German Court Rules Blanket ‘Garden Leave’ Clauses in Contracts Are No Longer Valid

Employers across Germany must rethink how they handle employees after issuing a notice of dismissal. A landmark ruling by the Federal Labor Court (Bundesarbeitsgericht, BAG) on March 25, 2025, declared that sweeping contract clauses giving companies the automatic right to send workers home during their notice period are unlawful. An expert commentary published on July 24, 2026, has now fleshed out the practical implications for businesses.

The court’s decision (case reference 5 AZR 108/25) struck down standard-form language found in countless employment contracts. These clauses typically allowed an employer to release a worker from all duties immediately after a dismissal, while continuing to pay their salary, without offering any justification. The BAG ruled that such blanket provisions violate an employee’s fundamental right to actual employment, which persists even during the notice period.

Just as German employers must now document their case-by-case reasons for suspending workers, UK businesses face their own strict documentation requirements under the Health & Safety at Work Act. A free toolkit provides nine ready-to-use tools, including risk assessments and checklists, to help you stay compliant and avoid costly penalties. Download the free Health & Safety at Work Act 1974 Toolkit

Under the new legal framework, a company can only exclude a terminated employee from the workplace if it has a concrete, overriding interest in doing so. The mere fact that the employment relationship is ending no longer suffices. The burden of proof falls squarely on the employer, who must demonstrate that a specific, case-by-case assessment was conducted before the so-called “garden leave” was imposed.

The July 2026 commentary emphasizes that this individual review is now mandatory. Automated or routine suspension of work following a dismissal is no longer permissible. Employers must point to tangible risks or hardships that would make continued employment until the end of the notice period unreasonable. Without documented justification, companies face legal challenges and potential compensation claims from the dismissed employee.

Despite the stricter rules, the BAG acknowledged that legitimate grounds for suspension still exist. Protecting trade secrets remains a valid reason, particularly for employees in roles with access to sensitive data, customer lists, or strategic plans — especially when a move to a competitor is anticipated. A severe breakdown of trust or the risk of disrupting workplace harmony can also justify exclusion. In every case, however, the employer must show that the company’s interests outweigh the worker’s right to remain active.

Documenting your workplace safety procedures is just as critical as documenting your dismissal decisions. A comprehensive Health & Safety Toolkit gives you instant access to risk assessments, checklists, and toolbox talks that help protect your employees and meet UK legal duties. Get the free Health & Safety Toolkit

Legal experts are now urging businesses to audit their existing employment contracts. Since generic suspension clauses are effectively void, many standard agreements may no longer hold up in court. The safest approach, according to the commentary, is to issue suspensions only with a clear, written explanation of the specific reasons and to revise contractual terms to align with the court’s precise requirements. The case-by-case assessment has become the cornerstone of any lawful separation process, designed to shield employers from litigation and avoid costly settlements.

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