ECJ limits fixed-term employment for older workers

In November 2005, the European Court of Justice (ECJ) ruled against the use in Germany of a legal provision that allows employers to conclude several successive fixed-term contracts with older employees. According to the ECJ, the current exemption of people over the age of 52 from the general requirements for permitting fixed-term employment does not comply with the age discrimination provisions of the EU framework equal opportunities Directive. German trade unions have welcomed the judgment, while employers have criticised it.

On 22 November 2005, the European Court of Justice (ECJ) issued a judgment (in case C-144/04 Mangold v Helm) that limits the possibility of German employers to conclude fixed-term employment contracts with workers who are over the age of 52. Since 1 January 2003, when the First Law on Modern Services in the Labour Market (Erstes Gesetz für moderne Dienstleistungen am Arbeitsmarkt, HARTZ-I) took effect (DE0209205F), employers and employees have generally been authorised to conclude several successive fixed-term employment contracts, even if an objective justification for limiting the term of the individual contract does not exist. This rule only applies, however, if the employee is older than 52. The exemption clause was initially implemented to promote the reintegration into work of older people. The ECJ ruled that this legal provision does not comply with EU Directive 2000/78/EC establishing a general framework for equal treatment in employment and occupation, because the only criterion used for its application is the age of the employee.

Background

According to the Organisation for Economic Cooperation and Development (OECD), the unemployment rate of German people aged between 55 and 65 was 11.3% in 2004 - more than twice the OECD average (4.7%). In addition, the labour force participation rate of 55-65 year-olds (44.6%) was 8.5 percentage points lower in Germany than it was, on average, in the OECD in 2004. Finally, older unemployed people suffer, in general, from longer periods of unemployment than younger ones.

To combat unemployment, the previous 'red-Green' coalition government tried to increase employment amongst older people by various means. One approach was to ease the legal requirements for temporary employment. In general, fixed-term contracts may be concluded if objective reasons exist for doing so. In accordance with the Law on Part-Time Working and Fixed-Term Contracts (Teilzeit- und Befristungsgesetz, TzBfG), fixed-term contracts are only allowed, for example, if personnel requirements are temporary, or if the fixed term follows a training period, or if one employee replaces another due, for instance, to maternity leave (DE0011293F). An exemption may, however, apply, enabling fixed-term contracts of up to two years' duration to be concluded in the absence of any objective reasons. During this period, the subsequent renewal of an expired fixed-term contract can be agreed three times at most. For older workers, however, the legal requirements are less strict. Until recently, the conclusion of fixed-term contracts did not, in general, require objective justification if the worker had reached the age of 58 by the time the employment relationship began. The HARTZ I legislation amended the TzBfG by reducing the age threshold for this exemption clause to 52. This amendment came into effect on 1 January 2003 and was due to run until 31 December 2006.

ECJ judgment

In 2004, the local labour court in Munich issued a preliminary ruling that, in a specific case, the TzBfG exemption clause, as amended by HARTZ I, did not comply with the EU framework equal treatment Directive (2000/78/EC). Afterwards, it referred the case to the ECJ for a general ruling. In its judgment issued on 22 November 2005, the ECJ declared that, in general, unequal treatment on the ground of age might not constitute discrimination if such treatment objectively promoted, for example, the integration of older people into employment. However, the ECJ stated that the HARTZ I amendment had to be considered as going beyond what was appropriate and necessary to achieve the aim of better integration into employment of older workers. The ECJ criticised the fact that the exemption clause in question took only the age of the worker into consideration, whereas other determinants that also affect the employment prospects of older people were excluded. The ECJ feared that workers were in danger of being excluded from the benefits of stable employment solely on the basis of their age. Therefore, it ruled that the lowering of the age threshold for the exemption could not be justified under EU Directive 2000/78/EC.

Reactions

The ECJ’s judgment compels Germany's new federal government to revise HARTZ I. According to the Financial Times Deutschland (on 23 November 2005), the Federal Ministry of Economics and Technology (Bundesministerium für Wirtschaft und Technologie, BMWI) has declared that the current laws will be amended as soon as possible. In addition, in the coalition agreement between the Christian Democratic Union (Christlich Demokratische Union, CDU), its Bavarian associate party Christian Social Union (Christlich Soziale Union, CSU) and the Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD), the coalition partners agreed that the time limit on the exemption clause concerning fixed-term employment relationships of workers older than 52 would be removed (DE0511205F). This legal provision should become permanent and, in addition, will be brought into line with EU Directive 2000/78/EC. It should continue to apply to workers who are older than 52. Moreover, the government intends to abolish the legal provision that allows employers and employees to conclude temporary contracts even if an objective reason does not exist. On the other hand, the probationary period stipulated by the Employment Protection Law (Kündigungsschutzgesetz) is supposed to be extended from six to 24 months.

In a press release issued on 23 November, the German Metalworkers’ Union (Industriegewerkschaft Metall, IG Metall) welcomed the ECJ’s judgment on the grounds that the rule in question has so far not only failed to achieve its aims, but has also, in general, constituted discrimination against older workers. The Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB) has called for the abolition of any clauses that exempt older workers from the requirement for an objective reason to be provided for limiting the term of an employment contract.

The Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA) criticised the ECJ’s decision. In the view of BDA, not only has the ECJ unreasonably impaired the sovereignty of legislative bodies, but it has also made the conditions for integrating older unemployed people back into employment more difficult. According to a statement by Roland Wolf, head of BDA’s legal department (in the Süddeutsche Zeitung on 23 November), the exemption clause in the TzBfG has not yet proved to be successful because it was supposed to expire at the end of 2006. In his view, the clause had been applied for too short a period to show a positive impact. BDA called upon the government to maintain the exemption clause and, at the very least, to apply it to older people who have been unemployed for a while.

Commentary

As highlighted by the ECJ, the exemption clause that has now been called into question does, indeed, only rely on the age of the worker to determine whether or not it should be applied. Nonetheless, both the comparably high unemployment rate and the longer unemployment periods of older people in Germany arise from labour market regulations that are, in particular, harmful to the integration of older people into employment. The provision of, in effect, stricter employment protection for this age group, for example, induces firms to prefer younger entrants to older ones. The higher entry barrier to the labour market holds true for older people irrespective of the reasons for being unemployed. In this respect, the ECJ’s judgment obstructs the reintegration into work of older people and harms their employment prospects in general. (Oliver Stettes, Cologne Institute for Economic Research, IW Köln)