For you as an employer, fixed-term employment contracts are particularly attractive in order to cover work peaks and to be able to react promptly to the respective order situation or to be able to temporarily replace employees.
Where can you find the legal basis?
The legal framework for the conclusion and legal validity of fixed-term employment contracts is provided by the "Act on Part-Time Work and Fixed-Term Employment Contracts (Part-Time and Fixed-Term Employment Act - TzBfG).
A distinction is made between the following options for fixed-term contracts:
a) with a material reason
b) without objective reason
a) Fixed-term employment relationship
You can conclude such an employment contract if, for example:
- the company's need for the work is only temporary,
- the fixed-term contract follows training or studies in order to facilitate the transition to subsequent employment
- employees are employed to replace other employees,
- the nature of the work justifies the fixed term (project work)
- the fixed term is for testing purposes.
You could extend such fixed-term employment relationships several times as long as there is a material reason for each subsequent fixed-term employment relationship.
b) Fixed-term employment relationship without objective reason
Here, a fixed-term employment contract is permitted up to a maximum duration of two years; up to this total duration, a fixed-term employment contract may also be extended a maximum of three times.
A fixed term is not permitted if a fixed-term or permanent employment relationship has already existed with the same employee. Even long periods of time between two fixed-term contracts are not sufficient (see e.g. BAG ruling of 23.01.2019, 7 AZR 733/16: In this case, there was a period of 8 years between two fixed-term contracts without objective grounds, which was deemed too short).
There are exceptions to the calendar-based time limit or multiple extensions only in the following cases:
- As a business founder, you can make use of the following exception, which is based on §14 TzBfG:
"In the first four years after the establishment of a company, the calendar-based limitation of an employment contract is permitted up to a duration of four years without the existence of an objective reason; up to this total duration of four years, the multiple extension of a calendar-based fixed-term employment contract is also permitted."
Incidentally, the date on which the company is established is the official start of your gainful employment, which must be reported to the municipality or the tax office in accordance with § 138 of the Tax Code.
- There is another exception if you want to employ older employees (over 52 years of age) on a fixed-term basis who were previously registered as unemployed for at least 4 months:
"The calendar-based limitation of an employment contract without an objective reason is permitted for a period of up to five years if the employee has reached the age of 52 at the start of the fixed-term employment relationship and has been unemployed for at least four months within the meaning of § 138 (1) no. 1 of Book III of the German Social Code (SGB III) immediately before the start of the fixed-term employment relationship, has received transfer short-time allowance or has participated in a publicly funded employment measure in accordance with Book II or Book III of the German Social Code. Multiple extensions of the employment contract are also permitted up to a total duration of five years."
- The following applies to trainees who have completed their training:
A vocational training relationship is not a prior employment relationship within the meaning of § 14 TzBfG.
Following vocational training, you can therefore conclude a fixed-term employment contract for up to two years in total without a material reason. This also applies in cases where trainees have received written notification that they will not be taken on at least four months before the contractually agreed end of their training.
What do you need to pay particular attention to when concluding a fixed-term employment contract?
Here are a few tips to help you conclude or extend fixed-term employment contracts without any legal errors:
- A fixed-term employment contract must be in writing to be effective. In this case, contracts concluded verbally are legally invalid and lead to an employment relationship concluded for an indefinite period.
- You should also not extend fixed-term employment contracts indefinitely. This can lead to them being classified as "chain employment contracts" and thus be regarded as an abuse of the applicable law.
- If you want to extend a fixed-term contract, this must be done during the term of the contract. Otherwise, the contract will be deemed to have been newly concluded, even if the "new" contract comes into effect on the next day.
- There are similar problems if you want to change details in the follow-up contract, e.g. higher pay, new arrangements for Christmas or vacation pay, changes to working hours. You may then have concluded a new fixed-term contract, which could lead to multiple fixed-term contracts without a material reason and therefore to an open-ended contract. To prevent this, you should always agree any desired changes to the employment contract for the term of the "first contract" (e.g. for the last month of the contract).
- If a fixed-term employment contract ends and the employee shows up "for work" the following day without being asked, he/she must be sent home. Otherwise, the employment contract (this time for an indefinite period) will be tacitly extended.
We have provided "Templates for employment contracts" on our website. They are intended to serve as formulation aids, but must be adapted to your individual requirements. Simply adopting sample contracts is generally not suitable for your specific legal circumstances. In cases of doubt, you should consult an appropriate legal advisor for advice and clarification of these contracts.