Intentional Failure to Apply for Unemployment Benefits During Dismissal Protection Proceedings

The existence of an employee’s obligation to report to the Employment Agency immediately after they receive notice of termination is not new (§ 38 Social Security Code Book 3 – SGB III). In its ruling of October 12, 2022 (File No. 5 AZR 30/22), the German Federal Labor Court (Bundesarbeitsgericht – BAG) had to deal, among other things, with the question of whether there was a malicious intent to fail to earn money during a period of default of acceptance and what effects a failure to notify to the Employment Agency in due time can affect the claim to payment of default of acceptance wages.

An employee worked for his employer in a leadership position. The employer terminated the employment relationship extraordinarily without notice, or alternatively by ordinary termination with notice. Following the termination, the employee did not notify the Employment Agency that he was a job seeker and therefore did not receive any unemployment benefits. The Labor Court ruled that the employer’s notice of termination was invalid and that the employment relationship still existed. Following the proceedings for protection against dismissal, the employee therefore claimed for salary during default of acceptance, in the end for the period of almost 13 months. The employer contested the claim for retroactive salary payments on the grounds that the employee had maliciously refrained from earning money elsewhere during the relevant period of default in acceptance by not notifying the Employment Agency that he was a job seeker within three days of receiving the extraordinary notice of termination. The employee objected to this, stating that positions such as his as an expert in public procurement for defense equipment were not placed by the Employment Agency, but only by private recruiters, and that he had sought other employment through various channels. He was also not obliged to expand his secondary business as a self-employed car trader during the period of default of acceptance.

In the opinion of the German Federal Labor Court, the conditions for a default of acceptance on the part of the employer existed from the time of receipt of the (invalid) notice of termination without the employee having to offer his work performance. However, a malicious failure to earn money elsewhere pursuant to Sec. 11 No. 2 KSchG would only exist if the employee could be reproached for the fact that he intentionally remained inactive during the period of default of acceptance despite knowledge of all objective circumstances and did not take up other employment that could reasonably be expected of him in good faith, taking into account the fundamental right to free choice of employment, or objective conditions that prevented him from taking up employment. The unreasonableness of other work could result, among other things, from the person of the employer, the type of work and the other working conditions. The assessment of bad faith would be a case-by-case decision in which an overall weighing of all circumstances and mutual interests had to be carried out.

The German Federal Labor Court was not able to conclusively clarify whether there was actually a malicious failure in this case and referred the proceedings back to the Regional Labor Court. Nevertheless, the Federal Labor Court already indicated which aspects would have to be taken into account in the overall consideration:

• The failure to report as a job seeker alone does not fulfill the requirement for malicious failure, even if the employee is aware of this reporting obligation.
• However, the lack of notification to the Employment Agency must be taken into account. The employee must not intentionally prevent the possibility of being offered a reasonable job.
• The employee’s own efforts to find employment elsewhere must be appreciated. It must also be assessed whether the employee can be reproached for having placed his main focus on an activity in his economic sector. Particularly in the case of an employee in a leadership position, the employee’s own efforts, if any, to find employment elsewhere are of considerable importance.
• The mere fact that the employee had registered a trade did not oblige them to take up full-time self-employment.

If a malicious failure was affirmed, it would have to be clarified for the imputation of hypothetical earnings whether the Employment Agency would have made reasonable job offers in the relevant period, whether an application by the employee would have been successful, and what earnings the employee could have achieved within the framework of the assumed employment and from what point in time. The employer bears the burden of proof for the objections, however, the employee must provide specific information on the job possibilities and opportunities after conclusive assertion by the employer.

The mere fact that an employee has not reported to the Employment Agency that he/she is looking for work is therefore not sufficient to counter a claim for payment due to default of acceptance. If there is an economic risk due to default of acceptance, the employer should – if possible – document at an early stage to what extent suitable job positions were advertised for the terminated employee, so that other earning opportunities can be held up against a claimed default of acceptance wage. If the terminated employee has registered with the Employment Agency as a job seeker, the employer has a right to information from the terminated employee regarding the Employment Agency’s job offer, their application efforts, the content of their applications and their outcome.