German Court Tightens Rules on Company Car Perks, Orders Compensation for Unauthorized Withdrawal
Published on 06/06/2026 at 02:59 | Redaktion boerse-global.de
Employees who lose access to a company car without a valid reason can now demand compensation. A regional labour court in Lower Saxony recently awarded 510 euros to one worker for the loss of private use. The case underscores a growing legal pushback against employers trying to restrict a benefit that courts consider part of the salary.
Germany’s Federal Labour Court (BAG) has made clear that blanket clauses allowing an employer to demand the car back “at any time” during a period of leave are invalid. In a ruling on 25 March 2026, the court said such provisions unreasonably disadvantage workers, effectively amounting to a partial withholding of wages. The vehicle may be used privately until the employment relationship ends.
Even illness does not automatically end the right to drive the car. The BAG confirmed that the entitlement continues as long as the employee is still receiving continued wage payments – typically for six weeks. A withdrawal becomes lawful only if the absence extends beyond that period or if the contract contains a valid revocation clause. The court stressed in a 2025 decision that any such revocation must also satisfy the standard of “equitable discretion.”
Employers who remove the car without justification face compensation claims. In addition to the Lower Saxony ruling, the BAG warned on 12 February 2025 that revoking the benefit mid-month could be inequitable because it forces the employee to fully tax the non-cash benefit for the entire month, creating a financial disadvantage.
On the tax side, the Federal Ministry of Finance (BMF) issued a new directive on 3 March 2026 clarifying the VAT treatment of company car provision. The update follows a ruling by the Federal Fiscal Court from 30 June 2022. For pool vehicles without an electronic logbook, special documentation rules remain in force. A separate BMF instruction from 3 March 2022 allows the flat-rate one-percent rule to be calculated on a pooled basis and shared among multiple authorised employees – but only if actual alternating use can be proven. Without proper records or a GoBD-compliant logbook, back-taxation can apply for up to four years.
While private use of company cars is now better protected, the landscape for commercial rental-car platforms has become tougher. On 3 June 2026, the Federal Court of Justice (BGH) upheld the requirement under the Passenger Transport Act that rental cars must return immediately to their base after each job unless a new order is already waiting. The BGH saw no conflict with the German constitution or EU law, arguing the rule ensures fair competition with the taxi sector. Industry groups reacted sharply, calling the empty runs ecologically wasteful and estimating they account for roughly 30 percent of total mileage. In Cologne, minimum-price rules have been introduced that forbid rental cars from being more than 20 percent cheaper than taxis.
Separately, the BAG strengthened employees’ hand on work references. In a decision on 7 May 2026 (case number 8 AZB 25/25), it ruled that a court settlement requiring the employer to issue a reference based on a draft provided by the employee is enforceable. Employers cannot claim the agreement is too vague unless they can show a concrete violation of the principle of truthfulness in references.
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