When defects arise in supply chains or loss events occur in business relationships, companies face more than direct material costs. Personnel costs as damages represent a separate and often significant head of loss: the deployment of employees to remedy defects, handle complaints, or manage claims generates substantial expenditure that may be recoverable from the responsible party. Whether and to what extent these costs can be asserted is a legally complex question, one that has not been conclusively resolved by the highest courts across all its aspects. Companies that pursue such costs without careful legal analysis, or conversely settle them too readily, risk significant financial disadvantage.
At Schlun & Elseven Rechtsanwälte, we advise companies comprehensively on commercial law and represent our clients in both pursuing and defending reimbursement claims. Drawing on sound knowledge of current case law and extensive experience handling complex supply chain and loss scenarios, we provide legally reliable strategies from the initial assessment through to court proceedings.
Personnel Expenditure in Loss Events: Which Costs Can Companies Claim?
When a company suffers a loss as a result of a damaging event, whether through damage to property caused by a contractual partner or a third party, the question regularly arises as to whether and to what extent the internal personnel expenditure incurred in that context is recoverable as a head of loss. Case law focuses on whether the personnel expenditure is attributable to the direct remediation of the loss or whether it merely serves to assess the loss and handle the out-of-court claims process. This distinction can have significant financial consequences in practice and is frequently underestimated by the companies affected. The table below sets out the key categories at a glance.
| Category | Reimbursable? | Key Conditions |
|---|---|---|
| Direct loss remediation: own staff | Generally yes | Subject to economy principle; Section 254(2) BGB applies |
| Direct loss remediation: external provider | Generally yes | Capped at market rate if internal approach would have been cheaper |
| Loss assessment and claims handling: own staff | Generally no | Exception where expenditure reaches exceptional scale |
| Loss assessment: external providers (lawyers, experts) | Yes | Recoverable as necessary costs of pursuing a claim |
| Subsequent performance: direct labor costs | Yes | Section 439(2) BGB; own staff or external |
| Subsequent performance: administrative personnel | Conditional | Must be specifically attributable to the particular case |
Is Personnel Expenditure for Direct Loss Remediation Reimbursable?
Personnel expenditure that directly serves to remedy the loss can, as a general rule, be claimed as a head of loss. This applies regardless of whether the work is carried out by the company’s own employees or by externally appointed third parties. Typical examples from practice include a company’s own employees restoring damaged machinery or plant, or a production facility deploying its own personnel to reinstate the original condition of its infrastructure following damage. The recoverable amount does not, however, necessarily correspond to the personnel expenditure actually incurred. Case law measures the required restoration amount based on objective criteria, independent of the costs actually arising. The key principles are those of economy and the duty to mitigate under Section 254(2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB). Companies are required to choose the most cost-effective reasonable means of remedying the loss.
In practical terms, this means the following: if loss remediation by the company’s own personnel would have been more cost-effective than engaging an external service provider, and if the use of internal resources would have been reasonable in the circumstances, the responsible party may not be required to reimburse the additional costs of the external engagement. The same applies in reverse: if an external service provider could have remedied the loss at lower cost because the internal approach was uneconomical or inefficient, the company cannot simply claim the higher internal personnel costs. In that scenario, the claim is capped at the objective market value of an external specialist firm.
Is Personnel Expenditure for Loss Assessment Reimbursable?
The scope for reimbursement is considerably narrower when it comes to personnel expenditure for loss assessment and out-of-court claims handling. Case law generally treats this type of expenditure for a company’s own personnel as not reimbursable. An important distinction applies with respect to third parties: while the costs of externally appointed service providers, such as lawyers or expert witnesses, engaged for loss assessment and enforcement purposes are regularly recoverable as necessary costs of pursuing a claim, the company bears the cost of deploying its own employees itself.
In practice, this covers the full range of general administrative activity that typically accompanies a loss event: preparing loss notifications, locating and reviewing relevant documents and contracts, drafting correspondence and emails, and conducting calls with the responsible party or its insurer. Case law treats all of these activities as part of the ordinary burden that a claimant is expected to bear in connection with a loss event.
An exception is recognized, however, where the expenditure required in the individual case reaches an exceptional scale, clearly exceeding what would ordinarily be expected of a claimant in such circumstances. This may apply in particular where the loss assessment or claims handling constitutes a serious and structural disruption to the company’s operations, for example because the company is compelled to relieve one or more employees entirely of their normal productive duties, or to hire additional employees specifically to manage the process. Mere overtime or night work by existing personnel will not generally suffice.
In Which Cases Can Companies Claim Personnel Expenditure for Subsequent Performance?
Where a company delivers defective goods to its customer and is called upon to provide subsequent performance (Nacherfüllung), it frequently emerges in practice that the defect originated with its own supplier. In such supply chain situations, Section 445a BGB grants the company a recourse claim against its supplier in respect of the expenditure it bore toward its customer as a result of the subsequent performance. The key question is which personnel costs can specifically be incorporated into this recourse claim.
The answer depends significantly on the nature of the personnel deployment in question. The legal position distinguishes essentially between two categories, which must be treated differently in business practice: the direct labor costs of defect remediation on the one hand, and administrative personnel expenditure on the other. Both categories arise regularly in practice, but their legal treatment differs considerably.
Direct Labor Costs of Defect Remediation
Personnel expenditure that directly serves to remedy the defect is recognized as labor costs within the meaning of Section 439(2) BGB and is generally treated as reimbursable. The company can claim these costs against its supplier by way of recourse, regardless of whether the defect remediation is carried out by the company’s own personnel or by externally appointed third parties.
In practice, this applies in particular to the following situations: a machinery manufacturer identifies a defective component in a delivery and deploys its own technicians to remove the defective part, fit a replacement, and subsequently test the equipment to confirm it is functioning correctly. Also covered are cases where a company sends its own installation personnel to the customer’s site to replace a defective delivery. The personnel costs incurred in this context, calculated on the basis of the proportion of the employee’s salary attributable to the specific period of subsequent performance work, are in principle reimbursable. The relevant measure is not the value of the work performed but the actual cost of the employee to the company.
Administrative Personnel Expenditure in the Context of Subsequent Performance
The legal position is more complex when it comes to personnel expenditure of an administrative nature. In practice, this category covers employees who receive and document complaints, request and review invoices, or coordinate the subsequent performance process internally and communicate with the supplier. Such activities arise inevitably in any company once a subsequent performance case occurs and can, depending on the scale of the matter, tie up significant capacity.
It is sometimes argued that these costs constitute so-called “costs that would have arisen regardless” (Sowieso-Kosten), meaning expenditure that would have been incurred even without the specific subsequent performance case and therefore cannot be reimbursed. The prevailing view in the legal literature rejects this blanket argument. On that view, reimbursement is possible where the personnel expenditure can be specifically attributed to the particular subsequent performance case, meaning the personnel deployed were unable to be used for other purposes because of that specific matter. In practical terms: where a member of staff was exclusively occupied with handling a particular subsequent performance case for several days and was unable to carry out their regular duties during that time, this supports the reimbursability of the corresponding personnel costs.
Clearly reimbursable, in addition, is personnel expenditure for employees who were newly hired specifically because of the particular subsequent performance case, provided that such hiring was necessary in the individual circumstances. Since the highest courts have yet to issue a conclusive ruling on these questions, a careful case-by-case review is essential in every instance.
What Documentation and Substantiation Requirements Must Companies Meet?
Whether in a damages claim or a subsequent performance case, even personnel expenditure that is in principle reimbursable frequently fails in practice due to insufficient factual substantiation. The Berlin Court of Appeal (Kammergericht Berlin) has made clear in this regard (case reference 21 U 58/24) that blanket assertions about expenditure incurred are not sufficient.
Two key requirements apply in practice:
- Activity-specific documentation of personnel expenditure: which employee was engaged in which activity for how long, and what costs were incurred, must be recorded concretely and in a traceable manner. Without this evidence, reimbursement will fail in a dispute, regardless of whether the claim is justified in principle.
- Objective reference points for material expenditure: a company claiming costs for consumed or damaged materials must specifically set out the acquisition value, age, and condition of the materials and the reason why reuse was not possible. Without sufficient factual substantiation, judicial estimation of loss under Section 287 of the German Code of Civil Procedure (Zivilprozessordnung, ZPO) is also unavailable. Case law expressly rejects evidentiary proceedings conducted for exploratory purposes.
Companies should therefore begin structured documentation immediately upon the occurrence of a loss or subsequent performance event, not only once litigation is foreseeable.
How Schlun & Elseven Helps Companies with Personnel Expenditure Claims
Whether and to what extent personnel expenditure is reimbursable in a damages or subsequent performance case can rarely be answered in general terms. The boundaries between reimbursable loss remediation and non-reimbursable loss assessment are fluid, case law is not always consistent, and the financial consequences of a misjudgment can be significant. Companies that act in such situations without legal support risk both forfeiting legitimate claims and prematurely settling unjustified demands.
At Schlun & Elseven Rechtsanwälte, we have extensive experience advising companies in complex loss and subsequent performance situations. In each individual case, we assess which personnel expenditure is in principle reimbursable, how it can be documented and enforced in a legally sound manner, and how unjustified demands from contractual partners can be effectively defended against. Our services cover the full scope of personnel cost reimbursement claims: from the initial legal assessment and out-of-court enforcement through to court proceedings, with the aim of comprehensively protecting our clients’ commercial interests.
Frequently Asked Questions about Personnel Costs as Damages in Germany
This depends on the nature of the personnel deployment. Costs for direct loss remediation are generally reimbursable; costs for loss assessment and out-of-court claims handling are generally not, unless the expenditure reaches an exceptional scale in the individual case.
Under certain conditions, yes. Section 445a BGB grants a recourse claim against the supplier. Whether administrative personnel expenditure is reimbursable depends on whether it can be specifically attributed to the particular subsequent performance case and whether the personnel involved were therefore unable to be deployed elsewhere.
Comprehensive documentation is essential: the activities, time spent, and costs of each employee deployed must be recorded in a traceable manner. Without this evidence, reimbursement will fail in a dispute, even where the expenditure would in principle be reimbursable.
As soon as personnel expenditure reaches a relevant scale or a contractual partner asserts corresponding claims. The boundaries of reimbursability are fluid: premature payments or inadequate documentation can cause significant financial disadvantage.
Practice Group: German Commercial Law
Practice Group:
German Commercial Law
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