Concept and legal significance of business risk
Das Business risk in a legal context refers to the risk of financial loss that can arise in business activities due to unforeseeable economic developments or conditions. In German law, the term is closely connected to the allocation of opportunities and risks in economic life, particularly in the execution of contracts. Business risk is not conclusively defined by law, but it plays a central role, especially in contract law, company law, labor law, and public business law.
Demarcation and general classification
Distinction from other risk concepts
Business risk must be distinguished from the general entrepreneurial risk, operational risk, and market risk. While operational risk particularly concerns disruptions in business operations (e.g., machine breakdown), and market risk involves external economic influences such as price or demand fluctuations, business risk comprehensively describes the overall risk involved in successfully carrying out economic activities. It thus encompasses both internal and external factors.
Subjective and objective business risk
Business risk can include both objective risks (e.g., economic fluctuations, inflation) and subjective risks (e.g., management misjudgments, selection of business partners).
Legal doctrine and statutory regulations
Allocation of business risk in contract law
From a legal perspective, business risk is traditionally assigned to the entrepreneur or principal. This is reflected in particular in the following principles:
§ 275 and § 326 BGB – Impossibility and obligation to provide consideration
Under German law of obligations, business risk generally remains with the debtor of the business transaction, unless an explicit or implied transfer of risk has been agreed. Mere economic unreasonableness does not usually release a party from the obligation to perform (§ 275 BGB) if performance is not objectively impossible. Only the occurrence of objective impossibility or the existence of special continuing obligations, as regulated in § 313 BGB (disturbance of the basis of contract), may lead to an adjustment or termination of the contract.
Clause prohibitions and law of standard terms and conditions (AGB law)
The law on standard terms and conditions (AGB law) restricts the possibilities to unilaterally transfer business risk in § 307 BGB. Unreasonable disadvantage through inappropriate risk transfer is not permitted.
Allocation of business risk by contract type
Contract for work and sales contract
In the law of contracts for work, the risk of successful completion of the work generally lies with the contractor (§ 631 ff. BGB). Exceptions may arise from contractual arrangements or in cases of force majeure. In sales law, risk is transferred to the buyer upon delivery and acceptance (§ 446 BGB).
Business risk in labor law
In labor law, business risk is explicitly assigned to the employer. According to § 615 sentence 3 BGB, the employer bears the risk of not being able to economically utilize the work performance (“theory of operational risk”). This means that the employer is generally obliged to continue paying remuneration in the event of loss of work that is not attributable to the employee’s fault.
Business risk in public economic law
Business risk also plays a role in public law, for example in state aid law, public procurement law, and subsidy law. Applicants and companies must regularly plan for the risk that funding will not be granted or will be granted only under certain conditions.
Business risk in case law
Leading decisions
The courts have developed various guidelines in connection with business risk:
- BAG, Judgment of 08.09.2011, 2 AZR 388/10: Confirmation of the theory of operational risk and the obligation to continue paying wages in an employment relationship in the event of business closure.
- BGH, NJW 1977, 1913: Distinction between economic unreasonableness and objective impossibility, particularly in connection with inflation and price increases.
Force majeure and adaptation of contracts
In the case of unforeseeable and significant changes, particularly under “force majeure” clauses, an adjustment of the risk allocation may be required in certain cases. Courts apply § 313 BGB (disturbance of the basis of contract) under certain circumstances.
International and European legal aspects
Business risk is also of significant importance in international business. International contractual instruments such as the UN Sales Convention (CISG), contain provisions on the transfer of risk and risk allocation. European contract law also tends to follow a risk-appropriate allocation and protects contracting parties from unilateral risk transfer through “unfair” contract clauses.
Business risk and compliance
Due to the increasing importance of compliance requirements, the management of business risks is gaining considerable significance. Companies are obligated to take precautions through risk management systems to identify, assess, and control risks. Lack of or inadequate risk management can lead to liability of corporate bodies or claims for damages.
Conclusion
Business risk is a central, multifaceted concept in business law. Its legal relevance extends from contract law and labor law to public law and compliance. Essential principles include the allocation of risk to the economically active party, as well as the need to protect the weaker contract party from inappropriate risk transfer. Case law and legislation have created differentiated regulations for various scenarios, enabling balanced and interest-based risk allocation.
References
- Münchener Kommentar zum BGB, Volume 2, §§ 275 ff., current edition.
- Palandt, BGB Commentary, § 313 margin no. 32 ff., current edition.
- BAG, Judgment dated 8.9.2011 – 2 AZR 388/10.
- Löwisch/Triebel, Business Law, 3rd Edition, 2020.
- OLG Report Munich 2016, 565 – Risks in international sales of goods.
Note: The selection of sources is intended to provide further in-depth coverage of the topic of business risk in its legal context.
Frequently Asked Questions
Who bears the business risk when executing a contract for work under German law?
Under German law, the business risk of a contract for work generally lies with the contractor (§ 644 BGB), unless otherwise agreed. This means the contractor is responsible for the success of the agreed performance and in particular also bears the risk if the production of the work becomes more expensive than initially calculated. The risk includes, among other things, price increases for materials and wages, unexpectedly complex execution, as well as errors in work preparation and execution. Only in exceptional cases, such as force majeure or if the client fails to fulfill their duty to cooperate, may the risk partially shift to the client. Even for agreed lump-sum contracts, the risk usually remains with the contractor. However, contractual arrangements such as adaptation clauses or price adjustment clauses may shift the risk. It is therefore always advisable to carefully review individual contractual terms regarding risk allocation.
How does business risk affect the legal assessment of disruptions in contract performance?
If there are disruptions in performance during a business law contract, such as a purchase or contract for work, the contractually allocated business risk significantly influences the legal consequences. For risks attributable to the entrepreneurial domain (e.g., delivery bottlenecks, cost increases, production errors), the contractor generally bears responsibility and is not released from their performance obligations. Only when demonstrated extraordinary and unforeseeable circumstances arise that exceed the normal risk scope (e.g., natural disasters, official prohibitions), are legal mechanisms such as contract adaptation according to § 313 BGB (disturbance of the basis of contract) conceivable. Otherwise, the contractor is obliged to complete the work nonetheless and may not unilaterally claim additional costs or extensions of deadlines.
Can business risk be contractually transferred to the contractual partner?
Yes, in principle, it is possible under the principle of contractual freedom to transfer the business risk—either wholly or in part—to the contractual partner. In practice, this is often done through relevant contract clauses such as price adjustment clauses, adaptation clauses, or general liability provisions. However, it must be noted that such clauses are always subject to content control under §§ 305 ff. BGB (AGB law), unless individually negotiated. If such clauses exceed the limits of § 307 BGB (unreasonable disadvantage), they are ineffective and the risk remains with the contractor. The courts have particularly high requirements for the transparency and comprehensibility of such clauses, as well as their fairness to both contractual parties.
What legal options exist in case of unexpected cost increases due to economic risks?
If unexpected cost increases occur, various legal remedies may be available on a case-by-case basis. In the absence of a contractual adaptation clause, the basic principle is that the contractor bears the risk. A claim for adjustment or increased remuneration generally exists only if the basis of the contract has fundamentally changed (§ 313 BGB), for example due to unforeseeable external events. A precondition is that continuation of the contract at the unchanged price would be unreasonable. Alternatively, in exceptional cases, termination for good cause under § 648a BGB may be possible if continuation of the contract would be unreasonable. However, previously agreed price adjustment clauses take precedence.
To what extent does business risk affect a company’s liability rules?
Business risk has a direct impact on a company’s liability: in principle, there is no liability for economic failure, but only for fault in contract performance (e.g., defects, delay). If the contractor bears the entire business risk, they are obligated to perform even if market value decreases or effort increases. Liability for one’s own mistakes remains unaffected, but there is no liability for the business model’s failure or market risks of the contractual partner unless the contractor is at fault. Exceptions apply only if specific risks are contractually assumed and these clauses meet AGB-law requirements.
Is the exclusion of business risk in standard terms and conditions (AGB) legally permissible?
A general exclusion of business risk to the detriment of the contractual partner in standard terms and conditions is legally problematic. The AGB law (§§ 305 ff. BGB) sets strict requirements for the effectiveness and appropriateness of such clauses. If the risk transfer exceeds a reasonable limit, such as where the customer is unreasonably disadvantaged, such clauses are void under § 307 (1) BGB. However, balanced, transparent, and comprehensible risk-sharing arrangements for both sides are permitted, especially where they remain calculable for both contracting parties. This includes, for example, index clauses or limited price adjustment rules based on specific, comprehensible parameters. A complete exclusion of risk for one party is generally invalid, especially in consumer contracts.
