Fairplay and cancellation agreements – Time to think or sign immediately?
Judgment of the Federal Labour Court of 24 February 2022 in Case No. 6 AZR 333/21
In 2019, the Federal Labour Court (Bundesarbeitsgericht, BAG) established for the first time that a cancellation agreement will be void when it was concluded in disregard to the principle of fair negotiations (Judgment of the BAG of 7 February 2019 in Case No. 6 AZR 75/18). This principle will be infringed, for example, when one party creates or exploits a situation of psychological pressure to make it significantly more difficult or even impossible for the other party to reach a voluntary and considered decision. For the BAG, whether such a situation exists will depend on the facts in the specific case. Recently, the Court had the opportunity to decide such a case. The BAG held that an employer does not have to give an employee time to think before concluding a cancellation agreement.
Facts of the case
The dispute concerned the continuation of the employment relationship after the conclusion of a cancellation agreement. On 22 November 2019, the managing director and the defendant’s later lawyer held a meeting with the employee in the managing director’s office. They alleged that the employee had changed the sales prices in the IT system without authorisation in order to simulate higher profits. After a break of about ten minutes (in which the managing director, the lawyer and the employee sat silently in the room), the employee signed the prepared cancellation agreement which would end the employment relationship on 30 November 2019 (the normal notice period was six months; the offer did not contain any settlement). Other details of the discussions were disputed.
On 29 November 2019, the employee brought a challenge to the cancellation agreement claiming that she was unlawfully coerced and wanted her job back. She claimed she was threatened that if she didn’t sign the agreement, she would be issued with a notice of termination of employment with immediate effect and a criminal complaint would be filed against her. She was not given long to think about her options, nor was she allowed to obtain legal advice. She claimed that this constituted an infringement of the principle of fair negotiations. The Labour Court found in favour of the employee, while the Regional Labour Court reversed the decision and dismissed the claim.
The employee’s appeal was unsuccessful. The cancellation agreement is effective. The BAG was unable to ascertain any illegal coercion. According to the BAG, given the circumstances in the case, a reasonable employer could seriously consider issuing a notice of termination of employment with immediate effect and filing a criminal complaint. The employer also did not negotiate unfairly. In this respect, the BAG followed the judgment of the Regional Labour Court on appeal. The employee’s freedom of choice was not violated by the fact that the cancellation agreement was only on offer if she signed it immediately so that she could not delay her decision.
Consequences for practice
Little by little, the BAG has provided clarity concerning the principle of fair negotiations and has been reticent in applying the principle, which is to be welcomed. The principle should be applied restrictively, as employees already have adequate protection through the right to challenge the validity of a cancellation agreement on grounds of deception or coercion. According to the press release, time pressure will not automatically be an indication of unfair negotiations. The BAG also makes it clear that, in the specific situation, the employer was justified in considering issuing a notice of extraordinary termination of employment and filing a criminal complaint. The question of illegal coercion must therefore be answered in the negative in this case.
The full judgment of the Court, when it is available, will provide greater legal certainty. However, the fact that a cancellation agreement can be conditional on its immediate signing is welcome from an employer’s perspective. It is also already clear that the evidence of the discussions and circumstances in which they took place will be important in such situations. Employers should take detailed minutes of any severance talks and always ensure that a witness is present. If, as the BAG rightly states, a finding of coercion and a breach of the principle of fair negotiations will depend on the facts of the case, employers are well-advised to examine and document the circumstances of the specific case.