Fixed-Term Contracts under German Law
In Thursday’s blog, we talked about notice periods under German law. Today’s contribution will focus on fixed-term employment contracts.
Can a fixed-term contract be concluded orally?
No, the specific duration of the employment contract needs to be put in writing, with employer and employee signing. Oral agreements will lead to a contract with indefinite duration.
Is an objective ground always required for a fixed-term contract?
No, a fixed-term contract can be agreed without objective grounds for up to 2 years. The contract can be extended up to three times, not exceeding an overall duration of 2 years. Within the first 4 years of a newly founded company, the maximum duration of a fixed-term contract without objective grounds is 4 years. Within this period of time, the fixed-term contract can be extended for an unlimited number of times. A legal reorganization does not count as the foundation of a new company.
Can a fixed-term contract without objective grounds be agreed always or is a previous employment a bar to the fixed-term contract?
German law states that a fixed term employment relationship without objective grounds is not possible where a fixed or unlimited term employment relationship has previously existed with the same employer (Sec. 14 para. 2 of the Part-Time Work and Fixed-Term Employment Contracts Act (Teilzeit- und Befristungsgesetz, TzBfG). Some time ago, the Federal Labour Court (Bundesarbeitsgericht, BAG) surprised labour and employment law experts with its decision that “previous” means within the past three years, in other words, that a previous employment relationship is not an obstacle to the conclusion of a new fixed term employment relationship if it dates back more than three years. Employment lawyers have questioned the decision. However, in its decision dated April 21, 2014 (docket number: 7 Sa 64/13) the Higher Labour Court (Landesarbeitsgericht, LAG) Baden-Württemberg takes a different view. The Court did not share the opinion of the Federal Labour Court and its general “rule of thumb” of three years. The Higher Labour Court stated that sec. 14 para. 2 of the Part-Time Work and Fixed-Term Employment Contracts Act does not allow any former employment at all. The Higher Labour Court has allowed the appeal to the Federal Labour Court and it remains to be seen how the Federal Labour Court will resolve the matter.
What kind of objective grounds exists?
An objective ground for a fixed-term contract exists, among other reasons,
- If there is only a temporary need for the employee (e.g. for a project );
- In order to facilitate the employee’s transition to a subsequent job following training or study;
- If the employee is hired to fill in for another employee (e.g. for an employee who is on parental leave);
- If the type of work involved justifies a fixed term (e.g. the employment relationship with an artist as the audience requires “fresh faces” every now and then;
- If the fixed term is merely a probationary period (generally, the term of the contract may not exceed 6 months);
- If there are personal reasons of the employee which justify the fixed term (e.g. because the employee is a foreigner and an existing work permit will not be extended by the competent authorities by the envisaged end of the contract);
- If the employee is remunerated from state budgetary funds which are earmarked for fixed term employment and he has been hired on that basis; or
- If the fixed-term is based on a court settlement.
Can the fixed-term contract be terminated before the agreed end-date is reached/before the agreed purpose has been achieved?
A fixed-term contract can be terminated extraordinarily with immediate effect according to the general rules. A fixed-contract cannot be terminated ordinarily but ends at the date or achievement of the purpose determined in the contract. However, it is possible to ordinarily terminate the fixed-term contract if the possibility has been provided for in the employment contract. Even if the fixed-term contract does not stipulate the possibility of an ordinary termination, it may in any case be terminated by the employee if the employment relationship has been concluded for a person’s lifetime or for a period exceeding five year once five years have passed with a notice period of six months (section 624 German Civil Code).
What happens if the fixed-term contract is sustained beyond the agreed end date or the achievement of the agreed purpose?
If the employee continues working beyond the agreed end date or the achievement of the agreed purpose and the employer knows about the continued work, the employment contract is presumed to have been extended for an indefinite period of time. Employers should therefore pay close attention to fixed-term contracts and object immediately if the fixed-term contract is sustained beyond the agreed end date or the achievement of the agreed purpose.
When does an employee need to challenge the validity of the fixed-term limitation?
If the fixed-term limitation is invalid, the contract is presumed to be concluded for an indefinite period of time with all other terms of the contract remaining in effect. An invalid limitation of duration has to be reported to the labor court within three weeks after the agreed-upon expiration date of the fixed-term contract. After the lapse of that period, the employee is precluded from filing a claim and the fixed-term limitation is deemed valid.