Know them, use them! Employment Law Privileges for Startups

As is well known, German labour law does not leave companies much room for manoeuvre when it comes to fixed-term employment contracts. For some time now, there have even been discussions about completely abolishing the possibility of fixed-term contracts with no material reason. As a result of the precarious economic situation caused by the pandemic, however, this political approach has now been put on ice.

Two year fixed-term contracts

A time limit without an objective reason specified in the law is only allowed for a maximum period of two years. Within these two years, the fixed-term contract may only be extended up to three times. At the end of the two years, the company must therefore make a final decision on whether to take over the employee in a permanent position or let him go.

Privileges for young entrepreneurs and start-ups!

However, what many founders and managing directors of young start-ups rarely know – the government has provided a privilege for newly founded companies. According to section 14, paragraph 2a of the Act on part-time and temporary work (Teilzeit- und Befristungsgesetz), the following applies:

“In the first four years after the establishment of a company, the calendar-based limitation of an employment contract is permissible without an objective reason up to a duration of four years; within this total duration of up to four years, multiple extensions of a fixed-term employment contract are also permissible”.

This provision thus allows start-ups to have fixed-term contracts for up to four years after their establishment – i.e. twice as long as in the standard case. The legal form of the newly founded company is irrelevant. The benefits are available to both natural persons and, for example, to a Aktiengesellschaft (stock corporation).

Benefit can be used for up to eight years

The special start-up rule allows newly established companies to benefit from the advantages for up to eight years. That is due to the fact that the agreed time limit can extend beyond the fourth year if it is agreed later. In this context, it is important that the fixed-term employment relationship must start before the end of the fourth year. However, it should be noted that extension contracts cannot be renewed after the end of the fourth year.

Thinking about hiring new staff? Get in touch with us and we will help you to make the right choices and fix the paperwork!