The so-called general terms and conditions content control is traditionally one of the biggest hurdles for employers in connection with employment contracts and the resulting claims. A recent judgment clearly shows why. The question was whether an employee can continue to use his company car privately during the leave of absence that follows his termination.
What was it about?
The Federal Labor Court (BAG) decided today, Wednesday, in a case that concerned central questions about the interaction between time off during the notice period and the revocation of a company car. The Fifth Senate had to negotiate whether and under what conditions an employer could deprive an exempt employee of a company car that was also used privately.
In this case, an employee – an area manager in the field sales force – terminated his employment relationship with the contractual notice period of six months. After receiving the notice of termination, the employer released him from his obligation to perform the work.
The employer relied on a clause in the employment contract that allowed release “upon or after notice of termination”. At the same time – based on a cancellation clause in the company car contract – he ended his private use of the company car and demanded the vehicle back. The employee then demanded monthly compensation equal to the monetary benefit for the remaining notice period.
Why was the exemption ineffective according to the lower court?
The Lower Saxony State Labor Court (LAG) upheld the lawsuit in full and awarded the employee compensation for loss of use for the months of July to November 2024. It was based on the fact that the exemption itself was ineffective. A clause that ties release solely to termination without any further requirements violates Section 307 of the German Civil Code (BGB) and unreasonably disadvantages the employee. Since there was no effective exemption, the conditions for revoking the use of the company car were not met.
This raised the question for the BAG in particular as to whether such a broad exemption clause could be effective – a question of fundamental importance that the LAG had expressly highlighted. In addition, the Senate had to clarify what requirements had to be placed on cancellation clauses for company cars and to what extent the exercise of such a cancellation was subject to fairness control in accordance with Section 315 of the German Civil Code (BGB).
Previously: BAG decision from 2025 on the use of company cars
In this context, the BAG’s recent case law was also important. In a decision from February 2025, the Fifth Senate had already recognized that the private use of a company car is part of the remuneration and is generally owed until the end of the notice period. Although he considered a contractual cancellation clause to be effective, he also emphasized that its exercise must correspond to reasonable discretion. In particular, an immediate withdrawal during a current month is generally unfair, since the monetary advantage is recorded for tax purposes on a monthly basis and the employee would otherwise suffer a disadvantage.
Against this background, the current procedure had the potential to clarify the previously open questions: on the one hand, it was about the limits of formal exemption clauses, and on the other hand, about the scope of cancellation reservations for company cars and the requirements for compensation for loss of use. The BAG’s decision was therefore eagerly awaited, as it has considerable practical importance for the design of employment contracts and the handling of company cars in termination situations.
This is how the current BAG judgment turned out
In its decision, the Fifth Senate initially focused on fundamental aspects: “A general terms and conditions according to which the employer is entitled to release the employee from work in the terminated employment relationship until the end of the notice period with continued payment of remuneration is ineffective because it unreasonably disadvantages the employee within the meaning of Section 307 Paragraph 1 Sentence 1 BGB.”
As justification, the judges pointed out, among other things, that such wording would deprive employees of the opportunity to assert an increased interest in employment in individual cases. However, since the lower court “did not examine without legal errors” whether the employer “was therefore authorized to release the plaintiff after his termination until the end of the notice period,” the BAG referred the case back to Hanover.
Among other things, it must be examined whether the man’s continued employment in the specific case “contradicted overriding interests of the defendant that were worthy of protection”. With regard to the legality of the withdrawal of the company car, the Senate did not yet comment in an initial communication.
The employer’s interests that are worth protecting must be offset by an exemption
Katrin Scheicht, a specialist lawyer for labor law at the law firm ELP, said when asked by our editorial team: “Apparently, the BAG has confirmed its previous case law that a revocation clause in the employment contract, according to which an employee must return a company car that can also be used privately to the employer without compensation in the event of a leave of absence during the notice period, is in principle effective.”
However, according to Scheicht, a revocation can only be exercised effectively if the exemption is justified. However, a general clause in the employment contract stating that the employer can release the employee in the event of termination is not sufficient.
Rather, the employee’s right to employment must be offset by the employer’s overriding interests in an exemption that are worthy of protection. “This can be the case, for example, if it is no longer possible to employ the employee due to a lack of orders or a reorganization based on a lawful business decision, or if there is a reasonable suspicion that the employee is passing on customer data,” says the lawyer. It is always necessary to examine and weigh up the circumstances of the individual case.
Info
BAG, judgment of March 25, 2026, Ref. 5 AZR 108/25
As head of the online service, Gesine Wagner oversees the digital channels of human resources management and, as an editor, is primarily responsible for the topics of labor law, politics and regulation. She continues to be the contact person for everything that has to do with HR start-ups. She is also responsible for the CHRO Panel.
Frank Strankmann is an editor and writes offline and online. His focus is on the topics of labor law, co-determination and regulation. He is also responsible for other projects for media brands from FAZ Business Media GmbH.
