The federal government plans to significantly expand the use of fixed-term employment contracts without cause. Instead of the current maximum of 24 months, employers would in the future be able to hire certain employees on fixed-term contracts for up to 48 months and extend the contract up to six times within that period. The process of rehiring employees with the same employer is also set to be simplified. This will create new opportunities for companies, but also pose legal risks.

What does a fixed-term contract without just cause mean?

A fixed-term employment contract generally ends on the agreed-upon date without requiring notice of termination. In the case of a fixed-term contract based on objective grounds, the employer must have a valid reason, such as covering parental leave, a temporary staffing need, or a time-limited project.

In the case of a fixed-term contract without objective grounds, such a reason is not required. It is precisely for this reason that the law imposes strict limits on this type of contract.

What are the current rules?

According to Section 14(2) of the Part-Time and Fixed-Term Employment Act As a general rule, an employment contract without specific cause may be entered into for a maximum of two years. Up to three extensions are permitted within this total period.

For example, an employer may initially enter into a six-month contract and then extend it. The key point is that neither the total duration of 24 months nor the permitted number of extensions may be exceeded.

The extension must be effectively agreed upon before the current contract expires. If it is not agreed upon until after the contract ends, or if the employee continues to work without a new agreement, an indefinite employment relationship may arise.

The Prohibition on Prior Employment as a Major Obstacle

A fixed-term contract without objective grounds is generally prohibited if the employee was previously employed by the same employer. This prohibition on prior employment is intended to prevent employees from being repeatedly hired on a fixed-term basis without objective grounds.

Even employment that took place some time ago may be relevant. Employers should therefore carefully check, before signing a contract, whether there was a previous employment relationship with the person in question. In larger companies, this can be difficult, for example, if old personnel records are missing or if the applicant worked in a different division.

What changes are planned for the future?

According to current plans, employees hired by December 31, 2030, may be employed under fixed-term contracts for up to 48 months without cause. Up to six extensions will be permitted within this period.

This would double the current maximum duration. Companies would no longer have to decide after just two years whether to hire an employee on a permanent basis or terminate the employment relationship.

In addition, it is intended to allow for re-hiring by the same employer. This would enable former employees to be rehired on a fixed-term basis without cause in the future. However, the details have not yet been finalized. In particular, it remains unclear how much time must elapse between the two periods of employment and whether this provision could be used more than once.

It is important to note that the proposed new regulations have not yet taken effect. As long as no legislative change has gone into effect, the current limits remain in place.

What benefits would the reform bring?

The expansion could give companies more flexibility in workforce planning. This would be particularly helpful in the face of fluctuating order volumes, new business areas, longer-term projects, or economic uncertainty.

The higher number of contract extensions could also make it possible to gradually adjust contract terms to actual staffing needs. The simplified process for rehiring former employees would also be beneficial, as companies could draw on individuals who are already familiar with internal processes.

What are the legal pitfalls?

Greater flexibility does not automatically mean greater legal certainty. With each extension, the risk of missing deadlines or failing to comply with legal requirements increases.

Changes to the terms of the contract can also be problematic. If, upon renewal, there are significant changes to the job duties, working hours, or compensation, this may legally constitute a new contract. In that case, the fixed-term contract without objective grounds might be invalid.

If a fixed-term contract is invalid, the employment relationship is generally considered to be permanent. Termination is then only possible through a valid notice of termination or a mutual termination agreement. Depending on the size of the company and the length of employment, the Unfair Dismissal Protection Act may also apply.

What should employers do now?

Employers should continue to observe the current two-year limit and the maximum of three extensions. Contracts exceeding 48 months should not be entered into until the reform has actually taken effect.

At the same time, human resources departments should review their processes. This includes reliably documenting previous employment history, centralized deadline management, and clearly defined responsibilities for contract renewals.

Greater flexibility requires careful planning

The planned expansion of fixed-term contracts without specific grounds could give employers significantly more leeway. However, the legal requirements remain stringent. Failure to meet deadlines, improper contract extensions, or an impermissible rehiring can still result in a permanent employment relationship.

Companies should therefore closely monitor the legislative process and wait to amend their standard contracts until the final text of the law has been finalized.