German Employment Contracts

Formation of Employment Contracts

German employment law is governed by a combination of statutory law, case law, collective agreements (Tarifvertrage), and works agreements (Betriebsvereinbarungen). There is no single codified labour code; the principal statutes include the BGB (Sections 611-630), the Commercial Code (HGB), the Protection Against Unfair Dismissal Act (Kundigungsschutzgesetz, KSchG), the Working Hours Act (Arbeitszeitgesetz, ArbZG), and the Federal Holiday Entitlement Act (Bundesurlaubsgesetz, BUrlG).

Formation of the employment contract (Arbeitsvertrag) is governed by the general BGB contract rules. The contract is concluded by offer and acceptance. Form requirements: the employment contract is generally not required to be in writing, though the Proof of Employment Conditions Act (Nachweisgesetz, NachwG) requires the employer to provide a written statement of essential terms within one month of the start of employment (Section 2 NachwG). The written statement must include: name and address of the parties, date of commencement, job description, place of work, working hours, holiday entitlement, notice periods, composition of remuneration, and the applicable collective agreement or works agreement.

Pre-employment inquiries (Fragerecht des Arbeitgebers): the employer may ask only questions that are objectively justified by the employment relationship. Questions about pregnancy, trade union membership, political views, and religious beliefs are generally prohibited. The employee may answer untruthfully to prohibited questions without risk of later dismissal for dishonesty.

Fixed-Term and Part-Time Employment

The Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz, TzBfG) governs fixed-term contracts and part-time work. Fixed-term contracts (befristete Arbeitsvertrage) are permitted if: (1) there is an objective justification (sachlicher Grund, Section 14(1) TzBfG), e.g. temporary replacement, project-based work, probation, or the nature of the work; or (2) the term is limited to two years without objective justification (Section 14(2) TzBfG), for new hires only (no renewal of previous employment). Fixed-term contracts may be renewed up to three times within the two-year maximum.

Part-time work (Teilzeitarbeit): under Section 8 TzBfG, employees with at least six months’ seniority have the right to reduce their working hours. The employer may refuse only on operational grounds. The employee may also request a return to full-time hours. The employer must give preferential consideration to part-time requests in filling vacancies.

Employer’s Duties

The employer’s principal duties under the employment contract include:

• Remuneration (Vergutung): the employer must pay the agreed salary or wage. The statutory minimum wage (Mindestlohn) is set by the Minimum Wage Commission and currently stands at EUR 12.41 per hour (2024). Higher minimum wages apply in certain sectors through collective agreements.
• Holiday: the employee is entitled to at least 24 working days of paid holiday per year (six-day week) under Section 3 BUrlG, with full pay during holiday. The holiday must be taken in the calendar year unless postponed for operational or personal reasons.
• Sick pay (Entgeltfortzahlung): under the Continued Remuneration Act (Entgeltfortzahlungsgesetz, EFZG), the employer must continue paying full salary for up to six weeks during illness. After six weeks, the employee receives statutory sick pay (Krankengeld) from the health insurance fund.
• Protection of personality: the employer must respect the employee’s personality rights, including data protection, and must safeguard the employee’s health and safety under the Occupational Health and Safety Act (Arbeitsschutzgesetz).
• Equal treatment: the employer must not discriminate on grounds of protected characteristics (Section 1 AGG).

Employee’s Duties

The employee’s duties include:

• Work performance: the employee must perform the agreed work in person, with due care and diligence
• Loyalty (Treuepflicht): the employee must act in the employer’s interests, avoid conflicts of interest, and refrain from competitive activity during employment
• Confidentiality: the employee must not disclose business secrets or confidential information (also protected under the Trade Secrets Act, GeschGehG)
• Non-competition: during employment, the employee may not engage in competitive business activities. Post-employment non-compete clauses (nachvertragliches Wettbewerbsverbot) are enforceable only if the employee receives compensation of at least 50 per cent of the last annual salary (Sections 74-75a HGB)

Termination of Employment (Kundigung)

Termination may occur by: (1) ordinary dismissal (ordentliche Kundigung) with notice; (2) extraordinary dismissal (ausserordentliche Kundigung, Section 626 BGB) for cause without notice; (3) mutual agreement (Aufhebungsvertrag); or (4) expiry of a fixed-term contract.

Notice periods (Kundigungsfristen) under Section 622 BGB: during the probationary period (maximum six months), notice is two weeks. After probation, the statutory notice period for the employer is four weeks to the 15th or to the end of a calendar month. The period increases with length of service: two months for two years, three months for five years, four months for eight years, five months for ten years, six months for twelve years, and seven months for fifteen years. The employee may terminate with four weeks’ notice regardless of seniority. Collective agreements may modify notice periods.

Protection Against Unfair Dismissal (KSchG)

The Protection Against Unfair Dismissal Act (Kundigungsschutzgesetz, KSchG) applies to establishments with more than ten employees (Section 23 KSchG, full-time equivalent basis) and to employees with at least six months’ continuous service. The KSchG requires that dismissals be socially justified (sozial gerechtfertigt).

A dismissal is socially justified under Sections 1(2)-(3) KSchG if it is based on:

• Personal reasons (personenbedingte Kundigung): the employee lacks the personal capacity or ability to perform the work, e.g. long-term illness, lack of required qualifications
• Behavioural reasons (verhaltensbedingte Kundigung): the employee has breached contractual duties, e.g. persistent lateness, refusal to work, theft. A prior warning is generally required
• Operational reasons (betriebsbedingte Kundigung): the employer’s business decisions necessitate redundancies. The employer must select the employee to be dismissed based on social selection (Sozialauswahl), considering length of service, age, maintenance obligations, and disability. Section 1(3) KSchG requires the employer to balance operational needs against social hardship

An employee who receives notice of dismissal must bring an action before the Labour Court (Arbeitsgericht) within three weeks of receiving the notice (Section 4 KSchG). Failure to file within this period renders the dismissal valid even if it was unjustified. If the court finds the dismissal socially unjustified, the employment relationship continues. The employer may request the court to dissolve the employment relationship if continued cooperation cannot reasonably be expected, subject to a severance payment (Abfindung) calculated as up to one month’s salary per year of service (Section 10 KSchG).

Extraordinary dismissal (Section 626 BGB) permits termination without notice for “good cause” (wichtiger Grund) where the party giving notice cannot reasonably be expected to continue the employment relationship until the expiry of the notice period. The dismissing party must give notice within two weeks of becoming aware of the facts constituting cause. The BAG has developed a comprehensive case law on what constitutes good cause, including criminal acts, gross insubordination, serious breach of trust, and repeated unexcused absence.