Working Life > Labour Law > Work Contract

Employment Contract: Basis of the Employment Relationship

Definition, Explanation

After successful application or recruitment, an employment contract is concluded. The contract defines the working conditions and lays the foundation of a long term collaboration. German labour law classifies employment contracts as so-called service contracts (Dienstvertrag, acc. to §§ 611 ff. BGB).

In an employment contract, the rights and duties of the employment relationship are defined. They include statements about the kind of work performed, income, vacation, dismissal / cancellation, and working hours. Often, collective agreements and company agreements are the basis of, or regulate employment contracts. The order of precedence is: Basic Law, Law, collective agreements, company agreements, individual contracts. I.e. the individual contract must not violate the regulations of e.g. company agreements. If it does, the collective agreement will overrule the employment contract which will then be invalid.

Kinds of employment contracts:

• Open-ended employment contract
• Fixed-term employment contract
• Project-bound employment contract
• Part-time employment contract
• Temporary employment contract
• Employment contract for a so-called marginal employee, or mini-jobber (=400 Euro Job)
• Contract with a freelancer
• Internship contract

Contents of an employment contract – Must:

• Names and addresses of employee and employer
• Starting date of the employment, for fixed-term contracts also duration
• Place of work, and potential employment at other places
• Definition of the function and description of the activity
• Working hours
• Income and special payments / bonuses and respective conditions
• Vacation
• Restraints on competition for the time after the employment relationship has ended
• Dismissal / cancellation periods
• Place and date of contract conclusion
• Signatures of employee and employer

Contents of an employment contract – Optional:

• Declarations on open-ended employment relationship and probation period
• Overtime regulation
• Note on continued payment of wage in case of sickness
• Period for handing in working inability certificates
• Duties of secrecy
• Regulations on travelling activities and sickness
• Reporting of side-line jobs
• Penalties for breaches of contract
• Exemption and leave of absence in case of dismissal / cancellation
• Note on changes of the contract and additional agreements
• Additional benefits like capital-forming benefits, (partial) travelling expense refund, removal expenses refund, subsidized meals, perquisites for insurances or old-age provision
• References to collective agreements and company agreement

The way the employment contract is written is generally unrestricted. If, however, the employment contract violates any regulation of law, collective agreements or company agreements, it may be invalid.

The employment contract is usually made to last for an undefined period of time. The alternative are fixed-term employment contracts which require a factual reason for the restriction of contract duration, and have to be concluded in written as well. The fixed-term employment contract, after the contracted period has expired, will end without any notice of cancellation. If the clauses in the contract which define the fixed duration are invalid, the employment will be open-ended. The same happens if the employment is continued over the defined duration without the employer objecting.

For persons minor of age (younger than 18), the signing of an employment contract has to be done by a legal representative.

The employment contract results in certain duties of the employee and the employer.

For the employee:

• Handing in of employment-related documents:
  • Lohnsteuerkarte (wage tax card)
  • Documents related to capital-forming benefits
• Duty of working. Substitution by someone else is not legal
• In case of death, handing out of working material by the inheritors
• Complying with the employer's orders within legal employer's managerial authority
• Complying with working amount agreements
• Side-line jobs are legal as not colliding with the main employment, and as long as all other side-line job conditions are respected
• Regulations on working hours and over-time hours must be complied with
• Collateral duties:
  • Duty of secrecy
  • Duties of considerateness and protection: the work has to be done such that the concerns of the employer and the company are upheld
  • Employee protection duty
  • Restraints on competition 
• If an employee fails to fulfil some duty, he or she may suffer reduction in payment, dismissal or damage claims in case of damages

For the employer:

• Duty of remuneration payment
• Duty of securing remuneration
• Duty of equal treatment
• Collateral duties
• If an employer fails to fulfil some duty, the employee will be allowed to suspend work extraordinary

Temporary exemption from the duty of working is possible:

• in case of short work, if the prerequisites are given
• in case of the employer's default of acceptance, i.e. the worker is offering performance but is not employed
• in case the employee is having the right of retention, i.e. the employer is in debt, e.g. when remuneration stops

The ending of the employment contract is induced by:

• Death of the employee or employer
• A cancellation agreement
• Automatically for fixed-term employment contracts
• Reaching of an age limit contacted in a collective agreement, company agreement or in the employment contract
• Cancellation

Tips, Checklist

• As an employer, use preprints or previous employment contracts to make a new one
• As en employee, you are entitled to receive the employment contract within one month from the start of the employment
• Read through the contract carefully
• Make sure that all negotiated matters (e.g. salary increase after successful probation period) are also included in the written contract, and that everything is unambiguous and that everything complies with the current law
• Make sure your activity and workplace are described in detail
• The employment contract can be made orally, however the written form is recommended
• If the contract is concluded orally only, then the employer must give the employee the essential agreements in written, within one month
• Sign the contract if you assent, and in case of fresh employment, give it back, signed, to the employer as soon as possible
• If you doubt the validity of the employment contract, you should have it examined by a legal counsellor
• Mind the cancellation periods. They are especially relevant when you intend to change jobs. Legal cancellation period is 4 weeks. It can, however, be considerably extended by collective agreements or in the individual contract
• For executive employees, there are individual regulations concerning e.g. working hours or cancellation (period)
• The more precisely your activity is described in the contract, the more likely will a dismissal for operational reasons be legal when there is no longer need for the job. If it is not precisely specified, the employer will have to offer you other jobs in compensation

Last update: 01/18/2010