The Federal Constitutional Court has restricted the option of concluding fixed-term employment contracts without an objective reason with applicants who have previously worked for the employer (1 BvL 7/14 and 1 BvR 1375/14 of 6 June 2018). This ruling has consequences for current fixed-term contracts and for future hiring practice.

Statutory prohibition on prior employment

According to Section 14(2) Sentence 2 of the Part-Time and Fixed-Term Employment Act, fixing the term of an employment contract without an objective reason is impermissible if the employee has already had a fixed-term or permanent employment relationship with the same employer.

Prohibiting prior employment is supposed to prevent successive fixed-term employment contracts and a circumvention of the protection against unfair dismissal. Therefore, applicants may not be hired again on a fixed-term basis without an objective reason if they were previously employed by the company.

Federal Labour Court rulings

Since 2011 the Federal Labour Court's interpretation in this regard has been restrictive: the prohibition of prior employment was not supposed to apply (thus allowing a new fixed-term contract without objective reason to be permissible) if the previous employment relationship had ended more than three years earlier (7 AZR 716/09 of 6 April 2011).

This three-year limit developed by the courts was facing considerable criticism; in particular, numerous lower courts did not follow the Federal Labour Court's ruling because the wording of Section 14(2) Sentence 2 did not provide for a limitation on prohibiting prior employment in terms of time (eg, the Saxony-Anhalt Regional Labour Court (6 Sa 405/15 of 29 May 2017) and the Baden-Württemberg Regional Labour Court (17a Sa 14/16 of 16 November 2016)).

Federal Constitutional Court decision

Based on preliminary proceedings before the Braunschweig Labour Court and a complaint about a constitutional violation filed by an employee, the Federal Constitutional Court reviewed whether the statutory prohibition on prior employment in general and the three-year limit established by the Federal Labour Court were in line with constitutional law.

The Federal Constitutional Court concluded that the prohibition of prior employment is reconcilable with the Basic Law. According to court, the fact that, as a rule, applicants who have already worked with the employer in the past are likely to lose out to applicants without prior employment when competing for a position with a fixed term without objective reason does not mean that the prohibition of prior employment is impermissible. Applicants who wish to enter into a new employment relationship with the same employer again could be employed based on a permanent contract or a fixed-term contract for an objective reason. The negative consequences for applicants who had been previously employed would have to be accepted in order to exclude the risk of long 'fixed-term careers'.

Three-year limit contradicts Basic Law

The Federal Constitutional Court held that the three-year limitation on prohibiting prior employment developed by the Federal Employment Court violated constitutional law. In this regard, the Federal Labour Court had exceeded the limits of permissible further development of the law by judges and could not place its own concept of justice above the lawmakers' concept of justice.

Possible exceptions

The Federal Constitutional Court also recognised that an unlimited prohibition on prior employment can unreasonably restrict the option of fixed-term contracts without objective reason. Therefore, the court held that:

  • concluding a (new) fixed-term contract without objective reason is possible despite prior employment if there is obviously no risk of successive fixed-term employment contracts; and
  • such successive fixed-term employment contracts are excluded if the previously held position was of a completely different type or short term.

No protection of legitimate expectations for employers

The decision by the Federal Constitutional Court must be respected by all courts and employers with immediate effect. It also applies above all to current fixed-term contracts without objective reason, which should therefore be reviewed by employers.

Where an employment contract was concluded for a fixed term without objective reason, yet the relevant employee had been previously employed with the same employer, employers may not cite the previous rulings of the Federal Labour Court. There is no protection for legitimate expectations.

The numerous regional labour courts that opposed the Federal Labour Court's rulings gave reason to expect the Federal Constitutional Court's decision. It is irrelevant in this context whether the individual employer followed the court rulings and could anticipate that the three-year limit would not be upheld. Consequently, there is a risk that the current fixed-term contracts without objective reason that were concluded in reliance on the three-year limit are invalid and a permanent employment relationship exists (Section 16 Sentence 1 of the Part-Time and Fixed-Term Employment Act).

No quick remedy from lawmakers

According to the coalition agreement between the Christian Democratic Union of Germany, the Christian Social Union in Bavaria and the Social Democratic Party of Germany, the repealed rulings of the Federal Labour Court are to be established by law in future.

Concluding a fixed-term employment contract without objective reason is therefore supposed to be possible if the prior employment ended more than three years ago. However, it is doubtful whether the law will be amended to this effect soon. In any case, the act to introduce a 'bridging part-time employment' (ie, the right to a temporary reduction of working hours) that also contains changes to fixed-term employment law and is currently undergoing legislative procedure does not contain this amendment.

Recommendations

As a first step, employers should determine whether they currently have fixed-term employment contracts without objective reason with regard to which prior employment of the relevant employee is known. If so and if no intention to extend the relevant employment relationship for an indefinite term exists, determining whether the fixed term can be saved will need to be done on a case-by-case basis. Despite prior employment, the fixed term would be valid if the prior employment was:

  • ended a long time ago (eg, employment during an apprenticeship held many years previously);
  • completely different (eg, concerned a completely different function); or
  • short term.

Re-interpreting a contract as fixed term for an objective reason pursuant to Section 14(1) of the Part-Time and Fixed-Term Employment Act should be considered only if this objective reason already existed at the time that the contract was concluded.

If a current fixed-term contract is found to be invalid, further procedures must be determined on a case-by-case basis in case of doubt. It would be conceivable, for instance, to conclude a new fixed-term employment contract for an objective reason or to conclude a termination agreement. Another option would be to wait for the planned end of the contract and hope that the employee will not bring an action against the fixed-term employment within three weeks (Section 17 Sentence 1 of the Part-Time and Fixed-Term Employment Act). If the employer is lucky, the statutory fiction of a valid fixed-term employment can be cited if such an action is not brought (Section 17 Sentence 2 of the Part-Time and Fixed-Term Employment Act). However, this approach does not make reliable personnel planning possible.

Regarding future hires based on fixed-term contracts without objective reason, employers should get confirmation from applicants that no prior employment existed. If an applicant cannot provide confirmation due to one or more prior employment relationship, employers must determine whether a fixed-term employment contract without objective reason can be concluded based on the Federal Constitutional Court's requirements; however, this is unlikely to be the case generally.

For further information on this topic please contact Nina Hartmann or Alexander Janik at CMS by telephone (+49 89 23807 218) or email (nina.hartmann@cms-hs.com or alexander.janik@cms-hs.com). The CMS website can be accessed at www.cms-hs.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.