Planned tightening of the law on fixed-term contracts in the middle of the Corona pandemic: is it destined to backfire?

As this legislative period reaches the eleventh hour, the Federal Government is planning to implement a final element of the Coalition Agreement of 2018 and tighten the law on fixed-term employment contracts. Permanent employment contracts should become the rule again, rather than the exception. To this end, the draft bill of the Federal Ministry of Labour and Social Affairs (BMAS) of 14 April 2021 provides significant restrictions for fixed-term employment contracts without objective reasons and an upper limit for companies with more than 75 employees. Besides the additional bureaucracy, the planned changes mean less flexibility, something that has been vital for employers during the current economic crisis. The draft is currently in the consultation procedure between governmental departments.

What specific changes does the draft introduce?

The BMAS “overshoots” when implementing the guidelines set out in the Coalition Agreement: in addition to the foreseen amendments, the draft bill introduces a requirement to expressly specify affected fundamental rights (so-called “Zitiergebot”) and a requirement on the employer to provide information to employee representatives. The new law could enter into force on 1 January 2022. More specifically, the draft proposes the following changes to the Part-time and Temporary Employment Act (Teilzeit- und Befristungsgesetzes, TzBfG) and the Third Book of the Social Code (SGB III):

• Fixed-term employment contracts without objective grounds for their temporary nature will only be permissible for a total duration of 18 months (until now: 24 months); only one extension will be permissible within this period (until now: three).
• If an employee1 initially worked for the same employer as an agency worker, a subsequent fixed-term employment contract without objective grounds will only be permitted where the total period does not exceed five years (the prohibition against “previous employment” does not prevent the conclusion with the agency worker of a subsequent fixed-term employment contract without objective grounds as the prohibition does not apply to prior employment as an agency worker). This does not apply where more than three years have elapsed between the last post with the company as an agency worker and the planned start of employment with the company.
• While the new statute will limit the powers of parties negotiating collective bargaining agreements to deviate from these rules, the right to deviate is maintained. The maximum duration of a fixed-term agreement without objective grounds can be extended by collective bargaining agreement to a total of 54 months and can be extended a maximum of three times.
• Companies which generally have more than 75 employees will only be able to conclude fixed-term contracts without an objective ground with a maximum of 2.5% of employees. For the calculation:
  • Determining whether the threshold of 75 employees is met: Employees means all employees employed by the employer (not the work), including agency workers (if these are normally employed), except for trainees. A pro-capita basis applies for the determination (not an FTE view);
  • Determining the 2.5% rate: This applies both to temporary contracts without objective grounds for new employees and to the extension of existing fixed-term contracts. The basis is the employer and not the work. At the time of the agreed start of work (or on the first day of the extension), the percentage of fixed-term employment contracts without objective grounds should be below 2.5%. The first calendar day of the preceding quarter is decisive for the calculation of this share. The percentage calculated on this day will not change until the first day of employment. Only those employees, whose employment agreements are concluded or extended after the law enters into force and whose employment the employer has designated as temporary without objective grounds will be included in this calculation (see more about the requirement to expressly specify affected fundamental rights, below), regardless of whether the fixed terms are effective;
  • Where the 2.5% rate is exceeded, all subsequent fixed-term contracts without objective grounds will be treated as if they were concluded as permanent contracts. The employer bears the burden of proving that it did not exceed this 2.5% rate;
  • It should also be possible for the works council to monitor whether the 2.5% rate was respected. On the first day of each quarter, employers will be required to provide employee representatives with the rate of fixed-term contracts without objective grounds.
• In the future, employers will be required to indicate in writing whether the agreement is a fixed-term employment agreement without objective grounds and, where this is the case, to indicate the statutory norm on which the fixed-term is based (so-called Zitiergebot). If such information is missing, the temporary nature may not be based on one of these statutory grounds. If the agreement contains such information, employers cannot base the fixed term on objective grounds.
• Fixed-term employment contracts – both with and without objective grounds for the temporary nature – shall no longer be permissible when the total term with the same employer exceeds a maximum period of five years. Various fixed-term contracts count towards the total term, including where the employee worked as an agency worker if three years have not passed between the agency contract and other contracts. Agreements with a fixed term also count where the fixed term was based on other legal provisions substantiated in the TzBfG, e.g., § 21 of the German Parenting Allowance and Parenting Leave Act (Bundeselterngeld- und Elternzeitgesetz), § 6 of the Home Care Leave Act (Pflegezeitgesetz), etc. Exceptions from this maximum limit apply to contracts that have a fixed-term due to the specific character of the work (e.g., professional soccer players, artists, etc.), for fixed-terms based on court settlements, for agreements which terminate when the employee reaches the statutory retirement age, and for any leave of absence for civil servants (where the civil servant status is maintained, so-called In-Sich-Beurlaubung).
• The new subsection 10 of § 111 SGB III introduces a rule which provides that the grounds for the fixed term of an employment contract will be objective when the employee’s current position is abolished and the employee transfers to an organisationally independent entity (transfer company).
• It should be assumed that fixed terms that apply to transfers to the transfer company also count towards the above-mentioned total duration of five years.

What happens to existing agreements?

The draft proposes the following transitional rules for agreements that apply when the Act enters into force:

• Fixed-term employment agreements that are concluded before the Act enters into force (currently by 31 December 2021), may be extended only once for a total duration of up to 18 months. Until the Act enters into force, companies will still have the possibility to conclude or extend fixed-term employment contracts in accordance with the current law (up to a total duration of 24 months). There are no plans to reduce the current total duration to 18 months after the entry into force of the new Act.
• Fixed-term contracts without objective grounds, which are concluded or extended before the planned Act enters into force, remain unchanged and do not count towards the calculation of the 2.5% share.
• Collective bargaining agreements, which contain deviating provisions that exceed the maximum limits foreseen in the draft bill (maximum total duration of the fixed term of 54 months; a maximum of three extensions within this period), remain in force for one year after the Act enters into force.

Summary

The draft bill has already received both praise and criticism. It is questionable whether the tightening of the rules was necessary now when the economic effects of the corona crisis are not entirely foreseeable. Instead of more limits to the possibility to conclude fixed-term employment contracts, many employers wish they had greater flexibility. From an employer perspective, the introduction of a statutory obligation to retain employee information would have also been desirable. Before concluding each fixed-term agreement without objective grounds, a check needs to be performed to confirm whether the specific employee was employed by the same employer “before” – which the case law interprets as “in the last 20 years”. An infringement of the prohibition against fixed-term agreements in the case of “prior employment” results in an indefinite employment relationship. However, once an employment relationship ends, employers may not retain personal information for too long. Data protection law (including the right to erasure under Article 17 of the General Data Protection Regulation) prevents the retention of such information. National legislators can effectively limit the employee’s right to erasure by introducing a statutory obligation to retain certain employee information. In light of the upcoming election, it remains to be seen whether the bill will be adopted as planned.

Dr Olga Morasch

[1] All persons and job titles mentioned here are given in the male form to make the article easier to read, they are intended to include female forms as well as diverse persons.