Dismissal and company cars

Update status: This article was originally published on 4 April 2013. However, its content was completely revised on 13 August 2026.

A company car (lease car/company vehicle) is an attractive fringe benefit for many employees. But what happens to the lease car if employment is terminated or the employment contract is ended before the end of the lease term? In such cases, disputes often arise regarding the lease car. This is often caused by a lack of clear agreements in the fringe benefits regarding dismissal and the lease car.

Agreements on dismissal and company cars

When employment is terminated or in cases of dismissal, the company car can be a contentious issue. It is therefore advisable to set out provisions and obligations in writing when drawing up the employment contract, regarding responsibilities for the company car in the event of resignation or termination of employment. These arrangements can also be set out in a separate agreement governing the use of the company car, which forms part of the employment contract, and/or in a car policy or lease policy.

However, written agreements regarding dismissal and a company car are often not made. If the employer cannot prove that clear agreements have been made, they cannot, in principle, oblige the employee to pay the remaining lease instalments or the buy-out sum of the lease contract. Sometimes such a provision is included in the lease car usage agreement, but it often turns out to be too vague at the time of dismissal. In that case, the burden of proof lies with the employer.

Drawing up a lease car usage agreement

In addition to the arrangements regarding the use of the leased car, a usage agreement often sets out other matters as well, such as provisions concerning the theft of a leased car whilst in private use and damage to the leased car caused by the employee’s negligence, wilful misconduct or gross recklessness. The employer must go through these arrangements thoroughly with the employee in advance. This ensures that both parties always know where they stand.

The usage agreement usually sets out three options in the event of early termination of the lease contract or employment by the employee.

• Obligation to take over or retain the lease
• The employee may be obliged to take over the lease contract. This may occur, for example, if the employee purchases the leased car themselves or if the leased car and the lease contract are taken over by the new employer. For this to happen, the employee must have sufficient financial resources, or the new employer must be willing to take over the contract.
• Settling the lease contract
• In this case, the employee must pay the costs of terminating the lease contract early. This is known as the settlement sum. In practice, this is often a percentage of the remaining monthly instalments.
• Transferring the lease car
• In this case, the lease car can be transferred to another employee within the current employer’s organisation.

Passing on costs

If the employee leaves whilst the lease car is still under contract for a considerable period, the employer may be left with a settlement sum or other losses. If the car cannot be taken over by a new employee and the new employer is unwilling or unable to take over the contract, the question arises as to whether the employer can recover those costs from the employee.

This occurs regularly in practice. However, case law shows that this is not automatically possible. In a 2024 ruling, the subdistrict court judge held that there was no separate agreement on the basis of which the employer could simply pass on the full termination fee to the employee. The court did, however, find it reasonable that the employee should pay part of that settlement sum on the basis of good-faith employment. This makes it clear that cases of this kind are not black and white, but depend heavily on what the parties have specifically agreed and on the circumstances of the case.

Even if written agreements have been made regarding dismissal and the company car in the employment contract or in the agreement of use, a judge may, in the event of an employment dispute, assess whether the provision is sufficiently clear. The reason for dismissal may also play an important role in this regard.

For example, if an employee voluntarily resigns early and the employer has made it sufficiently clear what the consequences will be for the remaining lease terms of the company car, the employer may generally charge the employee for all or part of the costs. In such cases, the court is more likely to consider the employee’s good faith and whether it is reasonable for the employee to bear part of the loss. If, on the other hand, the employment contract is terminated prematurely at the employer’s initiative – for example, for commercial reasons – it will generally be less likely to be considered reasonable and fair to pass on the costs of the lease car to the employee.

Good employment practices and the agreement of use

A number of clear conclusions have emerged from various court cases concerning dismissal and company cars with regard to liability and good employment practices. For instance, the court has ruled that the employer is responsible for the proper execution of and compliance with the lease contract. In addition, the employer has a duty to provide adequate information. This means that, when entering into a lease contract, the employer must always provide the employee with accurate information about the financial consequences and any potential buy-out obligation under the lease contract. These arrangements must be set out explicitly in writing, and the employee must sign the user agreement.

Previous court cases also show that the court generally holds the employer responsible for the proper performance of the lease agreement and the driver’s agreement. In many cases, following a dismissal where an obligation to pay off the lease contract is included in the employment contract, the employer is obliged to negotiate an appropriate settlement sum with the leasing company. The court often rules that the settlement sum must not be borne in full by the employee.

Summary dismissal

There may be instances where the employer has urgent grounds to dismiss the employee with immediate effect. In such cases, the employment contract is terminated immediately. This may also have consequences for the use of the leased car. In principle, the employee will have to return the leased car to the employer immediately if this is stipulated in the agreements made.

Even in the case of dismissal with immediate effect, the agreements between the parties must be taken into account.
If the contract contains a clause stipulating that any loss arising from dismissal on urgent grounds is to be borne by the employee, the requirements of clarity, the duty to provide information and good employment practices still apply. It is important to note that a summary dismissal may be overturned by a court. This may also have implications for the entitlements and obligations relating to the lease car.

Wage set-off

If an employee is required to reimburse the costs of the early termination of the lease contract, this does not automatically mean that the employer may set these costs off against the employee’s salary, final settlement or transition payment. Statutory rules apply to such set-offs. For example, the salary must not fall below the statutory minimum wage. Without a clear contractual basis or the employee’s consent, set-off is not always permitted. Employers would therefore be well advised to set out clear agreements on this matter in advance in the employment contract, the lease scheme or the usage agreement.

Lease car is not included in the transition payment

Where an employment contract is terminated at the employer’s initiative, the employee is generally entitled to a transition payment. This payment is determined, amongst other things, on the basis of the employee’s gross monthly salary and the number of years of service. Salary components that may be included in the calculation of the transition payment include holiday pay, a fixed end-of-year bonus, agreed fixed salary components and variable salary components such as bonuses and profit-sharing payments.

A company car is not included in the gross monthly salary used to calculate the transition payment and is therefore, in principle, disregarded when calculating the amount of the transition payment. In practice, this point often causes confusion, as employees with a leased car for private use do derive a private benefit from the car. Legally, however, that benefit is not automatically treated in the same way as a regular monetary salary component.

Legal advice on company cars

Would you like more information about dismissal and company cars? The solicitors at Fruytier Lawyers in Business specialise in contract law, employment law and corporate law. We would be happy to answer your questions about the usage agreement, lease arrangements and your obligations as an employer or employee. We can also draft or review terms and conditions for you regarding the use, purchase and return of a leased car by an employee. For further information, please feel free to contact us without obligation.