Commented Federal Labor Court decision: A termination agreement must be negotiated fairly, otherwise it is invalid

Federal Labor Court, Ruling of February 7, 2019 – 6 ARZ 75/18

Termination agreements concluded in the private home of the employee are principally so-called consumer agreements, but nevertheless cannot be revoked according to secs. 312 et seq. of the German Civil Code. Agreements that were concluded in the employee’s home could, however, be ineffective due to the violation of the principle  of fair negotiation.

Facts of the case:

The parties disagreed about the (continued) existence of the employment relationship between them. The employee worked as a cleaning assistant. On February 15, 2016, the employer’s life partner visited her in her private home at around 5 p.m. and presented her with a termination agreement, which she signed immediately. The agreement provided for an immediate termination of the employment relationship without any severance payment, but a compensation for overtime. In a letter dated February 17, 2016, the employee’s legal counsel declared to the employer that the employee would dispute the termination agreement on the grounds of error, fraudulent misrepresentation and threat. Additionally, he declared that she was making use of her right to revocation.

The employee reasoned that she had been sick in bed on the afternoon of February 15, 2016, when the employer’s life partner rang the doorbell. Her son let the person in and woke her up. According to her, the employer’s life partner told her that he would no longer support her laziness, and then presented the termination agreement to her. She had signed under the influence of painkillers and “in a haze” and only realized afterwards what she had done.

The lower instance courts dismissed the employee’s action as unfounded. The Federal Labor Court however overturned their rulings and referred the case back for retrial.

Decision:

Like the previous instances, the Federal Labor Court agreed that the termination agreement was not subject to a right of revocation, since termination agreements are not covered by secs. 312 et. Seq. of the German Civil Code. The type of consumer contracts referred to therein each concerned a service provided by a company against payment. Including employment contracts in the scope of the application of secs. 312 et. seq. would therefore not reflect the will of the legislator.

The Federal Labor Court did however see the danger of a possible violation of the principle to fair negotiation—unlike previous instances (which had not examined this aspect at all). Pursuant to sec. 311 para. 2 no. 1 in connection with sec. 241 of the German Civil Code, the principle of fair negotiation is a secondary obligation for the commencement of negotiations on a termination agreement, because a termination agreement is an independent legal act.

In the opinion of the Federal Labor Court, however, it would be impossible to draw up a conclusive list of obligations for employers to abide by the principle of fair negotiations. Decisions on whether that principle was followed can only be made on a case by case basis. The Federal Labor Court provided  some examples such as:

It can violate the principle of fair negotiations, if  the employee risks being taken by surprise during the negotiations, e.g. because those negotiations take place at unusual times or in unusual locations.

A violation can also exists if the party’s freedom of decision was influenced in an abusive manner. However, not granting the employee time to properly consider the decision or not granting  a right of withdrawal or revocation upon signature do not constitute such abusive influence.

However, a negotiation situation has to be considered unfair if psychological pressure is created or exploited, making it difficult or even impossible for the other party to take a free and reflected decision. This might also be achieved by creating a particularly unpleasant situation that considerably distracts or raises fear, or by consciously exploiting a physical or mental weakness or inadequate language skills of the other party.

Ultimately, however, the violation of the principle of fair negotiation must always be based on fault. Only in such a case, a termination agreement would be ineffective.

If a termination agreement is  ineffective, the employee is entitled to the position held prior to the conclusion of the agreement. T Consequently, the employment relationship is to be continued at unchanged working conditions.

Due to the non-existence of corresponding findings by the Lower Saxony Labor Court, the Federal Labor Court was unable to conclusively assess whether a violation of the principle to fair negotiations had actually taken place in this case, which is why the case had to be referred back for retrial.

Practical advice from Ogletree Deakins:

The Federal Labor Court followed previous case-law with regard to the rejection of a right of revocation in the case of a termination agreement for an employment relationship, but it adapted its reasoning to the legal situation that has existed since 2014.  Although the decision does not introduce any new legal directions in this respect, it nevertheless creates legal certainty.

The “principle of fair negotiation” is not entirely new either. The Federal Labor Court has already pointed out in the past that unusual times or places for contact negotiations pose a risk of an employee being overwhelmed and consequently can be interpreted as a violation of the principle of fair negotiation.

Obligations arising from the principle of fair negotiation can only be determined on a case-by-case taking into consideration all facts of the negotiations. However, employers should always avoid unusual circumstances in connection with negotiations on a termination agreement. In particular, home visits  or visits at unusual locations (e.g. at a hospital) especially when they are sick, should be avoided. Usually negotiations relating to termination agreements should take place during working hours at the employer’s premises and employees should have the time to consider an offer.