Money Ball: Corporate investigations can pay off – if you know how.

 German Federal Labor Court decides on cost reimbursement for a corporate investigation

Money Ball: Corporate investigations can pay off – if you know how

An employer can demand compensation from the employee concerned for the costs of compliance activities (here: the costs for retaining the services of a law firm in a corporate investigation). However, the necessity of the activities must be proven. The German Federal Labor Court decided this with its ruling from April 29, 2021 (Ref.: 8 AZR 276/20).

A passion for good food and football has since cost the former manager of a company his job. The employee invited people to dinner or to FC Bayern Munich Champions League football matches without an actual business reason. All this took place at his employer’s expense.

After the company had received several anonymous suspicious activity reports due to possible compliance violations, the issue was investigated. A law firm was hired to handle the investigation. This is the best practice when it comes to compliance incidents as it ensures effective and legal corporate investigation of the compliance violations. After the suspicion had been confirmed, the employee was dismissed and his suit for unlawful dismissal failed.

Recoverable – costs of the compliance investigation

However, the question remained as to who would bear the roughly €210,000 in costs for the compliance investigation.

The State Labor Court Baden-Württemberg awarded the employer €66,500 as compensation. The employer was entitled to compensation for the costs incurred by the law firm’s compliance investigation up until the notice of termination was issued. However, the former employee appealed the decision before the German Federal Labor Court and won.

Federal Labor Court: Observe the prerequisites for cost reimbursement

The 8th Senate of the German Federal Labor Court (BAG) ruled that an entitlement to cost reimbursement can exist in principle. To this end, the employer must have launched the investigation on the basis of a concrete suspicion of serious misconduct on the part of the employee. The investigations must also prove that the employee has committed a serious and intentional breach of contract. Then, § 12a ArbGG does not stand in the way of the claim.

In this specific case, the company had failed to present the case that the costs claimed were also necessary. It did not provide a substantiated presentation stating which specific activities or investigations requiring which amount of time were carried out on the basis of which particular suspicion.

According to the ruling of the German Federal Labor Court (BAG), companies can be entitled to compensation for the costs of the compliance investigations despite Section 12a (1) of the Labor Court Act (ArbGG) ruling out such cost reimbursement. However, they must be able to prove that the costs were necessary.

As such, the court decision essentially provides a guideline for successfully claiming cost reimbursement for corporate investigations. Once again: You simply have to know how.