The recent decision of the European Court of Justice (ECJ) in Prigge & Ors v Deutsche Lufthansa AG 13 September 2011 C-447/09 again addressed the question of when a fixed-term employment contract is acceptable under German employment law.

The ECJ reviewed a clause in a German collective bargaining agreement that fixed at 60 the age when pilots are considered as no longer possessing the physical capability to carry out their professional activity and therefore have to retire. The ECJ held that this clause is not in line with European law, as such clauses essentially fix a termination date for the employment relationship, making it a fixed-term contract.

The legitimacy of fixed-term contracts is regulated strictly by the TzBfG, the German Act on Part-Time Work and Fixed-Term Employment Contracts (the Act). The Act determines whether or not the fixing of a deadline is justified on factual grounds.

Accepted Justifications for Fixed- Term Contracts

Acceptable justifications for fixed-term contracts are listed in the Act. The most common reasons for fixing a term of employment are when:

  • The demand for workers is temporary (e.g., for seasonal work such as at Christmas or during harvests).
  • The period of employment is to provide a young person with work experience and the role may transition to a permanent one.
  • The employee is employed to cover an absent permanent employee (e.g, maternity leave coverage).
  • The fixed term serves as probationary period.
  • The employee’s personal situation creates an inherent deadline (e.g., he or she is on a short-term work visa).

The list outlined in the Act is not exhaustive. However, any reason put forward as justification by a company has to be considered by employers and trade unions to be as credible as those that are listed.

Unjustified Fixed-Term Contracts

If there is no acceptable justification for a fixed-term contract, the maximum it can be fixed for is two years. If the contract is for less than two years, it can be extended three times, but only up to a maximum of two years in total.  

One exception to this rule relates to startup companies. Up until four years after their establishment, start-up companies may agree to fixed-term contracts of up to four years. Within this period, multiple extensions are acceptable beyond the three occasions permitted in other circumstances. This exception does not apply to companies that have been created as a result of restructuring.  

Another exception applies to employees older than 53. If they have been unemployed for at least four months before the commencement of the fixed-term employment, their contract may be limited for a period up to five years. This exception doesn’t infringe EU anti-age discrimination regulations as it encourages the hiring of older employees.  

If the employee was employed by the employer previously, it is not acceptable to employ them on a fixed-term basis, regardless of whether the earlier contract was fixed-term or unlimited. There are, however, two exceptions to this rule.  

The first is when a significant period of time (usually a couple of years) has passed between the previous employment and the new contract.  

The second is when the employee was employed previously by another company in the same group or by a company that has since been taken over or merged with. Similarly, pre-employment training or on-the-job training does not constitute employment as defined by the Act.  

Consequences of a Violation

If an employment contract violates the Act or EU regulations, the fixed-term contract is deemed as an unlimited employment contract. This also applies if the agreement of a fixed deadline does not comply with the legal requirement stipulation that it must be in writing. Bearing in mind the high level of protection enjoyed by employees in an unlimited employment relationship under German law, any violation could prove to be very expensive.