(Not) nice seeing you again? Federal Labour Court decides on fixed-term employment

The problem

In the year 2018 8,3 % of all German employees worked on the basis of a fixed term employment contract. Various rules apply to this kind of employment and breaching one of them often leads to the employment contract being indefinite.

One of the most important rules is the time limit on fixed-term employment contracts. If the time limitation is not justified by factual reasons (e.g. needing a substitute for an employee being on maternity leave) the duration of the time limitation may not exceed 2 years. Furthermore this time-limitation is invalid if the employee has already been working for the company in the past. However the law does not make clear whether this provision covers all employment relationships that have ever existed before, or whether there is a time limit.

On August, 21 2019 the Federal Labour Court (BAG) had to decide on this matter (docket-number: 7 AZR 452/17). The plaintiff had worked for the company from October 1991 until November 1992. In October 2014 she was rehired for a different job in the same company on a fixed-term contract. In 2016, after her contract expired, she filed a lawsuit, claiming the time-limitation of her last contract was invalid due to her prior employment 22 years ago.

The decision

The BAG ruled in favour of the employer, arguing the employment 22 years prior to getting rehired had no influence on the time limitation of the new contract.

The court pointed out that the sense of the law was to deter the practice of repeat fixed-term employment. This risk evidently could not exist if the prior employment was more than 20 years ago. Furthermore the objective of maintaining permanent employment as the rule would not be affected in this case either.

The impact

The problem decided by the BAG has occupied the courts for many years. Until last year the BAG had been ruling out that any prior employment more than 3 years ago could not lead to the invalidity of a new fixed-term contract. However the German Supreme court overruled this decision, so that the BAG was no longer able to uphold this case law.

The new decision of the BAG leads for the first time to the result that previous employment does not lead to the invalidity of the fixed term of a new employment relationship. Nevertheless only limited conclusions can be drawn from it. Since the new BAG decision has not yet been published in full, it remains to be seen whether the situation will become clearer, if the decision making reasons can be evaluated.

However the situation becomes even more unclear, since the BAG had decided in another case (April, 17 2019, docket-number: 7 AZR 323/17), that a prior employment 15 years ago could lead to an invalidity of the time limitation of the new employment contract. The Court argued that even if the risk of continuous, repeating fixed term employment was not enormously high, there would be a risk that in this case the conclusion of another fixed-term contract would jeopardise the objective of maintaining open-ended employment relationships as a rule.

In conclusion the legal situation of this matter is to be considered as very uncertain. It is therefore not possible to establish a generally valid time limit after which prior employment in the company would no longer lead to the invalidity of the time-limitation of the new employment contract, rather, as a rule, prior employment will always lead to the time-limitation of the new contract being ineffective. Keeping this in mind, employers should note the following points: (i) Has the employment been a very long time ago (about 20 years)? (ii) Was the previous employment of very short duration (probably less than 3 month)? (iii) Was it a completely different job at that time?

Please note: In the case of fixed-term contracts based on factual reasons, the previous employment is completely insignificant. So if you hire a temporary employee and there are factual reasons for the time-limitation of the employment agreement (e.g. needing a substitute for an employee being on maternity leave), this temporary employment cannot become ineffective for the reason that the worker has already been employed by you before.