Fixed-term employment contracts

In general, German labor law assumes that employment contracts are be concluded on a permanent basis, i.e., for an indefinite period of time. Fixed-term contracts should be the exception. Trade unions, for example, consider fixed-term employment contracts to be ­precarious. Fixed-term contracts are permitted by law in narrowly defined cases.

Fixed-term contracts with a reason

If there is a sufficient factual reason, a fixed-term contract may be concluded on this basis. The factual reasons that can be considered are listed by way of example – but not exhaustively – in Section 14 (1) of the German Part-Time and Fixed-term Employment Act (TzBfG). The most ­relevant reasons in practice are the replacement of an ­employee, a temporary need for labor, or a trial period for an employee.

A need for a replacement may exist, for example, if an employee falls ill, is subject to a ban on employment due to pregnancy or is on parental leave. The need for a ­substitute must actually exist and must be forecast for the duration of the fixed-term contract. However, overlapping periods for training are permissible. The fixed-term period does not have to cover the entire period of the need for replacement. If an employer knows that an employee hired for a fixed term will be incapacitated for the entire duration of the contract, he cannot justify the fixed term on the grounds of substitution (LAG Lower Saxony, ruling of 11 May 2023 – 5 Sa 27/23, NZA-RR 2023, 413).

So-called chain fixed-term contracts are problematic. However, the mere fact that it is unavoidable for an ­employer to repeatedly, or even permanently, resort to fixed-term replacements due to the number of employees, and that these replacements could also be covered by ­hiring employees with permanent employment contracts, does not infer the absence of such an objective reason for a fixed term or the existence of an abuse.

A fixed-term contract may also be justified because of a temporary need for labor. When concluding a fixed-term employment contract, however, it must be expected with sufficient certainty that there will no longer be an operational need for the work performance after the intended end of the contract. Consequently, permanent duties of the employer that exist anyway are ruled out. Typical ­examples of a temporary need for labor are seasonal work (waiter in a beer garden, asparagus stacker, harvest helper, etc.) or work in campaign enterprises (e.g., as a ski ­instructor, lifeguard at an open-air swimming pool, etc.).

An employment relationship may also be concluded for a limited period for the purpose of a trial period for an ­employee. The duration of the fixed term must not exceed six months. The employment relationship limited to the duration of the trial is concluded “on a trial basis” (“zur Probe”). In addition, there is the (far more frequent) ­employment relationship “on a probationary basis” (“auf Probe”). This is an employment relationship for an ­indefinite period or for longer than six months, in which the first (up to) six months constitute a probationary ­period. In a “probationary” employment relationship, the employment relationship ends after the trial period. In the case of a “probationary” employment relationship, both parties may terminate the employment relationship ­during the probationary period with a notice period of only 14 days.
A fixed-term contract can be concluded as long as there is a material reason. The reason can also change. A fixed term can either be based on the calendar (“Mr. B is ­employed as … for the period from 1 January 2023 to 31 December 2023”), or as a fixed term for a specific ­purpose (“Mr. B is employed to replace Ms. A as a … for the duration of her parental leave”).

Fixed-term contracts without a reason

A fixed-term employment contract may be permissible under Section 14 (2) TzBfG even without a factual reason. The maximum duration is limited to two years. A fixed-term employment relationship may be extended up to three times within these two years. The individual periods do not have to be of equal length. An extension of a fixed term is only permissible until the expiry of the current fixed term. A fixed-term cannot be subsequently extended without a material reason. An extension may only change the term of the fixed-term employment contract, but not other working conditions, not even in favor of the ­employee. If the employer exercises their right of direction in connection with an extension and assigns the employee a different work task, this does not constitute a change in the content of the contract. The exercise of the right to ­issue instructions therefore does not prevent an extension (Federal Labor Court, ruling of 28 April 2021 – 7 AZR 212/20, NZA 2021, 1637). If the employer is obliged to amend the contract, whether due to a change in the law or the amendment of an applicable collective agreement, this is also permissible at the same time as the extension.

According to Section 14 (2) no. 2 of the TzBfG, a fixed-term contract without a factual reason is excluded if a (fixed-term or unlimited) employment relationship ­already existed with the employee. It is not an obstacle to a fixed-term contract without a fixed term if the employee previously worked as a temporary worker in the company (Federal Labor Court, ruling of 5 April 2023 – 7 AZR 239/22, AP TzBfG (14) 197). The law does not provide for exceptions, e.g., a minimum interruption period. ­Therefore, in principle, any previous employment ­precludes a subsequent fixed-term contract without a ­material reason. However, constellations are conceivable in which the application of a prohibition of prior ­employment without exception would be unreasonable for the parties to the employment contract, and would thus violate the freedom to choose an occupation ­guaranteed by the Constitution (Federal Constitutional Court, ruling of 6 June 2018 – 1 BvL 7/14 and 1 BvR 1375/14, NZA 2018, 774). For example, the prohibition of previous employment could be unreasonable if the ­previous employment already dates back a very long time, was of a completely different nature or was only of a very short duration. An eight-year interruption is generally not considered long enough. (Federal Labor Court, ruling of 23 January 2019 – 7 AZR 733/16, NZA 2019, 700).

Special provisions

In the case of older employees, a fixed-term employment relationship may be permissible for a period of up to five years without a material reason, if the employee had reached the age of 52 at the beginning of the fixed-term employment relationship, and had been unemployed for at least four months immediately prior to the beginning of the fixed-term employment relationship, had received transfers of short-time allowances or had participated in a publicly-funded employment measure pursuant to the German Social Code II or German Social Code III.

In the first four years after the establishment of a company, the calendar-based limitation of an employment contract is permissible up to a duration of four years even without the existence of an objective reason. The number of extensions is not limited. This privilege does not apply to new establishments in connection with the legal restructuring of companies and groups. The decisive factor for the time of establishment of the enterprise is the commencement of gainful employment, which must be notified to the ­municipality or the tax office in accordance with ­Section 138 of the German Tax Code.

A clause in an employment contract stating that the ­employment relationship ends automatically when the ­individual reaches the statutory retirement age can be ­effectively agreed. In recent years, however, the retirement age has risen from 65 to 67. Older clauses sometimes ­provided for an employee’s retirement upon reaching the age of 65. Such clauses, which were agreed before the ­increase in the retirement age, are now interpreted in such a way that the employment relationship should only end when the employee reaches the age relevant for receiving a statutory retirement pension (Federal Labor Court, ruling of 21 December 2022 – 7 AZR 489/21, NZA 2023, 493).

Written form required for fixed-term contracts

According to Section 14 (4) TzBfG, fixed-term agreements must be in writing to be effective. Usually, the fixed term is included in the employment contract, which, according to the German Evidence Act, should be concluded in writing anyway. The fixed term must be agreed in writing before taking up employment. A subsequent written agreement of a fixed term initially only agreed verbally does not lead to the initially formless fixed term becoming retroactively effective. In principle, the written form requires the ­signature of the employer and the employee on the same document, as per Section 126 (2) BGB. If the written form is not observed, the employment relationship is unlimited. This also applies to extensions of fixed-term employment contracts.

End of contract

A fixed-term employment relationship ends without ­notice upon expiry of the period for which it was entered into or upon achievement of the purpose of the fixed-term, e.g., end of the illness of the substituted employee. However, it cannot end earlier than two weeks after ­receipt of written notification given by the employer to the ­employee that the purpose has been achieved, as per ­Section 15 (2) TzBfG. If it is intended that the termination of the employment relationship will be possible even ­before the end of the fixed-term period, this requires a stipulation in the employment contract.

Conclusion

Due to the strict legal regulations on protection against dismissal, fixed-term contracts are a way to hire ­employees more flexibly. In times of a shortage of skilled workers, however, applicants often insist on concluding a ­permanent contract. In this case, a probationary period should be agreed upon, during which the employer puts the ­employee through his or her paces. The general protection against dismissal will only come into effect after six months.