Nothing is more permanent than the temporary
Kozma Prutkov
Good to Know
A fixed-term employment contract must be concluded before work begins. A service contract, by contrast, does not require the contractor to follow the client's instructions while performing the work.
An employment contract (German: Arbeitsvertrag) is the core document governing the relationship between employee and employer. It sets out the main terms of the job — duties, working hours, salary, annual leave entitlement, the length of the probationary period, and any other conditions the parties have agreed on in advance. Under German law, an employment contract can be concluded in writing, orally, or through conclusive conduct. As a rule, though, a permanent hire is put in writing. An employment contract needs to be distinguished from a service contract. Under an employment contract, the employee must, during working hours, follow the employer's instructions: the employer assigns specific tasks within the employee's job duties, supervises how they're carried out, and sets priorities. Under a service contract, by contrast, the person providing the service is not obliged to follow the client's instructions while doing the work — the contractor simply has to deliver the service or complete the work properly and within the agreed deadline, while the client must pay for it properly in return. Typical service contracts include consulting agreements, contracts with a personal trainer at a fitness club, translation contracts, and the like.
An employer and an employee can agree to a fixed-term employment contract, which simply ends when its term expires. As a rule, a limited-term contract serves the employer's interests. To protect employees' rights and interests, though, and to promote job stability, German lawmakers have attached certain conditions to such contracts. A distinction has to be drawn between fixed-term contracts concluded for a specific reason and those concluded for a set period without any particular reason. A fixed-term contract with cause is permitted, for example, when work is needed on a specific time-limited project, for work that is inherently limited in duration, to temporarily cover for another employee, or in similar situations. Without cause, a fixed-term employment contract may run for no more than two years, and it may be renewed no more than three times within that period — so a contract initially concluded for six months could be extended three more times, six months at a time. Imprecise wording about the date or duration, such as "about six months," doesn't count and results in the contract being treated as an open-ended one. The same applies if the parties set only a minimum duration for the employment relationship without a precise end date — the contract is then deemed to be for an indefinite term. For example: "The employment relationship begins on 1 May 2018 and ends no earlier than 30 September 2018"; or "The employment contract may be terminated no earlier than 31 March 2018." What's more, an employer needs to remember that the essential terms of the original fixed-term contract must stay unchanged when it's renewed for a new term — otherwise, it too can end up being treated as open-ended.
Employees — foreign nationals especially — often don't know the full extent of the rights they're entitled to under the employment law of the country where they live. That's why, when starting a job and signing an employment contract in a foreign country, we recommend getting professional legal advice to help protect you from employer overreach. But it also happens that employers themselves come to our firm to protect their own rights and legitimate interests. This article tells the story of one such case.
A client once came knocking at our firm's door — let's call him Yuriy. For the previous five years, Yuriy had served as managing director of a small German company that provided support services for patients from Russia coming to Germany for medical treatment. Since demand for these services was highly irregular, the company had a fixed-term contract with practically every employee. When each contract's term ran out, the company's director, together with the chief accountant, would decide, based on the financial plan, whether to renew each employee's contract for a new term. This way of structuring the employment relationship worked well for every employee at the company — including one of its consultants, let's call him Igor — until he found out that, for reasons beyond anyone's control, his fixed-term contract would not be renewed again. Let's take it from the top.
Igor, a Russian citizen, came to Germany for an intensive German-language course, hoping to gain a real foothold in the country. While still taking the course, he was actively job-hunting and managed to land a position at a small company in Berlin, where Yuriy was managing director. Igor was given a detailed explanation upfront of how the company worked with its staff, along with an outline of the company's near-term prospects. The two sides then agreed to a three-month contract and to see "how it goes" after that. At first things went reasonably well — the company had clients, and Igor was handling the work. So, at the end of the first three months, his contract was renewed, first for six months, then for another six, and then for a final three months. As the term of that last contract with Igor drew to a close, managing director Yuriy understood perfectly well that renewing it again would change its legal status — it would flip from fixed-term to open-ended, since the maximum two-year cap would by then have run out. Yuriy had no intention of keeping Igor on permanently, especially since he received stacks of applications every day from candidates eager for a spot at the company. So he gave his employee timely notice that it was time to part ways. That didn't sit well with Igor at all — he badly needed a legitimate job in Germany, not just to support himself decently but also to renew his residence permit, which had been issued for the purpose of employment in the country. After talking it over with some German friends over a beer and showing them all his employment contracts, Igor decided to take decisive action and filed a lawsuit against the company, seeking to have his employment contract declared open-ended. On the face of it, the young man didn't stand a chance — Yuriy, in renewing Igor's contracts, had followed the letter of the law precisely and met every necessary condition. But the employee found something to latch onto. It turned out that the final, three-month version of the employment contract the parties had signed didn't include the probation-period clause that had appeared in every earlier version of the contract. That change in the contract's terms became the basis of the former employee's claim.
Our firm's lawyer represented the company at every stage of the proceedings. Formally speaking, it did appear that an essential term of the contract had been changed, meaning the contract should be treated as continuing — now on an open-ended basis. But common sense has to prevail in everything, law included. The lawyer explained the point to our client in detail and then cited before the court paragraph 3 of §622 of the German Civil Code (Bürgerliches Gesetzbuch — BGB), which sets the maximum length of a probationary period in Germany at six months, or nine by agreement of the parties. Given that the dismissed employee had worked at the company for a year and a half in total, any possible probationary period had already run its course long before the final three-month contract was signed.
At the preliminary hearing, whose main purpose is to bring the parties to a settlement, the claimant's representative refused to resolve the dispute amicably and, if anything, dug in further. Igor's goal was reinstatement on an open-ended employment contract, together with back pay for the entire period of "forced idleness." At the preliminary hearing, the judge gave us no clear answer on whether the claimant's demands were valid, noting only that the main decision would be made collegially at the main hearing, by a panel consisting of the judge and two lay assessors.
We laid out the real state of affairs for our client and got to work preparing to defend his interests at the main hearing. At the hearing, our firm's lawyer cited the statutory provisions on the maximum probationary period in Germany mentioned above, along with the substance of a legal doctrine grounded in principles of fairness and reasonableness. The panel of judges accepted our arguments and ruled in our client's favor. The judgment noted that any contract terms that had lost their significance did not need to be repeated in a version of the contract concluded for a new term — meaning they could not be relied on when deciding whether a fixed-term employment contract should be treated as open-ended. We warmly congratulated Yuriy on his win, while warning him that the ruling could still be challenged before a higher court.
We regard this ruling as a very important example from our practice, since it became a precedent that lawyers and judges can rely on when handling similar cases. As IBM founder Thomas Watson (1874–1956) rightly put it: "Business is a game, the greatest game in the world if you know how to play it." We wish you success and new achievements in your business, and we invite you to a consultation with us should any of your employees or business partners start playing by different rules.
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