Digital employment contracts: opportunities and challenges arising from the Bureaucracy Relief Act IV

Digitization of the world of work: Relief through the Bureaucracy Relief Act IV?

The world of work is changing and digitalization is becoming increasingly important. The Fourth Bureaucracy Relief Act (BEG IV) passed by the Bundestag on 26.09.2024 implements measures to relieve the economy of unnecessary bureaucracy. The Bundesrat approved BEG IV on 18.10.2024. It is expected to come into force on 01.01.2025. For most employers in particular, the BEG IV will bring noticeable relief in the administrative area.

Current legal situation: Employment contracts free of form, but bureaucratic burden

Employment contracts can already be concluded today without any formal requirements, i.e. also by e-mail or verbally. In principle, there are no formal requirements for the conclusion of employment contracts. In practice, however, the German Act on Evidence (NachwG) stands in the way of this possibility. Since the reform of the NachwG in August 2022, employers have been obliged to record the essential contractual terms of an employment relationship in writing and hand them over to the employee in paper form. This also applies to changes to the essential contractual terms during the course of the employment relationship, such as salary increases. Violations of this strict written form requirement can even be punished with fines since the reform. For many companies, this means a considerable amount of additional administrative work, which remains necessary despite increasing digital processes in personnel administration.

The Bureaucracy Reduction Act IV: Digital proof instead of a flood of paper?

The BEG IV aims to reduce these bureaucratic obstacles. A key point is the planned amendment to the Evidence Act. In future, it will be sufficient to provide evidence of the essential contractual terms in text form. This means that the handwritten signature, which is required in written form, will no longer be necessary. According to the new version of the NachwG, employers will be able to draw up the minutes of the essential terms and conditions of employment in text form and transmit them electronically, provided that the document is accessible to the employee, can be saved and printed out and the employer requests the employee to provide proof of receipt with the transmission.

Another innovation concerns the agreement of age limits in employment contracts. This is a fixed-term employment contract. For this reason, it was previously necessary for employment contracts that provide for the termination of the employment relationship upon reaching the standard retirement age to be in writing or to be provided with a qualified electronic signature. This will change with BEG IV. In future, such age limit agreements can be made in text form with legal effect.

But not digital everywhere: exceptions and restrictions

Despite these planned simplifications, important exceptions remain. For example, the new text form regulation of the NachwG does not apply in the sectors listed in Section 2a of the Act to Undeclared Work (SchwarzArbG), such as the construction and catering industries. The simplification does not apply to internship contracts either - the strict written form is still required here. This means that employees in certain sectors and interns must continue to receive signed written proof of the essential terms of their employment contract. In addition, according to the new NachwG, employees can still request written proof of the terms of their contract if they expressly wish to do so. This gives them the option of continuing to insist on the traditional paper form.

The strict written form or qualified electronic signature for fixed-term employment contracts in accordance with Section 14 (4) of the Part-Time and Fixed-Term Employment Act (TzBfG) also remains in place.

Conclusion: Digitalization of the world of work – a relief with limitations

The BEG IV brings progress for the digitalization of the world of work in Germany. In particular, the introduction of the text form for proof of working conditions and the agreement of age limits represent important steps towards reducing bureaucratic hurdles for the economy. Nevertheless, BEG IV does not lead to the possibility of the complete digitalization of all employment contracts. Some regulations, such as the strict written form for fixed-term contracts or in certain sectors, remain in place. The path to an end-to-end digital world of work has therefore already been paved, but unfortunately not yet fully achieved. According to Federal Minister of Justice Marco Buschmann, a further law to reduce bureaucracy is to follow in 2025.

Published October 2024