Under section 14(1) of TzBfG, fixed-term employment contracts are permissible for up to two years where no objective reason exists for a time-limited employment contract. All periods of that employee’s fixed-term employment without an objective reason must be added together for the purposes of calculating the two-year period.
Employers cannot enter into a fixed-term contract without an objective reason with an employee previously employed by the business on a permanent employment contract. A fixed-term employment contract can only be renewed beyond the two-year period where an objective reason under section 14(1) exists for doing so.
Potential models for flexible working
The different models for flexible working available under the German legal framework bring with them different advantages and disadvantages in terms of administrative burdens and costs.
Unlimited vacation/paid time off policies
The statutory minimum entitlement to paid time off (PTO) in Germany is 20 days each year, based on a five day working week. The Federal Vacation Act only regulates this statutory minimum entitlement to PTO and not any additional, or ‘confidential’, leave.
Confidential leave is not legally defined in Germany. The idea is that employees can decide on their own number of vacation days independently, if and as long as the completion of contracted work is guaranteed. From a labour rights point of view, the employee’s statutory minimum entitlement continues to be govered by the Federal Vacation Act. Employers and employees are free to regulate any additional leave entitlement beyond the statutory minimum in individual contracts.
Careful drafting of the employment contract is recommended to ensure the difference in treatment between minimum and additional leave entitlement is maintained. Employers considering ‘unlimited’ PTO policies may also wish to consider making contractual provision for:
- forfeiture of additional untaken leave at the end of the year;
- compensation or no compensation for periods of confidential leave;
- whether any limits on the policy should be reflected in the contract to avoid excessive claims;
- any derogations during an employee’s notice period, or where notice of termination has been given;
- a carve-out for employees on long-term sick leave;
- tying entitlement to additional leave to a certain length of service, or to successful completion of a probationary period or waiting period under section 1(1) of the Dismissal Protection Act (Kündigungsschutzgesetz);
- reservation of the right to revoke the policy at any time.
Sabbaticals
A sabbatical from work is generally understood to be an extended break in an existing employment relationship from which the employee subsequently returns, usually of between three and 12 months in length. However, there is no legal definition of a sabbatical in Germany.
Without a standard legal definition, sabbatical arrangements can take several forms:
- agreement to terminate the employment contract with the promise of reemployment at the end of the sabbatical period;
- a period of unpaid leave;
- accumulation of employee working time credits under the German working time laws.
Not all of these arrangements must be recorded in writing, but this is recommended to define and protect the rights of both the employer and the employee. Employers may also wish to consider making contractual provision for the employee’s social security protection employments to continue during the sabbatical period.
Four-day working week
The idea of a four-day working week has been much debated in the context of the global ‘race for talent’. Again, there is no single way in which this is being implemented, although the legal framework in Germany places some limits on the use of the different models available.
- four working days of eight hours (32 hour week) on 4/5 salary – TzBfG right to unlimited or limited part-time work where certain legal conditions are met applies;
- four working days of 10 hours (40 hour week) on full salary, or ‘compressed hours’ – as regular daily working time, this goes against the intention of the German legislator and would be prohibited. Under section 3 of the Hours of Work Act (ArbzG), working time per working day may not exceed eight hours, although 10 hour days are permitted provided that the average working day over a six-month period does not exceed eight hours;
- four working days of eight hours (32 hour week) on full salary – permitted under German labour law, but an economic question for employers as well as an administrative one, as schedule adaptation will be required to ensure sufficient work cover. Employers will be keen to ensure that the increase in employee productivity and performance offsets the economic cost.
