The “Große Koalition” (the Grand Coalition) recently concluded a variety of legislative projects which will result in additional headaches, administrative hurdles, thresholds and new deadlines for HR professionals and employment experts. Traditionally, labor and employment laws in Germany have tended to be employee friendly. Now it appears that the few remaining employer-friendly laws enacted in the early 1980s to improve overall employment in Germany will also be reversed.

One area subject to challenge is time restricted employment. Until now, German employers could use time restricted employment even without substantive reasons for up to two years. This concept, known by the somewhat technical German term “sachgrundlose Befristung”, became extremely popular due to wide coverage which extended outside the legal press.

Federal Constitutional Court narrows use of time restricted employment contract

In June 2018, the Federal Constitutional Court in Germany (“Bundesverfassungsgericht”) overruled a 2011 judgment of the Federal Labor Court (“Bundesarbeitsgericht”). The Federal Labor Court had ruled that the employer could conclude unfounded time restricted employment contracts provided the employee had not been previously employed by the employer within a three year period. This ruling went beyond the law itself which does not provide for a concrete threshold period but rather prohibits an unfounded time restricted employment contract if the employee was “previously employed” with the same employer.

The Federal Constitutional Court has rejected this approach, holding that setting a three year threshold period is not the role of the judicative power but must be laid down by legislation. Therefore, the three year threshold period is invalid and cannot be used by employers to justify unfounded time restricted employment contracts with employees who have previously been employed by the employer. This illustrates the current approach to employment rights in Germany: the use of time restricted contracts creates a lack of job security for employees, which leads to further social disadvantages. German law seeks to remedy this, ranking protection of employees above the need for employers for a flexible workplace. The prohibition of ongoing series of unfounded time restricted employment contracts serves an important and essential goal of a welfare state.

The Broader Picture

This judicative development is in line with the new legislative projects of the Grand Coalition. As considered in our Blog dated 9 February 2018 “Serious changes for fixed-term employment in Germany announced” the Grand Coalition intends to limit time restricted employment contracts even if the employer has objective grounds for such a time restriction. It also intends to prohibit a renewed time restricted employment contract where employees previously had an indefinite, or one or more time restricted employment contracts with a total duration of five years or more with the same employer. This restriction will apply even if the employer has objective grounds for such a time restriction. In practice, this instrument has often been a solution for employers if the desired employee has been previously employed within the last three years or the maximum duration of unfounded time restricted employment contracts (two years) has been expired.

These developments show that Germany is experiencing a gradual movement away from time restricted employment contracts to unlimited contracts and full-time employment. As a result, employers will be more limited in flexibility which will be an obstacle for competitiveness. For now, employers should be aware that the three year rule of the Federal Labor Court no longer applies. As a result, employees currently employed under this rule might have a claim for an unrestricted contract against their employers.