Can the employer claim back a sign-in bonus?

Depending on the position to be filled, employers often offer desired applicants a sign-in bonus at the conclusion of the employment contract. This of course makes a job change much more attractive for the new employee, and at the same time such a sign-in bonus can compensate for any losses in variable salary components that may occur when the old employment relationship is terminated. Of course, the payment of the sign-in bonus is always linked to the employer’s expectation that the employment relationship will last as long as possible. Thus, the employer would like to prevent the new employee from terminating the employment relationship soon after the conclusion of the contract, for example during the probationary period. If that happened, the investment in form of a sign-in bonus would be mistaken. In a recently published decision issued on September 24, 2019, the Regional Labor Court of Schleswig-Holstein defined the legal framework within which the parties to the employment contract can effectively agree to repay the sign-in bonus (Ref.: 1 Sa 108/19)

The employer offered a sign-in bonus to a potential employee who had applied for a vacant position in the field of senior care. The parties further agreed that the bonus would be fully refundable if the employment relationship ended within the probationary period. If the employment relationship ends within six months after the end of the probationary period, the bonus should also be fully repayable if the employee herself terminated the employment relationship (not due to an important reason for which the employer was to blame), or if the employment relationship ended due to extraordinary termination by the employer for reasons of conduct or personal reasons. It was further agreed that periods of inability to work, such as sick leave, and suspension of the employment relationship would extend the period relevant for repayment.

The employment relationship ended due to termination by the employer, for which notice was given during the probationary period. The actual termination date was after the probationary period. However, the employee was unable to work for a period of approximately ten weeks during the probationary period. After the termination of the employment relationship, the employer claimed the repayment of the sign-in bonus from the former employee and asserted that, considering the extension of the repayment period due to the illness, the termination took place within the probationary period.

The Regional Labor Court ruled that repayment clauses may include an agreement to extend the repayment period if the employee is absent for some time during the relevant period due to inability to work. Against this background, the Regional Labor Court came to the conclusion that the termination of the employment relationship effectively took place during the probationary period, even though the probationary period would have already passed when the employment relationship ended had there not been the extension.

However, the Regional Labor Court also found that the specific repayment clause agreed to between the parties is ineffective overall and the employer thus cannot claim back the sign-in bonus. The court reasoned that the clause did not differentiate which of the parties would be the cause for the termination of the employment relationship in the probationary period. Although the court held that it is legitimate to agree on a repayment agreement for a sign-on bonus in the event of a termination of employment during the probationary period, such a repayment clause must differentiate whether it is the employer or the employee to terminate the employment relationship, and it must furthermore differentiate whether the termination is due to the conduct of the employer or the employee. In the opinion of the court, there is no room for a repayment within the probationary period if the employer has given justified cause for a termination through conduct.

The decision of the Regional Labor Court of Schleswig-Holstein clearly shows that repayment clauses are threading a fine line between the legitimate interests of the employer on the one hand and the rights of the employees anchored in the German constitution on the other. Thus, the court clearly states that every repayment clause restricts the employees’ right to freely choose a job, and that the free choice of profession protected by the Basic Law also includes the free choice of job. A restriction of this fundamental right must always be proportionate; the employee must not be unduly disadvantaged by such repayment clauses. Against this background, we recommend that, before agreeing to sign repayment clauses for sign-in bonuses, it should be carefully examined in each individual case whether and in what concrete form an agreement for an obligation to repay can be legally concluded.