Managerial liability also affects middle management
The case concerns a salaried finance director, not a member of the executive board. The Cologne Regional Labour Court (LAG) upheld his summary dismissal on grounds of gross negligence and affirmed full liability. It rejected any limitation of liability on the grounds of the employer-funded D&O insurance. The decision of 31 July 2026 (8 SLa 603/25) is not yet final; the official database lists the Federal Labour Court (BAG) as the court of appeal under case number 8 AZR 164/26.
Examine D&O and personal liability separately
Employees are generally not liable in cases of slight negligence, are liable on a pro rata basis in cases of moderate negligence, and are generally fully liable in cases of gross negligence. Even then, the circumstances may justify a limitation.
Gross negligence is generally covered under D&O insurance. It therefore does not, in itself, lead to a loss of insurance cover. According to the court’s findings, the finance director in question was also covered. The D&O policy can therefore, in principle, absorb the loss. Whether the insurer is actually obliged to pay out, however, depends on the specific terms and conditions, any exclusions, reporting obligations and the available cover. The liability judgement against the employee does not in itself guarantee an insurance payout. It is therefore problematic to reject a limitation of liability on the grounds of assumed insurance cover as long as the specific cover has not been conclusively clarified.
The dual-control principle requires an independent review
The involvement of a second employee is particularly revealing. This employee was not provided with full information, on the grounds of confidentiality. The practical implication of this is that having two people involved in the payment process does not in itself guarantee effective control.
The second person must be able to verify the reason for payment, the recipient and the authorisation. If documents are missing or doubts remain, the payment must be halted and the matter escalated. Confidentiality must not prevent authorised control personnel from accessing necessary information.
Management must organise effective controls
For managing directors and board members, there is also the question of their own organisational responsibility. The judgement does not rule on their liability. However, missing or inadequately monitored payment processes may give rise to liability risks of their own. Whether a breach of duty has occurred and caused the damage must be assessed on a case-by-case basis.
Companies should therefore implement the following measures:
- Confirm unusual payment instructions via an independently chosen, known channel of communication.
- Link authorisations to verifiable documentation and clear lines of responsibility.
- Exclude private messaging apps and email accounts from being used for payment instructions.
- Make it technically more difficult to circumvent controls and document approvals for exceptional cases.
- Provide regular training for staff on CEO fraud and enable them to report suspicious activity.
Conclusion
Management teams should jointly review payment processes and D&O cover. The key factor is whether controls function effectively in day-to-day operations – even under time pressure, alleged confidentiality requirements and instructions from supposed superiors. BUSE supports companies and executives in assessing their liability risks, compliance structures and insurance terms.
Source: Cologne Regional Labour Court, judgement of 31 July 2026 – 8 SLa 603/25.
You can find the judgement here.
Key points in brief
- Managerial liability may also apply to senior executives; the Cologne D&O ruling is not yet final.
- The dual-control principle requires informed, independent oversight.
- Management boards should enforce payment controls and review the specific D&O cover.
