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Germany: German Federal Labour Court changes its case law: the limitation of an employment agreement not based on objective grounds is generally invalid if the employee has ever been employed by the same employer before

In the case before the Federal Labour Court in January 2019, the plaintiff had been employed by the defendant for a period of one and a half years in 2004. Eight years later, the defendant rehired the plaintiff. The employment agreement provided that it shall be concluded for a fixed term of a bit more than six months. The fixed term was not justified on objective grounds and was extended several times through agreements between the parties, to a total duration of two years. The employee filed a lawsuit against the employer as he was of the opinion that the employment relationship had not automatically ended after the duration of two years despite the fixed term.

The lawsuit was successful. The Federal Labour Court ruled that the fixed term was invalid, with the consequence that the employment was deemed to have been concluded for an unlimited period of time.

Under German law, fixed term employment agreements are valid if the fixed term is justified by objective grounds stipulated in the law, e.g. if the operational need for the work involved is only temporary or the employee is hired to fill in for another employee (e.g. for times of parental leave). Where no such objective grounds exist, a fixed term is only permissible for a total duration of two years, with a maximum of three extensions during that time. However, the law provides that a fixed term without objective grounds is not permissible in cases where a fixed or unlimited term employment relationship had previously existed between the employee and the same employer. The term “previously” is not defined in the law. The Federal Labour Court used to interpret the term in a way that only previous employment relationships that existed between the parties within the past three years before the conclusion of the new fixed term hinder the validity of a fixed term without objective grounds. Applying this case law to the case at hand, the employee’s lawsuit would not have been successful, as the previous employment relationship ended eight years before the conclusion of the new fixed term employment agreement.

However, the German Federal Constitution Court has ruled in June 2018 that the interpretation of the German Federal Labour Court whereas only employment relationships in the past three years have to be considered when reviewing the validity of a fixed term without objective grounds in unconstitutional, as the wording of the law does not provide for any such restriction. Therefore, the Federal Labour Court had to adjust its case law taking into account the view of the Federal Constitution Court. In consequence, the Federal Labour Court ruled that generally any previous employment relationship precludes the valid conclusion of a fixed term employment agreement not based on objective grounds between the same parties. The Federal Labour Court did say that there is some room for exceptions, for example in cases where the previous employment was very long ago, of a completely different nature or of a very short duration. However, the requirements that need to be fulfilled in order for one of these exceptions to apply are completely unclear at the moment. The latest verdict at least shows that a break of eight years between the two employment relationships does not qualify as „very long“.

In practice, employers should ensure that applicants who shall be hired on the basis of a fixed term employment agreement without objective grounds justifying the fixed term have not previously worked within their company based on an employment agreement.  If such previous employment exists, the risk is very high under the new case law of the Federal Labour Court that any further fixed term agreed without objective grounds would be deemed invalid if challenged by the employee. An invalid fixed term leads to an employment relationship for an indefinite period.