The federal government’s most recently planned labor market reforms have met with enormous criticism. There were great concerns about the planned introduction of incapacity for work from the first day of illness. The reactions to the planned reform of fixed-term contracts without objective reasons are much more differentiated. Proponents welcome the fact that this will allow companies to hire more flexibly. Critics warn that temporary positions will become permanent and that HR departments could have significantly more workload in the future.
What is the coalition planning? The reform of the unfounded fixed-term contract at a glance
As part of the welfare state reforms, the coalition is planning to expand the use of fixed-term employment contracts without any objective reason. Labor and Social Affairs Minister Bärbel Bas (SPD) justifies the project as follows: The reform should primarily strengthen companies “that invest in new innovations” and “need staff for this.”
The reform basically provides for three major changes with regard to the unfounded fixed-term employment: Employees who are hired by the end of 2030 will in future be able to be employed on a fixed-term basis for up to four years without giving reasons. The contract may be extended six times within this period. Anyone who has previously worked in the same company can be hired again without any material reason.
The following applies so far: Companies are allowed to hire someone for a maximum of two years without any material reason and extend the contract a maximum of three times during this time. Anyone who has already been employed by the same employer cannot, in principle, be hired again without an objective reason. The legal basis is Section 14 Paragraph 2 of the Part-Time and Fixed-Term Employment Act (TzBfG). For employers, this means that they can either take someone on permanently after two years or part ways with that person. This limit would now disappear.
Exception: Four years already apply to start-ups
For start-ups and newly founded companies, some of the federal government’s planned reforms are already a reality. You are now allowed to employ your employees for up to four years without any objective reason in the first four years after the company was founded. However, new establishments in connection with the legal restructuring of companies and groups are excluded. The legal basis is Section 14 Paragraph 2a TzBfG.
Pro reform: These arguments speak in favor of extending the fixed-term contract without any objective reason
Proponents of the reform argue, above all, that companies will hire people more often as a result. Labor economist Holger Schäfer from the Institute of German Economics explains how the current law is paralyzing companies: Anyone who sets a fixed term for a material reason now risks that a court may not recognize this reason. However, according to Schäfer, anyone who sets fixed-term contracts without any objective reason will quickly reach their limits, as they are only possible for new hires and for a maximum period of two years. This could lead to companies hiring fewer people.
The reform will make it easier for companies to conclude a fixed-term employment contract. Companies would then be more willing to create new temporary positions with fixed-term contracts in uncertain times. Frank Holland, labor lawyer and managing director of the North Rhine-Westphalia Trade Association, argues similarly: The step is right and long overdue because it increases flexibility in hiring, “which companies urgently need at the moment”.
Christoph Werner, managing director of the drugstore chain Dm, supports the reform in principle, but at the same time is of the opinion that his company has hardly had any problems with the current regulation so far. “Dm operates in a relatively stable industry with an established business model and we have managed well so far,” Werner told ntv. New companies, export-oriented industries and companies in international competition would particularly benefit, and in general companies that are confronted with greater economic uncertainty would benefit.
However, Werner does not believe that longer fixed-term contracts could weaken companies in the fight for skilled workers. If you want good people, you have to offer better conditions, such as making the working environment more attractive or offering the prospect of a higher income. The market regulates this automatically through supply and demand. If the reform leads to more jobs being created overall and companies investing more in Germany, this would offer new development prospects.
Criticism of the reform: These arguments speak against the extension of the unfounded fixed term
Voices from the start-up world initially sound similarly positive. Karen Brandt, Chief People Officer at the mobility start-up Finn (proper spelling FINN), fundamentally welcomes a flexible labor market. In practice, however, attempts are being made to solve a problem that, at least for the startup Finn, is not a problem. Finn only uses fixed-term contracts very selectively and always pursues the goal of retaining talent in the long term.
Also because, in their opinion, time limits increase administrative effort and costs without creating real flexibility. In addition, long-term prospects and stability are crucial for commitment and retention, especially with tech talent, emphasizes Brandt. A new regulation will not change Finn’s current approach.
Ernesto Klengel, scientific director of the Hugo Sinzheimer Institute for Labor and Social Law, also fears that the reform could have the opposite effect of what it promises. He writes on Linkedin that it will “promote precarious employment relationships and chain fixed-term contracts.”
In this context, critics like Klengel fear that companies could use the new rules to permanently fill temporary positions and hire the same person again and again without ever taking them on permanently. Economist Enzo Weber from the Institute for Labor Market and Occupational Research (IAB) argues with similar skepticism. If you are allowed to hire the same employee again without any objective reason, you create an incentive to have a permanent fixed-term contract. Because new employment with the same employer would be possible in the future according to the reform plans.
In Weber’s opinion, it would make more sense to have a sufficient time gap between the end of a fixed-term contract and a possible new employment of the same person. In this way, fixed-term contracts can be prevented from becoming a permanent situation. Weber also considers the possibility of extending a contract six times to be excessive. Three times is completely enough, as the core of the reform is “to offer more flexibility in advance for risk investments”.
Mara Marx is a volunteer at Human Resources.
