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No need for back pay – if employment was established with retroactive effect

On 19 August 2015, the Federal Labour Court (Bundesarbeitsgericht) ruled that employees are not entitled to back pay if the employment relationship was established with retroactive effect (docket number 5 AZR 975/13).

The plaintiff was the defendant’s employee until 1986 when her employment contract was transferred to the newly established C-GmbH as part of a transfer of a business. The defendant guaranteed a right to return. In 2010 the plaintiff’s employment contract was terminated due to an operational shutdown in consequence of insolvency proceedings. The plaintiff claimed her right of return to the defendant. The defendant refused to employ her again, referring to a Federal Labour Court decision of 19 October 2005 (docket number: 7 AZR 32/05). The plaintiff filed a successful legal action: According to the binding decision of the Higher Labour Court (Landesarbeitsgericht) the defendant needs to employ her with retroactive effect from 1 February 2010. The Higher Labour Court held the decision of 2005 not comparable.

The plaintiff now claims remuneration since 1 February 2010. However, on appeal by the defendant the Federal Labour Court dismissed the claim. The defendant does not need to pay salary for the past employment relationship. According to the court, the employee is not entitled to remuneration based on default of acceptance (Annahmeverzug). An employment relationship which has been established with retroactive effect is not actually workable for the past. Moreover, the defendant was not held responsible for the impossibility of fulfillment of the employee’s duty to work in the past. The company was held excusably mistaken in its assumption that it did not need to accept a renewed employment relationship with the plaintiff.

So far, the reasons for the decision have not been published. It may remain to be seen whether the court in principle distinguished between the employment relationship with retroactive effect and existing employment relationships that have been terminated without justification or whether the circumstances of the specific case (eg the employer’s excusable wrong legal assessment) remain decisive.