Compliance violations by the employee: there is a risk of destruction of existence

In its current ruling of April 29, 2021 (ref.: 8 AZR 246/20), the BAG decided that, under certain conditions, an employer can demand compensation from an employee for the costs incurred by hiring a law firm that specializes in clarifying compliance violations can. In such cases, employees may have to expect compensation claims from their employer that could destroy their livelihood.

The underlying case involved a head of the central purchasing department of a company. After receiving information about compliance violations, the company hired a law firm that specialized in compliance investigations. The investigations carried out revealed that the employee had violated the ban on bribes, had billed private expenses at the company's expense and had committed multiple expense fraud. The company terminated the employee without notice.

The company also demanded that the employee reimburse the legal fees incurred as compensation. The law firm charged an hourly fee of €350. The total fee amounted to €209,679.68.

In the appeal instance, the defendant demanded an amount of €66,500 from this total damage.

The BAG was of the opinion that a claim by the company for damages amounting to the costs of engaging a law firm specializing in compliance violations could in principle be considered. In particular, the regulation of Section 12a Paragraph 1 Sentence 1 ArbGG, which, as a special regulation under labor law, excludes not only a procedural, but also a substantive legal claim for reimbursement of costs, does not conflict with this. This standard does not apply in such a case.

However, for the employee to be liable for damages, there must be a concrete suspicion of significant misconduct on the part of the employee and the employee must be convicted of a serious intentional breach of contractual obligation. In this case, the expenses incurred by the injured party necessary to avert impending disadvantages are also included in the compensable damage. However, the limit of the obligation to pay compensation depends on what a reasonable, economically minded person would have considered expedient and necessary, given the circumstances of the case, to eliminate the damage or to prevent it.

In this case, the employee was lucky. The company had not adequately explained exactly this. It had not sufficiently stated which specific suspicions against the employee led to which specific investigations were carried out by the specialist law firm, when and to what extent.

But this is just a technical error. In principle, it should be possible for companies to make such a presentation. This applies in any case if the law firm has carried out detailed documentation of the individual investigative steps during the investigation and the costs incurred can be precisely assigned to these investigative steps from a list of activities. Companies are well advised to ensure compliance with these criteria when compensating legal fees for compliance investigations in order not to jeopardize the enforcement of claims for damages against the employee. Although only the press release and not the full text of the decision is available so far, the BAG does not appear to have expressed any concerns about the level of the hourly rate (€350). In fact, such an hourly rate is likely to be common for specialized law firms in the area of compliance and therefore ultimately necessary.

The case shows the claims for damages employees can expect in the event of compliance violations. Of course, the “classic” damage caused by any actions that damage assets, such as personal enrichment and lost profits, must be compensated. In addition, all other damages incurred by the company in order to clarify the relevant breaches of duty may also have to be paid. The total amount initially in question in this case, amounting to €209,679.68, should not be unusual. It can also get much worse. In the present case, the employee received a gross annual salary of €450,000 until the dismissal was announced (which was deemed effective by the labor court). However, for employees who earn in lower salary brackets, compliance violations with such compensation amounts can quickly destroy their existence.

Henning Schultze, lawyer and specialist in labor law