protect trade secrets and customer relationships. However, such a leave of absence is not automatically legally permissible: the right to employment, which derives from the general right to privacy, generally continues until the end of the employment relationship. In its ruling of 25 March 2026, reference number 5 AZR 108/25, the Federal Labour Court (BAG) has provided legal clarity on leave-of-absence clauses in employment contracts, which have since become standard features of such contracts.
This article summarises the Federal Labour Court’s ruling on exemption clauses and provides answers to the question of what employers should now bear in mind regarding exemptions in the event of termination.
Background
In the case in question, the employment contract provided for a unilateral right on the part of the employer to exempt the employee from work in the event of termination: following the giving of notice, the employer was to be able to exempt the employee from work whilst continuing to pay their remuneration, without specifying any further conditions or limits. The clause had been pre-formulated as a general term and condition and had been used in a whole series of the company’s employment contracts. The employer subsequently exercised its contractual right and released the employee from work, with continued payment of remuneration, from the date of notice until the end of the employment relationship. The employee challenged the clause and the unilateral release from work in court, arguing that the release infringed his rights and placed him at an unreasonable disadvantage. Against this background, the Federal Labour Court had to clarify the extent of the employer’s right to grant leave of absence and the requirements that must be met for transparent and fair leave-of-absence provisions.
Decision
In its ruling, the Federal Labour Court clarifies that blanket exemption clauses formulated in too vague terms, which grant the employer a unilateral right to exempt an employee at will, are subject to the review of standard terms and conditions under Sections 305 et seq. of the German Civil Code (BGB) and are invalid under these principles. A clause that contains no objective criteria, no time limit or any consideration of holiday entitlements and default of acceptance places employees at an unreasonable disadvantage and contravenes the transparency requirement under Section 307 of the German Civil Code (BGB). Suspension as an exercise of the employer’s right to issue instructions may only take place within the bounds of reasonable discretion and must not become a permanent arrangement without a sound operational justification. The Federal Labour Court emphasises that exemption clauses remain permissible in principle, provided they clearly set out the permissible conditions under which a revocable or irrevocable exemption may be granted.
Practical guidance
For employers, leave-of-absence clauses remain a sensible component of modern employment contracts. However, they should not allow for any leave of absence across the board following the giving of notice of termination, but should transparently set out the relevant conditions and limits. These include, in particular, the possible grounds for a suspension – such as a specific breach of the relationship of trust or the protection of trade secrets and competitive interests – as well as the distinction between revocable and irrevocable suspension. Furthermore, provisions should be made regarding how to deal with holiday entitlements, overtime, remuneration and variable remuneration components, without unlawfully excluding existing entitlements. Particularly in sensitive areas of work or high-profile positions, a legally sound secondment arrangement can help to limit operational risks and avoid costly disputes.
Particular care is required in the case of employees with bonus or commission agreements. A leave of absence does not automatically invalidate claims to variable remuneration. Furthermore, costly claims for damages may arise in the event of an unlawful unilateral leave of absence.
If you wish to review your model contracts, contracts for directors or senior executives, or if you are looking for a tailor-made leave of absence provision for your company, we would be happy to advise you and work with you to develop a contractual framework that incorporates the latest Federal Labour Court (BAG) case law whilst also reflecting your practical needs.