Fixed-term employment restrictions
Written form
Fixed term without objective reason
New Federal Labour Court decision
Length restriction
Fixed-term employment based on objective grounds
Caution at the end
A valid fixed-term contract automatically expires at the end of the fixed term even if the employee in question should at that time enjoy special protection against dismissal (eg, if he or she is a works council member or is pregnant). As the Unfair Dismissal Act provides for a high level of general protection against dismissal, a fixed-term contract is a classic method of avoiding lengthy court proceedings regarding the justification of a dismissal. Such a contract may also help to retain flexibility in personnel planning, especially as the fixed term does not preclude giving notice of dismissal to take effect on a date before the end of the fixed term, provided that the right to give such notice is reserved in the employment contract.
Fixed-term employment restrictions
Employers should be aware of certain mandatory prerequisites. Since a fixed-term employment agreement may otherwise be exploited to circumvent the statutory protection granted by the Unfair Dismissal Act, the legislature enacted a framework of restrictions (ie, the Part-Time and Fixed-Term Employment Act). According to this act:
- fixed-term agreements must be in writing; and
- a distinction must be made between fixed terms which are based on objective reasons (FT+) and those which are not based on objective reasons (FT-).
Written form
Any fixed-term agreement must be in written form, which means that a written document must be duly signed by both parties. A verbal agreement and/or an exchange of unilaterally signed documents by telefax or a confirmation by email is not sufficient. In such cases, the employment agreement will be treated as employment for an indefinite period of time.
Further, a FT- employment contract must be duly signed before the commencement of the employment. However, it is not necessary to mention in the contract whether it is based on objective grounds or to name those grounds. It is sufficient that the employer proves in case of dispute that the term did not need to be justified by a reason or was justified by an objective reason at the time that the parties signed the agreement.
Fixed term without objective reason
Subject to compliance with further restrictions, the employer is free to agree on a FT- provided that it has had no previous employment relationship with the employee in question (the 'never-before' prohibition).
New Federal Labour Court decision
Until recently, any previous employment was detrimental, even if it took place decades ago. This interpretation of the never-before prohibition caused significant problems for large companies with multiple business locations. Human resources departments were not always in a position to assess clearly whether the applicant/prospective employee had ever worked for the company before (eg, where they had worked as a student on an hourly basis). Owing to these problems and to the fact that the government had already announced a revision of the never-before prohibition, the Federal Labour Court recently revised its restrictive decisions. On April 6 2011 (7 AZR 716/09) the court found that any employment which has ended more than three years before the commencement of the new fixed-term employment should no longer be considered 'previous employment' within the meaning of the Part-Time and Fixed-Term Employment Act. Therefore, from now on, employers wishing to agree on a FT- will have to check only whether the applicant/prospective employee was employed within the last three years.
However, as a result of the never-before prohibition, an employer wishing to agree on a FT- may not allow the employee to start work or, in case of a prolongation, to continue working before the contract/prolongation is duly signed by both parties (apart from in exceptional cases).(1) Should the employee start work or continue to work before the fixed term is agreed in written form (even if it is for only half a day), an employment relationship, and therefore any previous employment for an indefinite period of time, will be deemed to have started. As a consequence, subsequently signing a FT- agreement cannot remedy the invalidity of the verbal agreement on a fixed term and the limitation in the FT- agreement will be ineffective because the previous employment precludes a legally effective FT- agreement.
Length restriction
The maximum permitted length of an FT- is generally two years (Alternative 1). In certain situations (Alternative 2) a maximum period of four years (for a newly established company) or five years (where the employee is over the age of 52 and has been unemployed for several months) is possible.
If the term is to be shorter than the maximum possible term, the employment agreement may, in the case of Alternative 1, be extended up to three times until the maximum period is reached (eg, it may be extended by six months on four occassions). In the case of Alternative 2, there is no limitation on the number of times the agreement may be extended, but the total period must not exceed the above-mentioned maximum period.
In any event, it is not permitted to make any other amendments to the contractual conditions (eg, regarding salary or job description) on the occasion of such an extension since this will result in new employment and, as mentioned above, in connection with a FT-, the employee must not have been previously employed with the same employer.
Fixed-term employment based on objective grounds
An FT+ may generally be agreed for any period of time, irrespective of whether the parties enjoyed a previous employment relationship, provided that the objective ground justifies the chosen term. However, in case of repeated time-limited employment agreements, it is quite likely that in the event of a dispute labour courts will thoroughly examine whether the ground for the actual (last) term is really objective or merely a pretext.
The act enumerates possible objective grounds in a non-conclusive way in Section 14(1):
- there is only a temporary need for the work;
- the term is fixed following an apprenticeship or period of study in order to facilitate the employee's transition to a subsequent job;
- the employee is employed as a substitute for another employee;
- the nature of the work justifies the fixed term;
- the fixed term serves the purpose of testing the employee;
- grounds exist related to the character of the employee to justify the fixed term;
- the employee is remunerated from state budgetary funds earmarked for the fixed-term employment and the employee has been engaged on that basis; and
- the fixed term is based on a court settlement.
Certain of these points are of particular interest. Where the fixed term serves the purpose of testing the employee, the term must generally not exceed six months. Where there is only a temporary need for the work, and where the employee is employed as a substitute for another employee, the chosen term must be justified by a fair forecast made by the employer regarding future manpower requirements. Its assumption must be based on facts and the term may not exceed the date on which the demand will cease on the basis of the forecast. However, it is harmless to agree on a term which is shorter than the duration of the objective reason for a temporarily increased manpower requirement. The forecast will not be deemed to be well founded if the employer is merely uncertain about future developments. On the other hand, if it subsequently later emerges that an increased manpower demand does not last until or does not cease on the anticipated date, this is irrelevant if the employer can prove that the forecast was based on fair facts at the time that the parties signed the employment agreement.
Where the employee is employed as a substitute for another employee, it is not necessary for the fixed-term employee to be employed as a direct substitute for the absent employee. The employer is free to reorganise the work and to reallocate tasks. Therefore, the employer may decide to substitute a regular employee for an absent employee and assign to the fixed-term employee the former tasks of the regular employee for a limited period of time. However, according to another recent decision of the Federal Labour Court (7 AZR 194/09, January 12 2011) the employer must prove that it had the right unilaterally to instruct the substituted employee to carry out the tasks assigned to the fixed-term employee.
Furthermore, in light of another recent Federal Labour Court decision(2) and contrary to previous decisions, in future the permanent need for substitution may not be deemed to be an objective ground. In particular, the court raised concerns over whether multiple fixed-term contracts with the same employer should be deemed justifiable due to the permanent need for substitution, and referred a question on this issue to the European Court of Justice.
Caution at the end
Where an employer does not wish to transform a fixed-term employment into employment for an indefinite period of time, if fixed-term employees appear at their workplace after the expiration of the fixed-term, the employer must ensure that it reports this development immediately and asks such employees to leave. Otherwise, the employment agreement may be deemed to have been extended for an indefinite period of time. Moreover, the employee may try to claim that the limitation of the employment by the fixed term is invalid. However, if an employee wishes to do so, he or she must bring an action before the labour court within three weeks of the expiry of the term.
For further information on this topic please contact Oral Adenli, Andrea Bonanni, Bjoern Gaul or Bernd Roock at CMS Hasche Sigle by telephone (+49 221 7716 128), fax (+49 221 7716 110) or email ([email protected], [email protected] [email protected] or [email protected]).
Endnotes
(1) See Federal Labour Court Decision 7 AZR 1048/06, April 16 2008.
(2) Decision AZR 443/09, November 17 2010.