Garden leave: no duty to look for a job before the contract ends

Pay during garden leave in the notice period

The dismissal is on the table, and the employer follows it up straight away with garden leave: no one needs to come into the office until the contract ends. That sounds like paid holiday. One employer saw things differently. He expected his released employee to use the time to apply for jobs, and withheld the final month's salary when that did not happen quickly enough. The Federal Labour Court (BAG) rejected this calculation in its judgment of 12 February 2025 (5 AZR 127/24): anyone released from work during the notice period is generally not required to take up a new job in order to keep their pay.

The case: 43 job adverts from the employer

The employee had worked as a senior consultant since November 2019 and most recently earned 6,440 euros gross per month. By letter of 29 March 2023, the employer gave ordinary notice terminating the employment on 30 June 2023. At the same time, he irrevocably released the employee from work and set off the remaining holiday entitlement. The employee challenged the dismissal and succeeded in two instances. Before the Federal Labour Court, however, something else was at stake: the pay for June 2023.

At the beginning of April 2023, the employee registered as a jobseeker with the Employment Agency. He received the first placement suggestions from there at the beginning of July. The employer was quicker: as early as May and June he sent the employee 43 job adverts from job portals and from companies that, in his view, were worth considering. The employee applied for seven of them, but only from the end of June onwards.

The employer then did not pay the June salary. His reasoning: the employee should have applied promptly. Because he had failed to do so, he had to have a notional salary in the amount of his previous earnings set off against his June pay. The employee sued for the money.

When an employer may reduce pay

If an employer unilaterally releases an employee from work, he is no longer accepting that employee's work. Lawyers call this default of acceptance: the employer does not want the work offered, yet still has to pay the salary.

The law does, however, allow him to set off two things. First, the money the employee earns elsewhere during this time. Second, the money the employee "maliciously fails" to earn, that is, income he deliberately forgoes although he could readily obtain it. The employer relied on this second point: 43 adverts, hardly any applications, and therefore notional earnings in the full amount of the salary.

The Federal Labour Court's judgment

The labour court sided with the employer and dismissed the claim. The Regional Labour Court of Baden-Württemberg awarded the employee his pay, and the Federal Labour Court confirmed this. Because of the garden leave, the employer was in default of acceptance and owes the agreed remuneration for the entire notice period. The employee does not have to accept a set-off of notional earnings.

The reasoning turns on fairness. Setting off money the employee never received is a disadvantage for him. That disadvantage is justified only if the employee remained inactive in breach of good faith, that is, in a dishonest manner. The set-off is a rule of equity. How much initiative may be expected of an employee therefore cannot be assessed in isolation from the employer's own obligations.

Those obligations include employing the employee, including during the notice period. The employer had not shown that this would have been unreasonable for him. The employee was therefore not obliged to take up a new position before the end of the contract merely to relieve the employer financially.

What this means for employees

Anyone released from work after a dismissal may sit out the notice period without having to fear for their pay. Job adverts sent by the former employer are either well meant or well calculated, but they create no obligation. No one has to apply for them, and no one has to take up a new position before the contract ends so that the old employer can save on wage costs. If the employer withholds pay anyway, the amount can be claimed in court. It is worth checking the employment contract or collective agreement: if it contains a limitation clause, claims must be asserted within the period stated there, otherwise they lapse.

Two things are unaffected by the judgment. First, registering with the Employment Agency, which concerns unemployment benefit and has nothing to do with the pay claim against the former employer. The consultant had registered as a jobseeker shortly after the dismissal. That remains important, because late registration can lead to a suspension period, that is, weeks without unemployment benefit.

Second, the earnings someone achieves during this time: anyone who voluntarily takes up a new position during garden leave must have the money earned there set off against the old salary. The judgment only protects against the set-off of money that no one has earned.

Where the decision reaches its limits

The Federal Labour Court words this carefully: the employee does not act maliciously "as a rule". Exceptions therefore remain conceivable. In the case decided, the employer had not shown why he could not have employed the employee until the end of the contract. If an employer succeeds in showing this, the balancing exercise may come out differently.

The decision also concerns garden leave declared unilaterally by the employer. Anyone agreeing garden leave in a termination agreement can also regulate there whether and how other earnings are set off. Before signing, it is therefore worth taking a close look at precisely this clause.