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Employment contracts in Germany

As you embark on your international expansion journey in Germany, it is essential to ensure compliance with labour laws and regulations. This involves following standard employment contract policies and understanding best practices to proactively address legal and financial risks.

In this detailed guide, we will provide the knowledge and insights you need to draft compliant employment contracts in Germany. Covering various topics such as contract extensions, types of employment contracts, and remote work considerations, we have the necessary information for you to expand your operations with confidence and ease. 

Employment policies in Germany

Employment contracts

In Germany, written employment contracts are not strictly mandatory, but they are highly recommended. According to German labour law, an employer is required to provide the main terms of employment in writing within one month of the employee starting work. This is typically done through a written employment contract.This requirement applies to both indefinite and fixed-term contracts.

The employment contract should include essential details such as the employee’s duties, working hours, compensation and benefits, termination notice period, and procedures for resolving disputes.

Additionally, it is not mandatory for the employment contract to be written in a language that the employee understands. However, the employee should have sufficient time to have the contract translated before signing it. It is also advisable for employees to request a copy of the signed contract for their records.

Employment policies in Germany

The recent amendments to the Evidence Act (Nachweisgesetz) (NachwG) enable companies in Germany to use digital methods to handle employment contracts. The federal government agreed to let companies use digital “text form” to create employment contracts, not just the traditional written or paper contracts. This means employers can start using digital contracts when hiring workers in Germany, a shift to make the process more accessible for employers and employees.

In Germany, when it comes to contract policies, there are no mandatory requirements in place. However, the presence of a works council can significantly impact the landscape. In companies with a works council, work agreements often take precedence over written policies. Conversely, in the absence of a work council, companies commonly utilise policies, but these must align with standard contract term provisions. This ensures that policies cannot be altered unilaterally in a way that harms the workforce, providing a layer of protection for employees.

Probationary periods

The probationary period, known as “Probezeit,” can last for up to six months of employment in Germany. However, the duration of the probationary period may vary depending on the specific circumstances. In some cases, the probationary period may be longer or shorter, and there are rare instances where employers may choose to forego probation altogether.

Typically, the notice period during probation is two weeks. However, during the probationary period, termination of employment can occur with shorter notice periods compared to regular employment. The specific notice period may vary depending on the terms stated in the employment contract. Employers in Germany can also terminate employment without notice or justification if the employee is deemed unsuitable for the position.

Third-party approval

There is no obligation to submit employment contracts or policies for review or approval by any external entity. Yet, if a works council is established within the organisation, it holds the authority to voice objections to certain aspects of employment, thereby protecting employee interests within the given framework.

It is important to understand these employment policies to ensure compliance with labour laws and regulations and avoid potential legal issues when expanding your operations in Germany.

Standard contract terms act in Germany

Companies hiring workers in Germany must not offer conditions in the employment contract that are less favourable than the minimum legal rights defined in the labour laws or through a relevant collective agreement.

In addition, the use of standard terms in legal agreements is governed by the Standard Contract Terms Act or “Allgemeine Geschäftsbedingungen” (AGBs). This act addresses the handling of standard form contracts and stipulates regulations to protect parties from the application of unfair terms within these standard contracts. It also underscores the concern for fairness and equity within contractual relationships.

To ensure compliance, employers in Germany must consider the following:

  • Disclosure of essential terms: Companies in Germany are required to provide employees with essential terms and conditions of the employment relationship. This includes details such as working hours, compensation, benefits, and any other vital aspects of the contract.
  • Specify non-detrimental clauses: The Act requires that standard contract terms be fair and not detrimental to the workforce. Any clauses that could potentially disadvantage employees are not permissible under this legislation.
  • Ensure compliance with new contract notification obligations: Changes in the Standard Contract Terms Act may introduce new contract notification obligations for employers to provide additional information to employees about essential terms and conditions.

What is limited-term employment contracts in Germany?

A limited-term employment contract (befristeter Arbeitsvertrag), also known as fixed-term contract, is a type of work agreement where the duration of employment is specified for a certain period, typically up to two years.

Such contracts must be executed in writing as mandated by Section 14 paragraph 4 of the Teilzeit- und Befristungsgesetz (TzBfG), the Act on Part-Time Work and Fixed-Term Contracts and must comply with the requirements of the German Civil Code. These contracts can be extended up to three times within the first 18 months, allowing for a maximum total employment duration of up to four and a half years.

Contract extension in Germany

Employers in Germany must ensure that any contract extension complies with relevant labour laws and regulations, such as the German Civil Code (Bürgerliches Gesetzbuch or BGB) and the Act on Part-Time Work and Fixed-Term Employment (Teilzeit- und Befristungsgesetz or TzBfG). For example, contact extensions should adhere to legal limitations for the maximum duration of fixed-term contracts and the number of permissible contract extensions as stated in the Act on Part-Time Work and Fixed-Term Employment.

If you are planning to extend contracts with your employees, it is recommended to initiate discussions well in advance of the contract expiration to explore their interest in an extension. Discuss the terms and conditions of the extension, including any changes to salary, benefits, working hours, or other relevant aspects. Once both parties agree to the extension, document the details in a written contract addendum, which includes the extension period, revised terms and conditions, and any other relevant modifications. Both parties should sign the addendum and keep it on file for future reference.

Fixed-term contracts in Germany

When opting for a fixed-term contract, employers in Germany should keep in mind that the terms and conditions under the contract must not provide for lesser rights and benefits than those specified in the applicable employment laws or collective agreements. Employees under limited-term or fixed-term contracts are entitled to certain protections and benefits. When drafting and executing such contracts, employers must ensure compliance with these legal requirements.

Act on part-time and fixed-term contracts in Germany

The law governing fixed-term contracts in Germany is the Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz; “TzBfG”). The act also regulates the duration of employment contracts in Germany. Under this law, the default arrangement for employment contracts is for an unlimited period. However, it is possible to establish a fixed-term contract, provided that the term is clearly outlined in writing before employment commences.

The Act also mandates the execution of fixed-term contracts in writing. It can be extended up to three times within the first 18 months under certain conditions. For instance, a fixed-term employment contract can only be renewed beyond the initial two-year period if there is an objective reason, as defined in Section 14 of the Act on Part-Time Work and Fixed-Term Contracts. Employers in Germany must adhere to the legal limitation prescribed by the Act on part-time and fixed-term employment, such as the allowed number of contract extensions and the maximum duration of fixed-term contracts.

Termination of fixed-term contracts in Germany

In the event of the termination of fixed-term contracts, employers in Germany must consider the following factors:

  • Expiration of contracts: When a fixed-term contract reaches its agreed-upon end date, it will automatically terminate, and no further action from employers is required.
  • Notice period: If the contract includes provisions for termination before the agreed-upon end date, the notice period should be adhered to. The notice period is typically four weeks, counted from the 15th or the last day of a calendar month, as stated in the German Civil Code (BGB). However, the length of the notice period may vary depending on the seniority of the employee.
  • Valid reasons for termination: If the employer wishes to terminate a fixed-term contract before its expiry date without a valid reason, it may only be extended a maximum of three times and should not exceed a total duration of two years, as specified under the Act.

Germany working hours

The standard working hours in Germany is 40 hours per week, with an average of 8 working hours per day. According to the German Arbeitszeitgesetz (Working Time Act), employees in Germany are not allowed to work more than 48 hours per week, 10 hours per day if within six months or 24 weeks. The overall average working time should not exceed 8 hours per day.

On the other hand, part-time employment is common in Germany. The average working hours for part-time employees are around 20.1 hours per week.

Overtime in Germany

Overtime work should be aligned to the maximum working hours stipulated within the employee contract or collective agreement.

The following are the two common types of overtime in Germany:

  1. Mehrarbeit: This refers to working time that exceeds the maximum limit of 48 working hours per week (8 working hours per day across a 6-day working week), as set out in the Working Hours Act. It allows for an extension of up to 10 working hours per day if the employee’s total working hours average 8 hours per day over six months.
  2. Überstunden: This means any hours worked beyond the contractually agreed hours are legally permissible and must normally be compensated.

In Germany, there is no statutory mandate for overtime compensation. However, employers are required to document all employee overtime hours, as well as hours worked on public holidays and Sundays. The compensation for overtime is typically negotiated through collective bargaining agreements or individual employment contracts. The rates and conditions for overtime pay can vary depending on these agreements and the specific circumstances of employment.

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Remote work Germany

There is no specific legislation in Germany that regulates remote work or work from home arrangements. This means that employees have the freedom to make such a request at any time, and it is ultimately up to the employer to decide whether to grant it or not. If the employer chooses to reject the request, there is no formal procedure or set deadlines that they must adhere to, and they are not required to provide a justification for their refusal.

Even though there is no dedicated remote work law in Germany, many companies in the country are already offering their employees some degree of flexibility to work from home. It is common practice to include an additional agreement outlining the terms and conditions of remote work as an annex to the employment contract. This ensures clarity and mutual understanding between the employer and employee regarding remote work arrangements.

Meanwhile, the German government is in the process of creating a legal regulation called the Mobile Work Act (Mobile-Arbeit-Gesetz). If approve, this law in Germany would grant employees a legal right to work from home whenever possible. The Mobile Work Act is currently under review by individual federal ministries.

Remote work visa in Germany

You can work remotely in Germany as long as you comply with residence and work permit restrictions. The freelance visa and self-employed visa are types of residence permits in Germany that can cater to the needs of remote workers, digital nomads, and freelancers. These permits allow individuals to live and work in Germany while engaging in self-employed or freelance work.

  • Freelance visa: Also known as the “Freiberufler” visa, this is suitable for individuals who have a profession or occupation that contributes positively to German culture and economy, such as artists, writers, doctors, engineers, language teachers, auditors, interpreters, etc. It requires demonstrating professional qualifications, a viable business plan, and sufficient funds to support oneself during the stay in Germany.
  • Self-employed visa: Also known as the “Selbständiger” visa, this is for individuals who plan to start their own business or engage in self-employment in Germany. This visa is suitable for entrepreneurs who want to establish and operate their own businesses, contributing to the German economy.

International expansion made easy with CXC

At CXC, we understand the challenges that come with expanding globally. Our comprehensive Employer of Record (EOR) solution enables you to hire the best talent quickly and compliantly, wherever they are. Leveraging our 30 years of experience in the global employment space, we can help you manage the HR and administrative tasks associated with global hiring, such as drafting compliant employment contracts for your global workforce. With the expertise and support of our team, you can now focus on what you do best: growing your business. Get in touch with us today and we will guide you every step of the way.

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