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March 14 2018
Maximum duration of successive fixed-term employment contracts
Substantial restrictions for fixed-term contracts
Entitlement to part-time work for limited period
Strengthening of works councils
More flexible working hours and mobile work
Facilitation of termination for financial institutions
No amendments to Temporary Employment Act
Simplification of status determination procedure for freelancers
Adjustment of non-wage labour costs
On February 7 2018 those involved in the talks on behalf of the Christian Democratic Union of Germany (CDU), the Christian Social Union in Bavaria (CSU) and the Social Democratic Party of Germany (SPD) successfully concluded negotiations for a new grand coalition. In addition to general platform statements, the 177-page coalition agreement also contains very specific proposals for changes to labour law.
The parties have agreed that it should no longer be permissible to conclude fixed-term contracts with an objective reason if the employee has previously had an employment relationship without a fixed term or one or more fixed-term employment relationships with the same employer with a total duration of five or more years. Work performed by this employee as a temporary employee through different temporary work agencies should be included in the calculation of the maximum duration. A new fixed-term employment relationship with the same employer, after the maximum duration of the fixed-term employment has been reached, should be possible only after a three-year waiting period. There is no such waiting period for fixed-term employment relationships based on an objective reason under the law.
The Act on Part-Time Work and Fixed-Term Contracts provides for no such maximum duration for fixed-term employment. However, based on the principles relating to the institutional abuse of rights, the Federal Labour Court assumes that a fixed-term contract is invalid if the limits specified under Section 14 (2)(1) of the act(1) (two years, three extensions) are exceeded alternatively or, in particular, cumulatively to a particularly grave extent. This can be assumed to be the case if, for example, 13 fixed-term employment contracts are concluded within 11 years. However, according to the Federal Labour Court, no abuse of rights is to be assumed when four fixed-term contracts are concluded within seven years.
The coalition partners want to take drastic measures with regard to fixed-term contracts with no objective reasons for the fixed term. Although no provisions in this regard were included in the results of the exploratory talks, the coalition agreement provides that employers with more than 75 employees may have fixed-term contracts for no objective reason with a maximum of 2.5% of their employees. Exceeding this percentage results in each additional fixed-term contract for no objective reason being deemed a contract of indefinite duration. For example, an employer with 200 employees would be permitted to have only five employees with fixed-term contracts without objective reasons. Because the term 'employers' is used in the coalition agreement, there is likely to be little hope that the threshold of 75 employees is to be determined on the basis of a single business unit.
Should such a regulation be adopted during the next legislative period (which is likely), this would de facto be an elimination of fixed-term contracts without objective reasons for larger undertakings. Fixed-term contracts without objective reasons are used most often when first-time employees are newly hired. Almost every second newly hired employee which is subject to social security payments has a fixed-term contract initially, half of which are fixed-term contracts without an objective reason. Undertakings also like to use the instrument of fixed-term employment for no objective reason to cope with seasonal and temporary order peaks. In future, only undertakings with up to 75 employees will profit from the flexibility of fixed-term contracts without objective reasons.
Against this background, the change in the maximum duration for fixed-term contracts without objective reasons could almost be considered a marginal note. In future, fixed-term contracts without objective reasons should be permissible for 18 months with only one extension. Under the existing law, a fixed-term contract without an objective reason can be extended three times and is permissible for a total duration of two years (Section 14(2)(1) of the act). There is an exception for start-up undertakings, which may extend such contracts several times up to a duration of four years (Section 14(2a)). It cannot be inferred from the coalition agreement that this exception is supposed to be eliminated.
Against the background of these plans, employees will have to give up significant flexibility with regard to the filling of positions. For larger employers, this will probably lead to having to refrain in some cases from hiring (new) employees after they have reached their quota for fixed-term contracts without objective reasons. Any additional work needed would have to be performed by permanent employees, who would accumulate overtime. Alternatively, employees could fall back on the second-best instrument for increasing flexibility after fixed-term employment contracts: temporary agency work. Employers may also possibly run the risk of in-court actions to control fixed-term contracts and continue to conclude fixed-term contracts without objective reasons. Ultimately, what the statutory regulation will specifically look like remains to be seen.
The coalition agreement also refers to the bill on the enhancement of the entitlement to part-time work that failed to be passed in May 2017. The coalition agreement contains significant differences from the result of the exploratory talks in this respect.
According to the bill, employees may demand a reduction of their working hours stipulated in their contracts for a period determined in advance if they have been employed for more than six months. Unlike in the bill (15 employees), according to the coalition agreement, the employer must have more than a total of 45 employees on a regular basis.
According to the coalition agreement, employers with between 46 and 200 employees must allow only one employee in 15 to work part time for a limited period. Applications for part-time work exceeding this quota can be refused as not reasonably acceptable (limit of reasonableness). While it is not explained in the coalition, it will be based on a 'first come, first served' principle. The employer may also refuse the request if it is for less than one year or more than five years. According to the coalition agreement, there should be no entitlement to increase or reduce working hours during the fixed-term part-time employment (Section 8 of the act).(2) After the end of the fixed-term part-time employment, the employee may request another reduction of working hours after one year at the earliest.
According to the existing law (Section 8), employees are entitled only to a long-term reduction of their working hours. A right to return to the previous working hours is not provided for. Section 9 of the act(3) provides only that employers must give an equally qualified part-time employee preferential consideration when filling a vacant position. However, if there is no vacant position, the employee cannot demand that his or her working hours should be increased.
The parties intend to strengthen works councils' general right of initiative regarding continued education and advanced training. Employers and works councils should confer on vocational training measures. If the parties to the employment contract cannot agree on an arrangement, a moderator can be used to help reach an agreement. It is not intended that there should be an obligation to reach an agreement. This is apparently not supposed to be an area in which the works council can enforce a codetermination right and in which a conciliation committee can decide instead of the employer and works council.
The coalition partners also intend to make a simplified procedure for the election of works council members mandatory for all establishments with between five and 100 employees. Establishments with between 101 and 200 employees with voting rights should be able to choose between the simplified and general election procedure. What the simplified procedure should look like is not disclosed in the coalition agreement. In particular, the question arises as to whether the election of the works council members can also be carried out online, which has not been possible to date.
With regards to cross-border relocations of companies' domiciles, the grand coalition also wants to ensure that national regulations regarding codetermination must be heeded.
The parties want to implement an opening clause in the Working Hours Act in order to make working hours more flexible. The intention is to:
In the area of mobile work, the parties intend to give employees the right to demand that their employers inform them of their reasons for refusing a request for mobile work. This makes it impossible for an employer to refuse a request for mobile work arbitrarily. However, it establishes no general statutory entitlement to mobile work. It will only be specified in the statute to be enacted what the coalition agreement means by 'mobile work'. It thus remains to be seen how the legislature intends to regulate the entitlement to information and whether it will open any legal means of appeal against the decision for employees in the event of an arbitrary refusal by the employer.
In light of the increase in on-call work, the parties intend to enhance the planning and income security of this form of work. In doing so, the goal is that at most 20% fewer and 25% more than the agreed minimum working hours may be worked. If the parties to the employment contract stipulate no weekly minimum working hours for the employee, a weekly working time of 20 hours applies. This deviates from the existing legal situation, according to which if nothing is stipulated in the employment contract, a weekly working time of 10 hours applies (Section 12(1)).(4) In addition, the coalition wants to create clarifying rules for the continued payment of remuneration during illness. The basis for this is supposed to be average earnings over the past three months. Employees currently receive continued payment of remuneration during illness pursuant to Section 3(1) of the Continued Payment of Wages and Salary Act(5) without problems if the employer had already requested the work from the employee. To date, it has been unclear how the amount of the continued payment of remuneration during illness should be calculated if the employer has not yet assigned work to the employee. A revision will help to create more clarity for the continued payment of remuneration in on-call employment relationships.
In order to make Germany more attractive for financial institutions after the United Kingdom's upcoming withdrawal from the European Union, the parties intend to put special employees (risk carriers in terms of Section 2(8) of the Regulation Concerning Regulatory Requirements for Remuneration Systems of Banks and Financial Services Institutions) with a base remuneration of more than three times the income limit for the assessment of contributions to the federal pension insurance (approximately €234,000 in western Germany and €208,800 in eastern Germany) in the same position as executive employees under the Act on Protection Against Unfair Dismissal. According to Section 14(2)(2) of this act,(5) the consequences will be that the employer's request to dissolve the employment relationship in litigation regarding unfair dismissal will not require justification. The purpose of the request for dissolution pursuant to Section 9(1)(3) of the act(6) is to enable the employer to terminate the employment relationship, even when the court considers the notice of termination invalid.
The coalition agreement does not provide for any changes to the Temporary Employment Act. Although intended otherwise during the exploratory talks, the evaluation is now planned to take place in 2020.
It is provided for under the coalition agreement that the parties wish to simplify the status determination procedure and reorganise it consistently between the different social security branches. The purpose of the status determination procedure pursuant to Section 7a of the Social Security Code IV(7) is for the Federal Pension Insurance Office to clarify whether a person working for an undertaking is a freelancer or an employee and thus employed subject to social security payments.
As discussed during the exploratory talks, the parity of health insurance payments is supposed to be restored during the next legislative period. In addition, the unemployment insurance payments are expected to be reduced from 3% to 2.7%. Moreover, the parties intend to eliminate the solidarity payments step-by-step as of 2021.
As the 460,000 SPD party members voted for the grand coalition on May 4 2018, the government is now ready to start work. It remains to be seen how the federal government concretely will realise its plans according to the coalition agreement.
For further information on this topic please contact Alexander Janik at CMS Hasche Sigle by telephone (+49 89 23807 264) or email (email@example.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
(1) See https://dejure.org/gesetze/TzBfG/14.html?_sm_au_=iVV7FrHTW7vNqS75 (in German).
(2) See https://dejure.org/gesetze/TzBfG/8.html?_sm_au_=iVVSfrg7j7rkN7vf (in German).
(3) See https://dejure.org/gesetze/TzBfG/9.html?_sm_au_=iVVSfrg7j7rkN7vf (in German).
(4) See https://dejure.org/gesetze/TzBfG/12.html?_sm_au_=iVVSfrg7j7rkN7vf (in German).
(5) See https://dejure.org/gesetze/KSchG/14.html?_sm_au_=iVVSfrg7j7rkN7vf (in German).
(6) See https://dejure.org/gesetze/KSchG/9.html?_sm_au_=iVVSfrg7j7rkN7vf (in German).
(7) See https://dejure.org/gesetze/SGB_IV/7a.html?_sm_au_=iVVSfrg7j7rkN7vf (in German).
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