A well-drafted employment contract protects employers from risks and creates clear conditions. We explain which clauses are indispensable.
The Employment Contract as a Structuring Tool
The employment contract governs the rights and obligations within the employment relationship. For employers, it is the central instrument for shaping working conditions and protecting against legal risks. Since the reform of the Nachweisgesetz (NachwG) on 1 August 2022, the requirements for transparency of contractual terms have increased significantly.
Nachweisgesetz: Mandatory Information since August 2022
The reformed NachwG obliges employers to set down the essential terms and conditions in writing for the employee. These include, among others:
- Name and address of the contracting parties
- Commencement and, where applicable, duration of the employment relationship
- Place of work or indication of varying workplaces
- Job description
- Composition and amount of remuneration
- Working hours, rest breaks and rest periods
- Notice periods and the procedure to be followed upon termination
- Reference to applicable collective agreements and works agreements
Violations may result in fines of up to 2,000 euros per breach. Furthermore, the failure to provide written particulars may lead to disadvantages in the burden of proof for the employer.
Key Contractual Clauses in Detail
Job Description and Transfer Clause
The job description should be sufficiently precise for the employee to understand what is expected of them, yet flexible enough to allow the employer to assign other equivalent tasks as needed.
A transfer clause enables the employer to assign other duties or a different workplace to the employee within the scope of the right to give directions (§ 106 GewO). Without such a clause, the employer is bound to the contractually agreed activity.
Probationary Period
Agreeing a probationary period of up to six months allows for a shortened notice period of two weeks (§ 622 Abs. 3 BGB). Without an express agreement, the probationary period does not apply automatically.
Fixed-Term Contracts
A fixed-term employment contract requires written form under § 14 TzBfG and must be agreed before the commencement of the contract. A distinction is made between:
- Fixed-term with objective reason (§ 14 Abs. 1 TzBfG): Permissible where an objective reason exists (e.g., cover, project work, seasonal demand)
- Fixed-term without objective reason (§ 14 Abs. 2 TzBfG): Maximum two years, with a maximum of three extensions. Not permissible if a previous employment relationship with the same employer existed.
Remuneration Provisions
In addition to the base salary, the remuneration clause should also address the following:
- Overtime compensation: Flat-rate overtime compensation is only effective if the number of hours covered is transparently defined. The clause "all overtime is covered by the salary" is invalid in most cases.
- Special payments: Christmas bonuses, holiday pay and bonuses should be clearly defined, in particular whether a legal entitlement exists or whether they are voluntary benefits.
- Voluntary and revocation reservations: According to the case law of the Federal Labour Court (BAG), these reservations must be formulated transparently.
Working Hours
The contractual working time arrangement must comply with the provisions of the Arbeitszeitgesetz (ArbZG). The daily working time may not exceed eight hours and may be extended to up to ten hours, provided an average of eight hours is maintained within six calendar months (§ 3 ArbZG).
Annual Leave
The statutory minimum leave entitlement for a five-day working week is 20 working days (§ 3 BUrlG). Contractual provisions may exceed this. It is important to distinguish between statutory leave and additional contractual leave, as different forfeiture rules may apply to the latter.
Post-Contractual Non-Compete Clause
A post-contractual non-compete clause (§§ 74 ff. HGB by analogy) prevents the employee from engaging in competing activities after the termination of employment. Requirements:
- Written form: The non-compete clause must be agreed in writing
- Compensation: At least 50 per cent of the last contractual remuneration received (§ 74 Abs. 2 HGB)
- Maximum duration: A maximum of two years (§ 74a Abs. 1 HGB)
- Legitimate interest: The employer must have a legitimate business interest
Exclusion Clauses
Exclusion clauses (forfeiture clauses) shorten the period within which claims arising from the employment relationship must be asserted. According to Federal Labour Court case law, the period must be at least three months and restricted to text form. The statutory minimum wage cannot be excluded by forfeiture clauses.
Confidentiality and Data Protection
A confidentiality clause obliges the employee to maintain the secrecy of trade and business secrets. Since the entry into force of the Geschäftsgeheimnisgesetz (GeschGehG), such clauses are of particular importance, as the protection of trade secrets requires appropriate confidentiality measures.
Standard Terms Review of Employment Contracts
Employment contracts are subject to standard terms review under §§ 305 ff. BGB. Invalid in particular are:
- Surprising clauses (§ 305c BGB)
- Non-transparent clauses (§ 307 Abs. 1 Satz 2 BGB)
- Clauses causing unreasonable disadvantage to the employee (§ 307 Abs. 1 Satz 1 BGB)
Conclusion
A carefully drafted employment contract protects the employer from legal risks and creates clarity for both sides. Given the tightened requirements under the Nachweisgesetz and the constantly evolving case law on standard terms review, regular review and updating of contract templates is essential.
