The laws of most countries impose mandatory formal requirements for certain types of transactions, in particular those involving the acquisition or transfer of real estate, as well as monetary deposits. In such cases, a written contract — and often notarization as well — is a mandatory condition for the transaction to be considered valid.
For less significant transactions, however, the parties are given, for their own convenience, freedom to choose how to record their agreement. As a result, the law even allows for contracts to be concluded orally in such cases.
Important to know
An employment contract in Germany can be concluded not only in writing but also orally or through conduct implying agreement — though for permanent employment, written form is the standard.
This does indeed simplify how parties interact a great deal, since even the most everyday actions (buying goods in a shop, for instance) would create far more hassle if every transaction had to be concluded in writing. That said, our law firm strongly recommends that, for anything beyond everyday transactions, you formalize the resulting legal relationship properly.
One example of a casual approach to documenting an agreement was our client Peter (name changed), the director of a company engaged in trading activity in Germany and Poland. Our client's company was fairly young but growing actively. A couple of years earlier, once he felt financially stable, Peter decided it might also be worth opening a branch of his company in Russia, since the CIS countries represented a potentially large market for his goods. To assess the risks and potential profit in more detail, he needed more precise figures and more concrete information. He therefore reached out to an old acquaintance, Ruslan (name changed), a Russian national registered as self-employed, and offered to pay him to carry out assignments for Peter — with the prospect of becoming the branch's general manager once it opened. Ruslan liked the idea and readily set to work.
Peter and Ruslan's arrangement worked as follows: Ruslan would receive a specific task from our client (finding premises for a new office, for example), complete it within the agreed deadline, and provide Peter with a report. In return, Ruslan received an agreed fee every month. None of this was ever put in writing, since the two men had known each other a long time and saw no risk in it.
Our client worked with Ruslan on this basis for around eight months. During that time, however, the situation on the Russian market deteriorated considerably, and Peter decided to postpone opening the branch indefinitely. He told Ruslan as much, warning him that, unfortunately, his services would no longer be needed from the following month. Ruslan was shocked by the news and began pressuring Peter to reverse the decision, growing suspicious that our client had simply found another manager and was deceiving him, among other things — which led to a falling-out between the two acquaintances. To close the matter for good, our client sent Ruslan written notice that the company would no longer require his services from the following month, and paid him the corresponding fee for the services already rendered.
A couple of weeks after that conversation, Peter received a summons from the labor court inviting him to a preliminary hearing on Ruslan's claim of unlawful dismissal. Our client was baffled by this turn of events and decided to consult an experienced lawyer about it.
After hearing the facts of the case, our lawyer explained that the main task here was to prove that Peter and Ruslan had never been in an employment relationship, since employment relationships carry certain distinctive features — in particular, a special termination procedure. To that end, the lawyer asked Peter for all the correspondence between the parties, proof and grounds for the payments made to Ruslan, the reports Ruslan had submitted, and any other information confirming that this had not, in fact, been an employment relationship.
Having prepared the necessary arguments and gathered the relevant evidence, our lawyer took part in the preliminary hearing. Ruslan's representative told the court that his client had been unlawfully dismissed without the statutory notice periods being observed and without grounds excluding social unjustifiability under §1 of Germany's Dismissal Protection Act (German: Kündigungsschutzgesetz). The main arguments were that Ruslan received an agreed monthly salary, carried out duties assigned to him by his employer — that is, Peter — and had even coordinated the timing and length of his vacation with our client. On this basis, Ruslan demanded that the employment contract be declared not terminated and that he be paid the corresponding salary.
Our lawyer, for his part, presented evidence that this was in no way an employment contract — which, incidentally, the parties had never even concluded, as the claimant himself had mentioned — but purely a services agreement. The fact that payment was made monthly did not indicate an employment relationship, since the fees for specific services were transferred to Ruslan on the basis of invoices he himself issued. Nor were the vacation requests proper evidence, since Ruslan drafted and signed them himself, meaning our client's consent was never actually required. What's more, Ruslan is self-employed, and under German law that status is preserved in dealings with third parties where an independent scope of work is involved. The claimant, who bore the burden of proof, failed to provide any evidence that the services he performed were not independent work. The parties had therefore concluded a services agreement, and the termination of that relationship had been carried out in line with the applicable statutory rules.
After carefully examining the evidence and arguments submitted by both sides, the court concluded that Ruslan's claim was unfounded and did not fall within the labor court's jurisdiction, since no employment contract had been concluded between the parties and, consequently, no employment relationship or labor dispute had ever arisen.
This example shows just how important it is to have your business's affairs handled by an experienced lawyer who can competently defend your legal position and protect your interests. We recommend seeking legal advice in good time, so as to avoid any disputes or conflicts with third parties down the line.
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