Current draft law on reforming the law on fixed-term employment contracts

The Federal Ministry for Labour and Social Affairs has published a first draft for a reform on fixed-term employment contracts. We have taken a look at the intended changes, summarized and evaluated them

At the end of the current legislative period, the Federal Ministry of Labour is speeding up its work: Following the Works Council Modernisation Act (we reported), the general law on fixed-term employment contracts is now intended to be reformed. What the government is now planning in concrete terms is revealed in a draft bill. We provide an overview:

Reduction of fixed-term employment contracts with no objective reason

The bill proposes that the new sec. 14 (5) of the Act on Fixed-Term Employment Contracts (TzBfG) limits the number of permissible employment relationships concluded on a fixed-term without an objective reason: Employers who generally employ more than 75 employees may employ a maximum of 2.5% of their workforce on fixed-term without an objective reason. The cut-off date for calculating the 2.5% rule is to be the first calendar day of the preceding quarter. All fixed-term employment relationships entered into with no objective reason after the 2.5% limit has been reached are legally void and therefore entered into for an indefinite period. Existing fixed-term employment contracts without objective reason that are extended after the amendment regulation enters into force are to be taken into account when calculating the quota, as are those hired out workers employed by the employer whose deployment is based on a generally existing need for staff. According to the case law of the Federal Labour Court, the employment situation, which is generally characteristic for the company, is decisive for such a generally existing need for staff. The random actual number of employees is irrelevant. Rather a review of the previous size of the company’s workforce and an assessment of its future development is required in this respect.

Reduction of the maximum duration of fixed-term employment contracts with no objective reason

In addition, the maximum duration of fixed-term contracts without an objective reason (calendar-based) is to be tightened: Instead of the previously permissible fixed-term with a triple extension possibility over a total period of 2 years, there is to be only a single extension possibility and the maximum duration of the fixed-term is to be limited to 18 months. An exception applies only to fixed-term contracts to which a collective bargaining agreement applies: Parties to collective bargaining agreements are to be given the possibility to extend the maximum duration of employment up to 54 months (= 4.5 years).

Fixed term contracts with a material reason only for up to 5 years

In future, fixed-term contracts based on a material reason will only be permissible for a total period of up to 5 years. In this context, all previous employmentswith the same employer as well as deployments as temporary employee due to a hiring-out to the same employer are to be taken into account, provided that there no more than 3 years have passed since the last deployment. The latter would lead to a new start of the 5-year period.
The only exceptions to the applicability of the 5-year period shall exist for reasons of "special nature of the work" (e.g. professional football players) and "fixed-term employment on the basis of a court settlement", as well as for fixed-term employment until retirement and for civil service relationships.

The restriction to the 5-year period with the same employer is also to apply to the special case of fixed-term contracts with no objective reason for older, previously unemployed workers, irrespective of whether previous fixed-term contracts with no objective reason or with an objective reason were involved.

Obligation to provide information in the case of fixed-term employment contracts without objective reasons (citation requirement)

In future, fixed-term contracts without an objective reason shall contain an explicit reference to the absence of an objective reason and, if applicable, to the existence of a special case of fixed-term (previously sec. 14 (2a), (3) TzBfG) in order to clarify the reason for the fixed-term employment contract and to make it possible to review the 2.5% rule. If no such reference is included, the employer shall not be allowed to invoke a fixed-term employment contract, e.g. in a court case, and the fixed-term employment contract shall be treated as if it has been invalidly agreed.

New obligation to inform the works council

In addition, according to the bill, in future the employer is to inform the works council on the first calendar day of each quarter about the number of fixed-term employment relationships based on no objective reason.

Conclusion and consequences for practice

If the proposed amendments were to be implemented, they would impose a significant burden on employers with more than 75 employees as well as an impairment of their flexibility. There would be considerable interference with the entrepreneurial possibility of concluding fixed-term employment contracts without a material reason.

The question remains to be clarified whether the 2.5% rule and the limit of 75 employees would actually be considered constitutional in the case of an expected review. This is especially relevant with regard to the constitutional principle of equality and the employer's right to entrepreneurial freedom of occupation.

Desirable would have been that the draft bill would also have clarified the prohibition of pre-employment pursuant to sec. 14 (2) sentence 2 TzBfG and eliminated the uncertainty in this regard instead of introducing new quotas.

It remains to be seen, therefore, what changes will actually be made to the law on fixed-term contracts and whether the draft law will pass through the legislative process before the parliamentary elections in autumn.

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