The Importance of the Employment Contract
The employment contract is crucial as it outlines the relationship between the employee and the employer. It provides information on vital aspects of a person’s working life from their salary to the number of holidays they are entitled to and states whether the work is for a defined period or indefinite duration. Furthermore, the contract could outline confidentiality, data protection and non-competition clauses. It should also provide the guidelines for the notice periods required. Here we’ll examine some of these aspects of the employment contract in greater detail.
When does an “Employment Contract” exist in German Law?
By definition, an employment contract exists if the parties have agreed that particular work performance is to be rendered by the employee in return for a payment from the employer.
Legally, the employment contract is not subject to any formal requirements, i.e. employment contracts can even be concluded orally. However, it is recommended, and usually the rule, that they should be set out in writing.
Which Content Requirements must a German Employment Contract meet?
Although there is no mandatory legal regulation here either which prescribes which elements the agreement to be concluded must contain, it is advisable in the light of legal certainty to include the following essential points:
- the job description
- the amount of remuneration (including shareholdings, allowances, bonuses, special payments) and its due date
- the start of the employment relationship
- a possible limitation of the employment relationship
- working hours
- the holiday periods
- the place of work
- data protection provisions
- private car/phone/internet use
- non-competition obligations
- the periods of notice
- general references to the collective agreement/company or service agreement.
Employers usually use their standardised employment contracts.
Duration of Employment Contract in Germany
One of the first things that an employment contract will outline is if it is for a fixed term or an indefinite duration (Befristete und unbefristete Arbeitsverträge). A fixed-term contract can be provided for a set time limit or until a goal is achieved. Once this occurs, the employment relationship can be ended without the requirement for notice. In Germany, most contracts are unlimited in duration as they provide more certainty for both the employer and the employee. Generally, fixed-term contracts can be renewed a maximum of three times and only last for two years. There are some exceptions to this rule laid out in the Part-Time and Fixed-Term Contracts Act, several of which refer to newer (start-up) companies.
Fixed-term contracts can suit an employer when they know that they have a specific short-term goal they wish to reach and have no requirement for the employee following this achievement. It is possible that the employer could instead employ a temporary agency worker for this purpose. It can also benefit the employer when there is a degree of financial instability in the company, and they can only foresee needing the employee for a short period.
Salary Obligations Under Employment Contract
For the work performed by the employee, there is, of course, the obligation for them to receive financial remuneration in the form of a wage or salary. The amount paid will vary depending on the nature of the work, the seniority of the position and a variety of other factors. Still, it has to be above the national minimum wage. When working in Germany, it should be noted that a significant amount of the salary is required for taxes and health insurance, among other requirements.
A further clause within the contract can outline the bonuses an employee can receive whilst working and the overtime rate. Other aspects of this obligation to be aware of include:
- The need for the employer to pay on time. This requirement is there even if the employer is ill.
- The employer is responsible for ensuring that the necessary deductions are being paid correctly.
- The payslips provided allow the employee to check that the correct deductions are being made.
It is very beneficial for employees to check their payslips to make sure that they are being paid the right amount and that the employer is making the correct deductions.
Nature of Work
The employment contract will also act as a means of outlining the tasks expected of the employee. Within this description is a breakdown of what is expected of the employee by their employer. Consequently, the employer cannot demand their employee perform in an area of the enterprise that they are not contractually obliged. However, it should also be noted that it is not a good strategy for an employee to limit your job description too much. Should employees do this, they may face future redundancy should their strict job description be deviated from within the enterprise. This is why it is beneficial to have a job description with leeway.
Holidays and Annual Leave Requirements
Annual leave is an essential part of starting any job, and in Germany, it is carefully regulated through the Bundesurlaubsgesetz (BUrlG). Annual leave is a legal requirement under the terms of the Act (§ 1 BUrlG). A worker’s employment contract should outline the amount of leave that the employee is entitled. During annual leave, the worker is deemed not at work and thus is not expected to perform employment duties (§ 8 BUrlG).
The minimum requirement for a 5 day per week working week (of around 40 hours) is 20 days annual leave. For those working 6 days per week, there is a minimum of 24 days, and thus, leave can be increased but not reduced below these amounts. There are times when the employer can refuse to provide leave to an employee on specific dates. The reasons which can be given include that there are not enough staff working on a particular day, that particular employee is required for the task at hand that day and others.
Notice Periods in Germany
Should the employment contract be for a contract of indefinite duration, then it may include terms concerning the timeframe allowed for relating to notice periods. The timeframes provided should adhere to the law in § 622 BGB / German Civil Code, which provides the statutory minimums for notice periods. Exceptions can be provided for if they are in order with collective agreements; however, collective agreements are by their nature designed to protect employees. Otherwise, workers in the probationary period of their employment are also subject to reduced statutory minimums regarding notice periods. For more information about notice periods in Germany, please visit our page on the topic. It outlines the requirements in more detail and provides more on issues such as extraordinary dismissal.
Confidentiality and Non-Competitive Clauses
The employment contract places requirements on the employer and the employee’s sides. Of course, the most apparent obligation is to give your time and skills to work on behalf of the employer. Although this appears pretty evident, it is still regulated in law under § 611 German Civil Code/BGB. However, the employee’s obligations that are arguably most important to be aware of are those of confidentiality and trust.
Confidentiality: During employment, it is likely that employees will learn important information about the company/employer. Such data can range from the business’s internal finances, the inner-working practices of the company, their customer lists and relationships between the enterprise and its customers. In certain professions, an employee will learn private information relating to the business’s customers and clients, and once again, confidentiality plays a significant role. It is vital for such professions that confidentiality clauses are placed in the employment contract and that both parties know the consequences for breach of the protocol.
Non-Competitive Clauses: It is not unheard of for employees to work in other fields on the side of their primary job. For example, a pharmacist from France working in Germany may teach French night classes to make some extra money on the side. Generally, employers do not have significant problems with this development when the second job is unrelated to the first. However, when the employee looks for a second job in the same field as their primary work, they may encounter difficulties. Usually, the employment contract will prevent the employee from working for their competitor in any form. Even if there is no specific clause, the employer may have grounds for disciplinary action.
In some cases, a non-competition clause can even prevent the employee from working for a competitor following their employment conclusion. Some requirements go along with such a clause, such as the fact that they are limited to a maximum of two years following the conclusion of the employment relationship.
Invalid Elements of the German Employment Contract
Employment contracts are essential legal documents and are thus carefully regulated. Several legislative acts play a role in determining what is and what is not legal in a contract. Amongst the legislative acts which have a role to play in the regulating of employment contracts are the following:
It is ingrained into the German Constitution that people should be treated equally and that there should not be discrimination based on gender, race, religion, disability etc. This does not extend to all workers being given the same wage on this basis alone (experience, qualifications and other factors play a role), but they should not experience discrimination on this front. Otherwise, employment contract elements that do not allow for maternity leave or discriminate against workers because of it, that do not provide for annual leave, that provide below the minimum amount of notice, and those that force workers to work excessive unpaid overtime hours are all illegal. Additionally, allowance for the misuse of employees’ personal data and information can also be deemed invalid.
There are numerous ways that an employment contract can be deemed invalid and illegal. Therefore, it is helpful to avail legal assistance in their drafting to ensure that they follow all required legislation. If you are an employee who is unsure about the legality of the terms of your employment contract, then it might be worth contacting a legal professional. Similarly, if you are involved in a business and require assistance redrafting employment contracts look no further for employment law assistance.
Disputed Content of the Employment Contract
The use of standardised employment contracts may initially appear uncomplicated and practical for both sides and, therefore, often tempts them to use them in an ill-considered and blanket way. In practice, the use of unthinking or inexpertly drafted (model) contracts is a common cause of disputes between employees and employers. Besides a complete lack of regulations, inaccuracies can also be the cause.
When determining the actual content of an ambiguous provision, it is necessary to consider the dynamic labour court rulings, the statutory regulations, and, where applicable, relevant collective agreements or works agreements.
It is always necessary to keep an eye on the employee protection regulations of the EntgFG, KSchG, BurlG, MuSchG and the current labour court case law.
An additional difficulty is that pre-formulated employment contracts and their clauses have been subject to an inspection of general terms and conditions since 01.01.2003. Suppose the employment contract clauses are subjected to a check according to general terms and conditions law. In that case, it is not only possible to refer to the catalogues of §§ 308, 309 BGB. Instead, it is necessary to carry out a determined examination of these and, if necessary, to take into account special features of employment law (§ 310 IV p. 2 BGB).
Special features also arise concerning the type of specific contract (unlimited/fixed-term employment contract, part-time employment contract, mini-job employment contract, temporary employment contract, etc.).