Germany: Good News For Employers: U-Turn In Case Law On Fixed-Term Contracts With A Specific Reason In The Case Of "Prior Employment"

Pursuant to s.14(2) of the German Part- Time and Fixed-Term Act (Teilzeit- und Befristungsgesetz) (the Act) the term of an employment contract may be fixed without a particular reason for up to two years, provided that the other conditions for fixing the term are met. One of those other conditions has long been criticized for restricting employers from entering into employment contracts with fixed terms: the Act prohibits fixing a term for employees previously employed with the same employer, with or without a fixed term. Until now, any period of prior employment with the same employer prevents the employer from entering into a fixed-term arrangement without a specific reason.

The Federal Labor Court (BAG) has now made an unexpected U-turn. In a recent ruling, the BAG stated that prior employment with the same employer does not rule out entering into a fixed-term contract without a specific reason if that prior employment ended more than three years ago.

Despite the unambiguous language of s.14(2) of the Act, the BAG took a purposive approach to the whole provision. On the one hand, this interpretation will permit employers to respond to fluctuations in business and market conditions and help employees bridge the gap to permanent employment. On the other hand, the ban on "prior employment" is designed to prevent employing individuals on 'chains' of fixed-term contracts, thereby abusing the system.

The latest case law of the BAG provides that fixed-term contracts are not normally "abusive" if more than three years have passed between the end of the prior employment and the commencement of the new fixed-term contract. The BAG held that this three-year period fits into the overall understanding of statutory principles as reflected in the standard period of limitation under civil law.

It remains unclear whether three years is the minimum period that must have passed since the most recent period of employment in order for the new fixed-term arrangement to be considered legitimate. In light of the reasons stated in the BAG's judgment, this should be assumed. This U-turn in BAG case law will be well-received, albeit unexpected news for employers.

Works Council Information Regarding Fixed-Term Hiring

Pursuant to s. 99 of the Works Constitution Act (Betriebsverfassungsgesetz - BetrVG), any company with more than 20 employees eligible to vote that seeks to hire employees on a fixed-term basis is required to inform the works council of its intentions. The works council has one week to respond. Within that week, it may: (i) consent to the hiring; (ii) object to the hiring for specific reasons set out in the law or (iii) remain silent. If the works council remains silent it will be deemed to have consented. If it objects within the required timeframe and in the required form, the employer will have to seek the approval of a competent labor court, which can issue an order consenting to the recruitment in the place of the works council. In deciding whether to make such an order, the court will consider whether the works council has material legal reasons for withholding its consent to the hiring. This process is referred to as a consent replacement procedure, and generally has to take place prior to the engagement of the employee.

As part of the consent replacement procedure, the works council has to be informed of all details relating to the hiree, the effects of the hiring on other employees and whether the hiring shall be for a fixed or indefinite term. However, a recent decision by the German Federal Labor Court (BAG) held that an employer is not obliged to inform the works council of the reasons for fixing the term of the contract. According to the BAG, the works council's right of co-determination is not an instrument for all-encompassing control over contractual substance. As a result, the works council cannot validly base the withholding of its consent on the alleged invalidity of the fixedterm arrangement. The specific legal basis for the employer to fix the term does not matter, and it does not have to be communicated to the works council ahead of the hiring.

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