If a company wishes to conclude a fixed-term employment contract with an employee, German law generally requires a ‘valid reason’ for doing so. Such a ‘valid reason’ may be that the employee is hired to temporarily replace another employee who is currently on parental leave, for example.
In addition, German law permits fixed-term employment for a maximum of two years without the need for a ‘valid reason’. This is intended to give companies the opportunity to respond flexibly to uncertain and changing market conditions. For potential employees, it is intended to be an opportunity to prove themselves within the fixed-term employment and thus obtain the chance of permanent employment in a permanent contract.
However, German law stipulates that a fixed-term contract without a ‘valid reason’ is not permissible if any type of employment contract has already existed with the same employer prior to the new fixed-term contract. For a long time it was unclear whether a maximum time limit applies in this respect and whether practically any previous employment precludes a fixed-term employment relationship without a ‘valid reason’, even if that previous employment dates back decades.
The Federal Labor Court clarified that there are no rigid time limits. Instead, it is necessary to look at each individual case, examining whether the previous employment dates back a very long time, was of a completely different nature or was of a very short duration. This presents companies with considerable challenges.
Furthermore, it was unclear whether the same standard applied to former loaned employees. These are employees who have entered into a contract not with the borrowing company itself, but with a third party agency, which in turn lends the employee to the borrowing company for a temporary period.
In its ruling of 5 April 2023, the Federal Labor Court has now clarified that former loaned employees are not covered by the prohibition or prior employment. The Court took a formal approach and based its decision on the fact that there was no prior employment relationship between the borrowing company and the loaned employee.
Nevertheless, considerable challenges remain, especially with regard to the necessary case-by-case consideration. Please contact our experienced team of employment lawyers at rugekrömer if we can support you in this respect.