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Restrictions on use of limited term employment contracts proposed as part of German coalition agreement

New restrictions on employers' use of limited term employment contracts could be introduced as part of coalition negotiations with the German government, an expert has said.09 Feb 2018

The changes have been pushed for by Germany's Social Democratic party (SPD), and are included in the terms of a draft coalition agreement between the party, chancellor Angela Merkel's Christian Democratic Union (CDU) and the Christian Social Union (CSU) that was published this week. The agreement must now be voted on by members of the SPD.

Merkel has been unable to form a new government since Germany's last national elections, in September 2017. The previous government, which was also a coalition, has continued in a caretaker capacity while negotiations continue.

Under the terms of the draft agreement, the coalition government would act to prevent "abuse" of limited term employment contracts. Use of these contracts by employers with more than 75 employees would be limited to 2.5% of the workforce. The maximum term of these contracts would be reduced from 24 months to 18 months unless there is an "objective reason"; while only one extension of a shorter contract up to the maximum term, instead of three extensions as is permitted at the moment.

The agreement also proposes new restrictions on the use of limited term employment contracts. An employer would be unable to offer a new limited term contract to any employee who has previously held an unlimited employment contract with that employer, or one or more limited-term employment contracts with a total duration of at least five years. Once the maximum term of a limited term contract has expired, a new limited term could only be re-agreed with the same employer after a 'grace period' of three years.

A new law of this type, if passed, would have "serious implications" for employers, as "the restrictions that will have to be observed would become even stricter and more complicated", according to employment law expert Alexander Schroth of Pinsent Masons, the law firm behind Out-Law.com.

"This would not only mean a considerable cutback regarding the possibility of flexible personnel planning for all companies – it would also mean a significant additional bureaucratic effort for medium sized and large companies with a headcount of around 75 or above, as the employer would need to calculate for every hiring whether the 2.5% limit is still being adhered to," he said.

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