Planned innovations in the law on fixed-term contracts: regulations on contracts limited in term for no material reason and chains of fixed-term contracts are to be tightened up

On 14 April 2021, the Federal Ministry of Labour and Social Affairs presented a draft bill amending the German Part-Time Work and Fixed-Term Employment Act [Teilzeit- und Befristungsgesetz, TzBfG]. In essence, the draft restricts the limitation of the contractual term of employment agreements without material reason and so-called chains of fixed-term contracts, which are created by a succession of several fixed-term employment contracts. The amendment to the Act should enter into force on 01 January 2022.

The following major changes are planned:
 

• Instead of the previously permissible maximum period of two years, the limitation of an employment contract to a fixed term without material reason will now only be permissible for a maximum period of 18 months.
• Up to this total duration, it will only be possible in future to limit the contractual term again once instead of three times.
• Contracts with a fixed term for no material reason will now only be permissible in the case of new hirings.
• If an employer generally employs more than 75 employees (irrespective of the number of persons in vocational training), a maximum of 2.5% of these may have contracts with a fixed term for no material reason. The calculation shall be based on the number of employees on the first calendar day of the preceding quarter. Furthermore, if the employer is governed by this provision, in future it will have to inform the employee representatives on the first calendar day of each quarter of the proportion of employees with contracts with fixed terms for no material reason.
• In addition, employment contracts with fixed terms for a material reason (with the exception of § 14 (1) sentence 1 No. 4, TzBfG: character of the work performance) shall be limited to a maximum duration of five years. Prior employment which lies no more than three years in the past must be taken into account for this purpose, whereby periods of employment as a temporary worker also have to be included. However, agreements to terminate employment on reaching the standard retirement age and so-called in-service leave for civil servants will be exempt from the maximum duration rule. Also excluded from this are employment relationships during litigation that are subject to a condition precedent, which concern the continued employment of the employee until the final and absolute conclusion of legal proceedings.
• Where collective agreements provide for deviating regulations to the TzBfG, the collective bargaining competence will in future be limited to a maximum term limitation of 54 months and a maximum of three extensions within the framework of this limitation of the contractual term. The contractual parties have a transitional period in which they must implement any necessary amendments to existing collective agreements or collective agreements which remain effective.  Deviating collective agreements shall retain their validity until one year after the planned new regulation comes into force.
• Furthermore, in future there will be a citation requirement, i. e. the written agreement on the limitation of the contractual term must state whether the contract is being concluded for a fixed term without material reason and, if so, according to which statutory regulation. If this information is missing, the fixed term cannot be based on one of these legal bases. Conversely, if this information is included, the fixed term can no longer be based on a material reason.

Especially for companies which, according to their current practice, have to deal with a high staff turnover and therefore very often resort to fixed-term employment contracts without material basis or to chains of fixed-term contracts, this legal innovation will strip them of a considerable degree of flexibility. The draft has therefore already come up against a great deal of criticism. In the light of the corona crisis, the German Economic Institute [Institut der deutschen Wirtschaft, IW] also considers it more sensible to ease rather than tighten regulations on the limitation of contract terms on the labour market. According to a study by the IW, a good three quarters of companies with more than 250 employees would then have too many employees on fixed-term contracts. It therefore remains to be seen whether the law will even be passed at all in this legislative period and in this form.

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