Written by Lukas Forte, Kliemt.HR Lawyers
Employers may not always want (or be able to afford) to offer employees promotions or perks on a permanent basis.
The reasons behind this can be many and varied: the employer’s economic situation, uncertainty about the employee’s suitability for the higher position, or the desire to grant the employee a reward for a specific reason only for a specific period of time.
A flexible instrument that employers should keep in mind when adjusting individual working conditions is the fixed-term agreement. If used appropriately, this can serve to retain employees without binding the company ‘forever’ to certain benefits. In this way, employees and employers know from the outset for how long the respective working terms will change.
Mandatory written form requirement?
The good news is that the strict formal and material requirements of the Part-Time and Fixed-Term Employment Act do not apply either directly or by analogy. This means, in particular, that reasons for time limits on promotions or perks do not necessarily have to be documented in writing. However, written documentation of the temporarily changed working terms makes sense, if only for reasons of proof (and in most cases the Verification Act would require documentation anyway).
Control benchmark for general terms and conditions: Transparency and appropriateness
As a rule, these kinds of temporary adjustments constitute general terms and conditions (‘GTC’s’), as the one-time use, in many cases, is sufficient for the constitution of such. In addition, employees usually cannot seriously influence the wording (which makes it more likely to be GTC’s). If the adjustments are considered GTC’s, the respective clause(s) must be transparent and withstand a content review by the courts.
Clauses are transparent if they are clear and understandable. It is therefore important to clearly state the duration of the fixed term in the clause, and to precisely describe the type of conditions that are being temporarily changed. It must be clear to the employee which specific working condition(s) are changing for which period of time. The reason for the fixed term does not have to be stated; however, depending on the circumstances, it may still be advisable to do so in individual cases.
Caution in the event of interference with the main contractual duties
A clause can be found invalid if it unreasonably disadvantages the employee or if the change is unreasonable for the employee. Here, the labour courts perform a comprehensive weighing of the interests of both parties. The decisive factor is whether only additional benefits cease to be provided or whether there is an encroachment on the genuine ‘core area’ of the relationship. In the latter case, special circumstances are likely to be required to justify the time limit. However, if there is a material reason within the meaning of the Part-Time and Fixed-Term Employment Act, then the clause will likely be found appropriate.
Details of fixed-term pay and working time increases
Common terms and conditions to be adjusted for a limited period of time are (i) individual remuneration components (e.g. an allowance, a commission agreement, a company car) and (ii) a temporary promotion.
Labour courts have already dealt with the latter on a number of occasions. The important point here is that the fixed term of the contract for the higher-value position must not be out of proportion to the purpose of the trial. The ‘core area’ of the employment relationship is encroached upon in particular if the volume of working time increases significantly as a result of the transfer. This is usually the case with a working time increase of 25% of a corresponding full-time position (the individual working time increase is not decisive here!). In this case, it should be critically examined whether one of the reasons for a fixed term as specified in the Part-Time and Fixed-Term Employment Act applies.
It has not yet been decided whether and from what point the increase of a remuneration component will affect the core area of the relationship. It is sometimes assumed that the benchmark is 25% of the total remuneration. For the time being, however, it will depend on the individual case (i.e. the type and circumstances of the remuneration increase). There is no standard pattern which applies for all cases. However, in any case, employers should exercise particular caution when using repeated fixed-term agreements.
Conclusion: Flexible benefits and trials are possible at reasonable expense
Compared to revocation clauses, fixed-term agreements have the advantage that their expiry is foreseeable for employees from the outset; unlike the possibly surprising exercise of a right of revocation, disappointments and discussions on the employee side can be avoided. However, if there is any doubt about the permissibility of individual fixed-term agreements, it is essential to seek advice from employment law experts before entering into the agreement. This is because the result of an invalid fixed-term agreement is that the changed working conditions will be valid for an indefinite period.
However, if the requirements of case law are observed, benefits can be handled flexibly using a fixed-term agreement and trials can be carried out with legal certainty. This means that employers do not have to forego a trial promotion or perk.