Employment and contract law: practical tips and risks regarding the use of limitation periods in German employment law
By Dr. Bernd Borgmann and Tom Stiebert
Limitation periods: a clause with high practical relevance
Agreeing limitation periods in employment contracts is, from the employer’s perspective, a very important component of risk mitigation. Almost every contract includes a clause for time limitation of unfulfilled claims . This guarantees the employer that in most instances no further claims can be made after the expiration of the period stipulated in the clause. Limitation periods of three months or more are both permissible and common. Of course, the employee benefits similarly from a clause of this kind: He or she can rest assured that after the limitation period has passed, the employer isn’t likely to make any further claims, ( such as damages ).
In principle, limitation period clauses are therefore in the interest of all parties involved. Each party also has an interest in concluding the agreement effectively. Often, this isn’t easy. Contract drafters should adhere to certain guidelines, as the following article demonstrates.
Legal backgrounds and basics
Limitation periods exist and are permitted in two forms:
- one-stage limitation periods, which exclusively cover assertions by the contracting parties
- two-stage limitation periods, which also contain a deadline for judicial assertion
In addition, the type of assertion is often regulated. Most clauses require that the other party gives notice of the claim by way of an assertion using written text rather than oral assertion, which shall then prevent the claim to forfeit. This brings us to the first major consideration for contract drafters: It is extremely important to provide for the option to make assertions by e-mail and similar means; ( simply “in text form” as opposed to a requirement of a “written form”, which requires words on paper with an original signature ). Should the contract provide the stronger “written form” the clause is rendered completely invalid, as expressly regulated in German law (section 309 number 13b of the German Civil Code [bürgerliches Gesetzbuch or BGB]).
As a result, a typical clause may look like this:
All claims arising out of this Employment Relationship must be pursued in text form within three months of their due date. Claims that are not pursued within this period will be forfeited.
If a party denies a claim submitted in text form, or if a party does not answer within two weeks of the claim having been brought to its attention, the claim shall be brought to court within three months of the denial or deadline expiration, otherwise the claim will be forfeited.
In principle, limitation period clauses of this kind are allowed under German law. However, it is necessary to ensure that the limitation period isn’t too short — otherwise the parties are considered to be thwarted in the assertion of claims. As a result, limitation periods of three months or longer are both permissible and common (Federal Labor Court, November 28, 2007, docket number 5 AZR 992/06).
This is especially applicable if the clause is regulated by general terms and conditions (allgemeine Geschäftsbedingungen). Here, the case law has expressly recognized that an employee is at a disadvantage if the limitation period is less than three months. As a result, if a contract includes a shorter limitation period, the clause is rendered completely ineffective. The regulation thus effectively disappears without replacement, while the employment contract remains effective with its remaining content.
In addition, contract drafters should ensure that the employee isn’t surprised by the clause. It should neither be hidden in the contract nor have a misleading heading. Again, this would render the clause completely ineffective.
Furthermore, contract drafters need to be clear as to which substantive claims are covered by the limitation period. Not all claims protected by law can be canceled without replacement after three months. The law states that agreements that limit or exclude assertions pertaining to minimum wage are inadmissible. As a result, a limitation period that includes claims of this nature is rendered ineffective as well.
Current developments: two Federal Labor Court judgments
But what happens when a clause covers all claims — thus implicitly including minimum wage issues? This would be the case with the clause suggested above. Two possibilities are conceivable here: either the clause is rendered completely ineffective (meaning the limitation period in its entirety is considered void), or the clause is invalidated exclusively in relation to minimum wage, ( as claims of this nature can be made indefinitely ). In the latter case, the limitation periods would continue to apply to all other claims.
As the case law is not consistent there is a great deal of uncertainty. For example, the case law has stipulated that old clauses concluded before the minimum wage law (Mindestlohngesetz) went into effect (on January 01, 2015), should not be completely invalidated (Regional Labor Court Nürnberg, May 09, 2017, docket number 7 Sa 560/16). Other judgments have considered limitation period regulations completely ineffective if they do not explicitly exclude claims regarding minimum wage (Regional Labor Court Hamburg, February 20, 2018, docket number 4 Sa 69/17). The literature, on the other hand, sees it as unnecessary for these clauses to be rendered completely ineffective. Opinions are split; the level of uncertainty is very high.
The level of uncertainty is even higher given that there still is a lack of clear case law stemming from the Federal Labor Court — the highest German court for labor law. For this reason, hopes were high when the Federal Labor Court had to decide a relevant case on June 20, 2018 (Federal Labor Court, docket number 5 AZR 262/17). Unfortunately, the Federal Labor Court did not decide the subject in general; but only ruled according to circumstances inherent to this specific case: Because the claim under dispute was made within three months, the court didn’t need to decide on the validity of the clause.
And so, uncertainty remains. This applies both to contracts concluded before 2015 and to newer contracts. It remains to be seen how the jurisprudence will develop.
The right formulation counts: a practice pattern
As a result of the unclear case law, great caution is required when drafting limitation period clauses. It is imperative that claims protected by law are excluded — in particular claims related to the statutory minimum wage. Thus, the model clause suggested above should be completed as follows:
All claims arising out of this Employment Agreement must be pursued in text form within three months of their due date. Claims that are not pursued within this period will be forfeited.
This shall not apply to claims regarding the statutory minimum wage.
In addition, contracts concluded before 2015 should also be revised accordingly — only in this way complete protection can be guaranteed.
There are also other kinds of claims that are specifically protected and should be excluded, for example liability for intentional actions, claims based on liabilities for other damages resulting from a legal representative’s intentional or grossly negligent breach of duty, and claims in connection with criminal and administrative offenses. However, this must be clarified and formulated on a case by case basis, in accordance with relevant legal advice. In the end, the important takeaway is this: Limitation periods are very useful, but special caution is required in their formulation.