The German Federal Labour Court [Bundesarbeitsgericht - BAG] has recently commented on the prerequisites and limits of the reimbursement obligation in case of compliance measures: If the employer has a concrete suspicion of a significant breach of duty by the employee and subsequently commissions an external third party to conduct compliance investigations, e.g. a law firm, that prove that the employee has committed the offence, it may demand reimbursement of the investigation costs from the employee (§ 249 German Code of Civil Procedure [Bürgerliches Gesetzbuch – BGB]. However, the reimbursement obligation is limited to the "necessary" costs, for which the employer bears the burden of representation and proof. The principles outlined below should therefore be taken into account within the framework of compliance management systems if the costs of clarifying specific suspicious circumstances are to be successfully recovered.
In the case to be decided by the BAG, the employer had received several anonymous suspicious activity reports of alleged compliance breaches from a whistleblower and subsequently engaged a law firm that specialised in conducting compliance investigations. The law firm’s investigation report confirmed the suspicion of expense and billing fraud by the manager. According to the report, the manager had, among other things, invited people to dinner at the employer's expense without any work-related reason for doing so and had billed travel expenses for trips he had made to Champions League matches. The dismissal without notice declared on this basis was successful. However, the employer was unable to demand from the employee the reimbursement of the law firm’s investigation costs in the amount of approximately 200,000 euro, which the employer had asserted by way of a counterclaim. The reason for this was that the investigation order had initially been directed against several suspects and had been expanded more and more as the investigation progressed.
The BAG denied the reimbursement claim because the employer had not been able to sufficiently clearly explain which of the asserted costs were attributable to the specific investigations against the claimant and limited to the original suspicion (BAG 29 April 2021, docket No. 8 AZR 276/20). According to the BAG, the limit of the reimbursement obligation is determined by what a reasonable, economically-minded person would have done in the specific circumstances, not only as an expedient, but as a necessary measure, to eliminate the disruption or to prevent the damage. This is not opposed by § 12a (1) sentence 1 German Labour Courts Act [Arbeitsgerichtsgesetz – ArbGG]: This special employment-law provision excludes not only a procedural claim for the reimbursement of costs, but also a substantive one, as long as the lawyer's work relates exclusively to an open-ended internal company investigation.
Even if compliance investigations in practice often focus on a full clarification of the facts, companies should in future observe the following instructions when commissioning compliance investigation measures:
- If there is a concrete suspicion of significant misconduct on the part of one or more employees, the investigative measures commissioned should always be carefully specified in the statement of costs, put in reference to the suspicious circumstances that triggered them and broken down separately for each individual suspect. Sufficient documentation as to which specific investigations were carried out by the commissioned investigator when, in what temporal scope and because of which specific suspicion against which person is therefore indispensable for the reimbursement of these costs.
- Furthermore, the investigation order must not be limited to producing incriminating evidence to justify a dismissal, but fundamentally has to be open-ended. This means that it also includes the determination of circumstances that may exonerate the employee.
- Moreover, the costs of the investigative measures must be proportionate to the total amount of the compensable damage. Only then can the costs of the investigation be effectively passed on.