The agreements made in a contract of employment concluded under German law are reviewed by the courts for their appropriateness; frequently, linguistic nuances can determine whether individual clauses are effective. What delimits an employment relationship and what factors must be borne in mind?

A contract of employment does not have to be concluded in writing; a verbal one suffices. For reasons of proof, however, a contract of employment should be (and in practice is) regularly agreed in writing.

Employee or freelancer?
As it is under Dutch law, the difference between a freelancer (freelance contract or contract for work or services) and an employee is also very important under German law.

The eligibility criteria applied by the courts include whether the provider is required to follow instructions in regard to the location, time and nature of the activity. A freelancer is not bound by instructions whereas an employee is. Another criterion is integration into the company’s business operations. If the employee is on site, i.e. works on the company’s premises, and if his tasks are no different to those of an employee of the company, this also implies that he has the status of an employee. If the employee mainly spends all his working time at the company, this also implies an employment relationship. If, however, the employee is at liberty to accept or reject a task or to work for other clients, he does not receive a monthly salary but is paid by the hour and issues invoices for this, this implies that his status is that of a freelancer.

If a freelance relationship has been established between the parties, but it becomes apparent that it is an employment relationship, this has far-reaching implications: the presumed freelancer is then an employee, with all the legal implications of this (labour law applies to the contractual relationship, as does the relevant social security legislation). The employer must pay social security contributions for the current and four previous years and there may be consequences under criminal law.

Applicable law
In principle, the parties are free to choose which law applies to the employment relationship. There are two restrictions on this principle: mandatory rules of the law that objectively applies to the employment relationship, which are designed to protect the employee, will in any event apply, as will so-called “Eingriffsnormen” (overriding mandatory rules whose observance a state considers so crucial to maintaining the public interest that they must be applied to all situations) of the objectively applicable law. The objectively applicable law is the law which applies pursuant to the legal requirements; for cross-border employment relationships, this is the Rome I Regulation. This Regulation stipulates that the law of the country in which the employee ordinarily performs his activities applies to an employment relationship. If this cannot be ascertained, the law of the country in which the employer has its headquarters applies. If, for example, the parties have declared that Dutch law applies to an employment relationship, but the employee works predominantly in Germany, mandatory requirements of German law designed to protect the employee will apply in addition to the Dutch requirements.

The limits of contract design
Contracts of employment, even if only used once, are subject to the requirements for general terms of contract, which set the main boundaries on contract design. There may be additional restrictions on the grounds of collective agreements or internal agreements. Only if the employer enables the employee to influence the content of the provisions does it constitute an individual agreement that is subject to less stringent requirements.

A clause in a contract of employment may not be surprising. A clause is surprising if it is unusual and the employee could not have expected it. Therefore, important clauses must always be included in a separate article and marked with a clear heading.

A clause may not be unreasonable. This is the case if, by unilaterally designing the contract, the employer improperly seeks to enforce its own interests at the employee’s expense, without taking sufficient account of the employee’s interests and granting him reasonable compensation. Unreasonableness may also be the result of an insufficiently transparent or precise clause.

If a clause is ineffective, the legal arrangements apply to the point in question. The remainder of the contract remains in force. In the case of contracts of cross-border contracts of employment, it must be borne in mind that the differences between German and Dutch labour law are substantial, hence it is important to properly ascertain the implications beforehand.

By Susanne Hermsen