When starting an enterprise, many steps need to be taken: selecting the business form, registration, opening a business account. For many founders, the recruitment of employees is also on top of their to-do list. There are good reasons why employees mostly wish to get a permanent employment contract. However, permanent contracts may not always be a feasible option for a young enterprise immediately after its foundation. The German legislator wants to support start-ups in the initial phase by allowing them to conclude special fixed-term contracts right after their foundation.
Fixed-term contracts without reason permitted during the first four years
According to the German Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz), during the first four years after its foundation, an enterprise may conclude fixed-term employment contracts for a period of up to four years without any substantive reason. The company may even renew such fixed-term employment contracts for up to a total period of four years. An existing enterprise, on the other hand, may conclude fixed-term employment contracts without reason for two years only.
Advantages of fixed-term contracts for enterprises
One advantage of fixed-term contracts is that the employment relationship automatically ends upon expiry of the time period. As no dismissal is required, no regulations on employment protection need to be observed. In practice, this may be a considerable advantage for enterprises, e.g. when additional employees are required for temporary projects only.
In this context, “enterprise” is meant to include individuals, private companies (Gesellschaften des bürgerlichen Rechts), partnerships (OHG, KG), and corporate entities (GmbH, AG, etc.).
Fixed-term contracts possible even after four-year period
As the more favorable conditions for concluding fixed-term contracts apply during the whole period of four years after the foundation of an enterprise, an employer may conclude the first fixed-term contract at any time, even on the last day, of the four-year period. This is permitted even if the term of the contract to be concluded exceeds the four-year limit after foundation.
More favorable conditions do not apply in case of reorganizations
The extended period for concluding fixed-term contracts does not apply to new foundations in connection with a legal reorganization of an enterprise or group.
The more favorable conditions for concluding fixed-term contracts may be used, however, if a newly founded enterprise takes over an organization that has been existing for a longer period of time by way of a transfer of business.
Our attorneys specializing in German labor law will be pleased to advise you on all aspects of employment contracts and fixed-term employments.