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Caution when providing company cars/avoidance of additional payments due to invalidity of the company car agreement

BAG of May 31, 2023, 5 AZR 273/23

Depending on the employee's net income and taking into account their maintenance obligations, a company car agreement, but also any other agreement on non-cash benefits, may be invalid and lead to additional payments.

In its decision of May 31, 2023, 5 AZR 273/23, the 5th  Senate of the Federal Labor Court had the opportunity to deal with some key issues relating to the provision of company cars. On the one hand, this brings clarity to some open questions. On the other hand, however, employers are well advised to examine and weigh up the circumstances very carefully before providing a company car in order to avoid incurring an expensive obligation to make additional payments.

The plaintiff had a gross salary of EUR 4,285 and a company car, which he was also allowed to use privately and which was taxed at EUR 445 per month (1% rule). In addition, a further EUR 747.60 in co-taxation was incurred for the kilometers from home to work. The plaintiff, married and father of two dependent children, claimed an additional payment of around EUR 30,000 for a period from January 2017 to April 2020 due to a breach of Section 107 para. 2 cl. 5 GewO (German Trade Regulation Act).

According to the little-noticed provision of Section 107 para. 2 cl. 5 GewO, the value of an agreed non-cash benefit may not exceed the value of the attachable part of the remuneration. If the value of the non-cash benefit exceeds the attachable part of the employment income, the underlying agreement on the provision of a company car is invalid. The same applies if this only changes in the course of the employment relationship, for example due to marriage or the birth of dependent children.

To determine the attachable part of the employment income, the monthly gross earnings plus the 1% value must first be used as the starting value. The amount to be taken into account for mileage will not be considered. The attachable part of the earned income is determined by applying section et seq. 850 ff. ZPO, in particular from section 850c ZPO and the existing tables.

In the case decided, the value of the non-cash benefit was EUR 445. The company car agreement would therefore be invalid if the attachable part was less than this amount. This is the case for a single employee if their net income is less than EUR 1,970. It becomes more difficult if, as here, a spouse and two dependent children have to be taken into account. In this case, the value of the non-cash benefit would be less than the net income of up to EUR 3,870.

With a gross list price of EUR 44,500, the plaintiff in the example case did not even choose a particularly expensive company car. The other data such as the number of 3 dependents and the monthly gross salary of 4,285.00 are also not unusual.

The consequence of the invalidity of the agreement is the return of the company car for the future and the increase in the monthly gross salary by the value of the non-cash benefit, in this case EUR 445. For the past, the value of the non-cash benefit must be paid in cash, whereby the non-cash benefits for the past must be returned in accordance with the law of enrichment, which can lead in particular to the objection of deprivation of assets.

Recommendation: Employers are well advised to check very carefully whether the value of the non-cash benefit exceeds the attachable part of the employee's income before granting a non-cash benefit, in particular a company car. For this purpose, the necessary employee data, in particular marital status and the number of dependents, must be obtained. The employee must be obliged to report any changes immediately and the employer must check whether the attachable part has been exceeded. The more expensive the company car and the lower the employee's (net) income, the higher the risk of ineffectiveness. In the case of a company bike, the value of private use is significantly lower at 0.25%, but the same applies in principle.


Michael Wahl

Michael Wahl


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