The employment contract sets the rules of the game for your employment relationship. However, many standard clauses do not stand up to judicial review – to the employee’s advantage and at the employer’s risk. Whether before signing, in a dispute or when drafting template contracts: an expert review pays off.
Key points at a glance
- An employment contract is valid without any particular form – but the essential terms must be documented in accordance with the Documentation of Employment Conditions Act (Nachweisgesetz).
- Clauses pre-drafted by the employer are subject to review as standard terms and conditions (AGB-Kontrolle) (§§ 305 ff. BGB); unclear or unreasonable clauses are invalid.
- A clause stating that “overtime is compensated by the salary” is generally invalid without a more specific limit.
- Exclusion periods must be at least three months and must not cover the minimum wage.
- A post-contractual non-compete clause is only binding if compensation of at least 50 % is paid for the restricted period.
Form and the Documentation of Employment Conditions Act
An employment contract can also be concluded orally or simply by starting work. However, the Documentation of Employment Conditions Act obliges the employer to document the essential terms of the contract in writing – such as the place of work, the job, the composition and amount of pay, working hours, holiday, notice periods and the procedure in the event of dismissal. The names of the contracting parties, pay and working hours must be communicated no later than the first working day. Since 2025, in many sectors the documentation can be provided in text form, for example by email, provided that the document can be saved and printed; for certain sectors with an increased risk of undeclared work, the written form remains mandatory. Breaches are subject to fines but do not render the contract invalid.
The written form is mandatory for a fixed term (§ 14 Abs. 4 TzBfG) and for a post-contractual non-compete clause (§ 74 HGB).
The most important clauses checked
Working hours and overtime
Blanket clauses stating that “all necessary overtime is compensated by the salary” generally breach the transparency requirement. Such compensation is only valid if it is clear how many hours of overtime are to be covered by the salary – for example “up to ten hours of overtime per month”. For top earners above the contribution assessment ceiling of the statutory pension insurance, there may exceptionally be no expectation of payment for overtime.
Exclusion periods
Many contracts provide that claims lapse if they are not asserted within a short period. Exclusion periods in individual contracts must be at least three months. If they do not exclude claims to the statutory minimum wage or liability for intent, they are generally invalid in their entirety in contracts concluded after 2014. In contracts concluded since October 2016, they also must not require a stricter form than text form (§ 309 Nr. 13 BGB).
Repayment of training costs
Repayment clauses are only valid if the training gives the employee a monetary advantage, the commitment period is reasonable and the repayment obligation is reduced pro rata. In addition, it must not be triggered across the board by every resignation: if the employee can no longer use the qualification through no fault of their own, for example due to permanent illness, no repayment may be demanded (Federal Labour Court (Bundesarbeitsgericht – BAG), judgment of 1 March 2022 – 9 AZR 260/21).
Post-contractual non-compete clause
A non-compete clause after leaving is permissible for a maximum of two years and is only binding if the employer undertakes to pay compensation for the duration of the restriction amounting to at least half of the most recent contractual remuneration (§§ 74 ff. HGB). If there is no such undertaking at all, the restriction is void. If the compensation is too low, the employee can choose whether to comply with it.
Transfer and place of work
The employer can determine the content, place and time of work at its reasonable discretion (§ 106 GewO), unless the contract stipulates otherwise. The more narrowly the job is described in the contract, the less scope there is for transfers. Instructions that go beyond reasonable discretion do not have to be followed.
Bonus, voluntariness and revocation reservations
A revocation reservation is only valid if it names the grounds for revocation and the revocable portion accounts for less than 25 to 30 % of total remuneration. Voluntariness reservations for ongoing benefits are invalid. Where there are target agreements, the employer must set the targets in good time; if it fails to do so, it may be liable for damages.
Contractual penalty
Contractual penalties for failing to start work or for leaving in breach of contract are generally permissible, but must not exceed the remuneration for the relevant notice period – so during the probationary period, generally no more than half a month’s salary.
For employers: template contracts that hold up
Template employment contracts have often grown over years and contain clauses that are invalid under current case law. The risk: in the event of a dispute, the statutory provisions apply instead of the invalid clause – often to the company’s disadvantage. We review and update your templates, take into account the Documentation of Employment Conditions Act, the minimum wage, working time recording and home office arrangements, and draft tailor-made contracts for executives, sales staff and managing directors.
Practical examples
The following cases are simplified, typical scenarios from employment law practice. They are for illustration only; every individual case must be assessed separately.
Overtime “compensated by the salary”
Situation: A project engineer earning a gross salary of €4,600 worked around 300 documented hours of overtime ordered by his manager over two years. The contract states in general terms that additional work is compensated.
Legal assessment and approach: The clause was non-transparent and therefore invalid. The overtime had to be paid for under § 612 BGB. Because the contract also contained an invalid exclusion period, older claims could also be asserted within the limitation period.
Training as a certified business specialist (Fachwirt): repay €9,000?
Situation: An employee resigns one year after further training financed by her employer. According to the contract, she is to reimburse the full costs if she resigns for any reason within three years.
Legal assessment and approach: The clause neither differentiated according to the reason for resignation nor reduced the repayment pro rata. It was invalid; the employee did not have to repay anything.
Non-compete clause without compensation
Situation: A sales manager wants to move to a competitor. His contract prohibits any competing activity for two years; no compensation is provided for.
Legal assessment and approach: Without an undertaking to pay compensation, the restriction is void. He was able to make the move. However, confidentiality obligations and the prohibition on taking customer data with him still had to be observed.
Company updates its template contract
Situation: A medium-sized mechanical engineering company has been using the same template contract for years, with exclusion periods requiring the written form and without a minimum wage exception.
Legal assessment and approach: The exclusion period would not have applied in the event of a dispute. We brought the template into line with the Documentation of Employment Conditions Act and case law, added rules on home office and working time recording, and drew up versions for part-time staff and executives.
Frequently asked questions
Do I have to sign an employment contract immediately?
No. Take your time to review it. With fixed-term contracts, it is even in the employer’s interest for the contract to be signed before work begins.
What happens if a clause is invalid?
Invalid clauses in standard-form contracts are not reduced to a permissible extent, but are removed without replacement. The statutory provisions then apply.
May my employer change the contract unilaterally?
No. Changes require your consent or a dismissal with an offer of altered terms (Änderungskündigung), which in turn must be socially justified if the KSchG applies.
Does a collective agreement apply to me?
If both sides are bound by the collective agreement, if the collective agreement has been declared generally binding or if your employment contract refers to it. Reference clauses often require interpretation.
Would you like us to review your case? Send us your documents – we usually respond within 24 hours and will tell you the expected costs in advance.
Note: This information provides a general overview of the legal position (as of November 2026) and does not replace legal advice on your individual case.
This page is a translation of the German original. It is for general information only and does not replace legal advice on your individual case. German version