Fixed-term employment contract: What employees need to know!

Fixed-term employment contracts are widespread: in 2023, 7.5% of employees aged 25 and over in Germany had a fixed-term contract. Fixed-term contracts can create flexibility, but they also pose major challenges. While fixed-term contracts are an opportunity for employers to cover short-term staffing needs, for employees they mean limited employment and significantly weaker protection against dismissal. What regulations apply to fixed-term employment contracts, what are the advantages and disadvantages, and what should employees pay particular attention to? This article provides an overview.

What is a fixed-term employment contract?

A fixed-term employment contract is a special form of employment relationship that is limited to a specific duration (or a specific purpose) from the outset. When this limitation expires, the contract ends automatically without the need for notice of termination. This legally circumvents the usual protection against dismissal.

If there is no explicit provision in the contract, ordinary termination during the fixed term is excluded. Incidentally, such a fixed term of an employment contract may not be regulated orally, but must be agreed in writing.

Fixed-term employment contracts are widespread in Germany: in 2023, 7.5% of employees aged 25 and over had fixed-term contracts. The trend is rising, especially among younger employees.

What types of fixed-term contracts are there?

There are three types of fixed-term contracts:

• Fixed-term contract: Typically, the employment contract runs for a contractually agreed period, for example six months or two years. It ends automatically on the agreed end date.
• Fixed-term contract for a specific purpose: The employment contract ends as soon as a specific purpose has been fulfilled. A typical example is the replacement of an employee during her parental leave. The end is often uncertain and occurs when the reason for the time limit no longer applies.
• Type of employment: In addition, a time limit on the employment relationship may arise from the type of employment. For example, the employment relationships of apprentices, interns or people on a voluntary social year are limited due to the nature of the type of employment.

When is a fixed term permissible?

In principle, a fixed term is permissible for employment contracts, but it is subject to strict conditions for the protection of employees. A distinction must be made between a ‘fixed term with a material reason’ and a ‘fixed term without a material reason’:

Fixed term with a material reason

A fixed-term contract with a material reason is one for which there is an objective reason for the time limit. The law lists a total of eight permissible reasons:

• temporary need: for example, a company has a seasonal order book and only needs additional staff for a limited period.
• Fixed-term contracts following training/study to facilitate the transition to subsequent employment
• Substitution: an employee is hired temporarily to replace another person who is on maternity, parental or sick leave.
• Project work: fixed-term contracts are often concluded for specific projects that do not require further employment after their completion.
• Testing: if an employer is not sure whether an employee is a good fit for the company, they can agree a fixed-term contract ‘for testing’ purposes.
• Personal reasons: If the reasons for the fixed-term contract lie with the employee
• Budget: Fixed-term contracts are particularly common in the public sector if they are dependent on the provision of certain financial resources.
• The time limit is based on a court settlement

Fixed-term contract without material reason

In addition to fixed-term contracts with material reasons, a ‘fixed-term contract without material reasons’ can also be concluded. However, this is only possible in exceptional cases to protect employees:

A fixed-term contract without cause may be extended a maximum of three times and not last longer than two years in total. Furthermore, it is only possible if the employee has not previously worked for the same company. Accordingly, this type of fixed-term contract is practically only permissible for first-time employees. Collective agreements may provide otherwise.

There is a further exception for newly established companies. Due to the particular economic challenges in the initial phase, they are allowed to conclude fixed-term employment contracts without cause within the first four years after establishment. However, this regulation only applies to genuine new establishments and not to restructurings or spin-offs of already existing companies.

Older employees who have reached the age of 52 can also be employed on a temporary basis without cause under certain conditions. This is intended to make it easier to re-enter the labour market and to reduce potential barriers to employment for employers. The prerequisite is that the employee was previously unemployed for at least four months, received short-time work compensation or participated in a publicly funded employment programme. The maximum fixed-term in these cases is five years.

A specialist employment lawyer can help to clarify the permissibility of a fixed-term contract and provide tailored assistance.

Advantages and disadvantages of a fixed-term employment contract for employees

A fixed-term employment contract can have advantages for the employer, but in individual cases also for the employee. Companies can react flexibly to staffing needs, while employees are given an opportunity to enter the labour market. Nevertheless, there are also disadvantages, especially the insecurity for the employee:

Advantages

A fixed-term employment contract can also have advantages for the employee in individual cases. Due to the often short contract durations, the employee is offered the opportunity to gain professional experience. If they perform well and develop a good relationship with the employer, the chances of permanent employment are often not bad. This can be beneficial for both the employee and the employer. A fixed-term employment contract also offers more flexibility and can make it easier to get back into work after a long break.

Disadvantages

A fixed-term contract also has many disadvantages for employees. This is because the employment relationship ends automatically and can only be extended by mutual agreement (by means of a new contract). Without a follow-on job, you are therefore threatened with unemployment after termination.

Protection against unfair dismissal is also significantly weaker, since an action for unfair dismissal is usually not possible after the contract has ended. If the time limit was unlawful, however, an action for removal of the time limit can be submitted – but only within three weeks after the end of the contract (Section 17, sentence 1 TzBfG). During the term, this is generally excluded (Section 15, sentence 3 TzBfG), unless the contract or a collective agreement expressly permits it.

In addition, there is a lack of planning security. The uncertainty about one’s professional future can be stressful, even if the employer announces the expiry of the contract. Furthermore, temporary employees often have a lower salary and fewer additional benefits. In addition, they are often excluded from company social plans, which can have serious consequences in the event of insolvency. Maternity and parental leave are also restricted. For example, the employment relationship also ends if the contract expires during maternity leave. In this case, the employee receives maternity benefits from her health insurance fund.

Frequently asked questions (FAQs)

What is a fixed-term employment contract?

A fixed-term employment contract is an employment relationship that is limited from the outset in terms of time or purpose and ends automatically without the need for notice of termination. There are three types of fixed-term contract: a contract for a fixed purpose ends as soon as a specific goal has been achieved, such as the return of a person who has been deputised. A contract for a fixed period runs until a specified date, such as six months or two years. In addition, there are employment relationships that are by nature limited in time, such as apprenticeships or internships.

Is a fixed-term employment contract valid even if it was concluded orally?

A time limit may not be formulated orally. The time limit must be set out in writing, otherwise an open-ended employment relationship is concluded. This must be signed by both parties – an e-mail, docusign or a scan are not sufficient. The employee and employer must sign before the employment relationship begins. Unlike the time limit, an employment contract can also be agreed orally.

What can you do about a fixed-term contract?

If you wish to take action against the fixed term of your employment contract, you can file what is known as an action for removal of the time limit. This action aims to have the legality of the time limit reviewed by a court and, if successful, to achieve a conversion into a permanent employment relationship. It is important to observe the legal deadlines and to file the action in good time. A lawyer specialising in employment can help you assess your chances of success and take the necessary steps.

Do you have a right to holiday when you have a fixed-term contract?

In principle, you are also entitled to holiday when you have a fixed-term contract. This applies to both full-time and part-time employees. When there is a time limit, the holiday entitlement depends on the duration of the employment relationship. As a rule, this is calculated on a pro-rata basis.

Can you be employed on a temporary contract twice in a row without good cause?

In principle, an employee may not be re-employed on a temporary contract without good cause if they have previously worked for the same company. It does not matter whether it was a previous permanent position, a part-time job or a temporary job. An exception applies if the previous employment was a very long time ago, lasts only a few days or the new job is very different from the previous one. In addition, an unfounded time limit is permitted after an apprenticeship or a traineeship, as this does not count as a previous employment relationship.

How long can you have a fixed-term employment contract?

In principle, an employment contract without an objective reason may not be limited to more than two years. If the time limit is nevertheless longer, it is ineffective and the contract is automatically considered to be unlimited. However, there are exceptions, for example, if a collective agreement allows longer deadlines or the company has been newly established. A longer time limit without cause may also be permissible under certain conditions for older employees aged 52 and over.

What special features can there be in a fixed-term employment contract?

A fixed-term employment contract can automatically become permanent in certain situations. This occurs if it was only agreed orally or if an extension is incorrectly carried out. Furthermore, a contract without cause may not last longer than two years, and changes during an extension can be problematic. Termination is not normally necessary because the contract ends automatically, unless ordinary termination is expressly permitted or there is good cause for extraordinary termination. In addition, pregnant women have special protection against dismissal. A specialist in employment law can help employees with uncertainties.

What notice periods apply to a fixed-term employment contract?

A fixed-term employment contract ends automatically, so there is no ordinary termination. As a rule, there is no notice period at all. There are exceptions if there are contractual agreements or a probationary period has been agreed. In this case, the notice period is at least two weeks.

Exceptions may arise from contractual agreements or a probationary period. In this case, there is a notice period of two weeks.

You can find more information about terminating a fixed-term employment contract here.