Will fixed-term contracts soon be more restricted?

Stephanie BreitenbachLabor Law

After a tough struggle over the coalition agreement in 2018, the governing parties decided to implement stricter regulations on fixed-term contracts in this legislative period.

A first attempt on this was already made just one year after the coalition negotiations, but it did not even result in a draft law. However, on 14 April 2021 the Federal Ministry of Labour and Social Affairs (BMAS) has finally presented such a draft law.

The central points of this draft bill are based on the agreements of the coalition agreement.

Regarding fixed-term employment contracts without material reasons the draft bill states the following:

  • The maximum duration of fixed-term employment contracts without a material reason is to be reduced from 24 months to 18 months. Only one extension shall be permitted within this period. Under collective agreements only fixed-term employment contracts of up to 4.5 years with a maximum of three extensions shall be permissible in future. 
  • A quote of a maximum of 2.5% for fixed-term employment contracts without material reasons shall be imposed on employers with more than 75 employees. If the quote is exceeded, the employment shall be considered to be concluded for an indefinite term. Works councils shall be entitled to quarterly reports on the share of fixed-term employment contracts in relation to the total number of employees. 
  • Fixed-term employment contracts without a material reason shall be restricted to new engagements. In the recent past, there have been repeated legal disputes about the term “new employment” in the case of long-ago previous employment relationships (for more information follow this link ››). Although the draft bill explicitly refers to this issue it fails to make an attempt to seek legal clarification. The parties of an employment contract remain uncertain and are referred to a “restrictive interpretation” of the wording of the law. So far, the Federal Labour Court has only clarified that a previous employment relationship that dates back 22 years no longer has to be taken into account, whereas a previous employment relationship dating back only eight years invalidates a fixed-term employment relationship without material reason. 
  • In future, the exact legal grounds for a fixed-term contract without material reason must be stated in the employment contract, the so-called citation requirement. This means, that from the beginning of an employment relationship it has to be contractually clarified whether a fixed-term employment relationship is with or without material reason.

Changes shall also be made to fixed-term employment contracts with material reason:

  • These are to be limited to a maximum period of five years with the same employer, although periods of temporary work for that employer are to be taken into account. The only exception is, if there is a period of at least three years between the fixed-term employment contracts or temporary assignments. Exceptions are to apply to so-called age limit agreements and in-service leave. 
  • And finally, it is intended to eliminate the factual reason of budgetary fixed-term employment contracts, which is actually reserved for public employers and frequently used by them. 

However, it seems doubtful whether this draft law will make it through the legislative process in the remaining months of this legislative period until the federal elections in early autumn. It seems that the current election campaign is the reason for the presented draft law. The implementation of restrictions on the law on fixed-term employment contracts was one of the key demands of the SPD party convention for the coalition negotiations with the CDU/CSU. 

Should the draft law actually be implemented as presented, employers should prepare themselves in good time that they will be obliged to comply with the citation requirements as of January 2022 and, if the company is of a corresponding size, they will have to determine the quote of fixed term employment contracts without material reason and provide this information to the works councils.

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