Terminology and Definition of Side
The term “Side” is not a fixed designation in German law. Nevertheless, it is widely used, especially in conjunction with terms such as “Sideletter” or “Side Agreement”, in contract drafting and in the context of business law. In general, “Side” refers to a supplement, collateral agreement, or addendum to a main contract. These collateral agreements play a significant role in various legal areas, as they regulate specific matters that are not included in the main contract or require special treatment.
Legal Classification and Areas of Application
Sideletter
Definition and Function
A sideletter is a written collateral agreement to a main contract. Sideletters are often used to document agreements that, for various reasons, are not to be included directly in the main contract. This may concern, for example, confidentiality, flexibility, or special circumstances of individual contracting parties.
Legal Nature
The legal nature of a sideletter essentially corresponds to that of a contract or a contractual collateral agreement. Legally, an independent obligation is established, which can be linked to the conditions of the main contract or exist independently. Its effectiveness depends on whether all essential terms of contract (essentialia negotii) are present and whether there are no statutory prohibitions or form deficiencies (§§ 125, 134, 138 BGB).
Examples of Sideletters
- Individual payment modalities
- Temporary concessions
- Non-disclosure agreements (NDA)
- More favorable conditions for individual contracting parties
Side Agreement
Definition and Differences from Sideletter
A Side Agreement is a supplementary arrangement concluded outside the main contract. In contrast to the collateral nature of a sideletter, a Side Agreement often has its own regulatory areas, which do not necessarily have to be directly related to the main contract, but still form part of the overall contractual structure.
Typical Areas of Application
- Corporate law: Agreements among shareholders that are not to be made public
- Real estate law: Additional provisions to lease or purchase agreements
- Employment law: Special agreements, e.g. concerning variable remuneration outside the main employment contract
Form Requirements and Validity
Written Form and Electronic Form
Whether written form is required for a sideletter or side agreement depends on the main contract and statutory provisions. Generally, a sideletter can be concluded informally, provided no special form is required for the main contract. If notarization is required (e.g., in real estate law, §§ 311b para. 1 sentence 1 BGB), such collateral agreements must also be executed in the respective form. Otherwise, there is a risk of invalidity in accordance with § 125 sentence 1 BGB.
Content Control and Transparency Principle
Since collateral agreements affect the rights and obligations of one or more contracting parties, they are subject to content control under §§ 305 ff. BGB, insofar as they constitute general terms and conditions. In particular, the transparency requirement (§ 307 para. 1 sentence 2 BGB) requires a clear and comprehensible arrangement of the collateral agreements.
Legal Issues and Risks
Conflicts with Main Contract and Effect on Third Parties
A significant risk lies in the possible conflict between sideletter or side agreement provisions and the main contract. If collateral agreements contradict the main contract, the principles of contract interpretation according to §§ 133, 157 BGB apply in case of doubt. In cases of conflicting provisions, courts regularly decide in favor of the deviating but subsequently concluded collateral agreement, provided the contracting parties intended as such.
Additionally, side agreements in multi-party relationships can lead to third-party issues, for example with fellow shareholders in a company or other contracting parties not involved in the collateral agreement.
Circumvention of Statutory Provisions
Sideletters or Side Agreements may not be used to circumvent mandatory law or statutory prohibitions. Otherwise, they risk being void under § 134 BGB, for example if employee protection provisions or requirements for corporate structure are disregarded.
Tax and Reporting Requirements
Especially in international business law and corporate law, sideletters are regularly subject to reporting and tax obligations. Failure to report can lead to tax disadvantages or the invalidity of the provision.
Judicial Enforceability and Evidence Issues
Proving and Evidential Value
Collateral agreements that are not executed in the proper form or are not clearly documented can be difficult to prove in case of dispute. Courts regularly use documents, emails, or witness statements as evidence. In case of conflicting information between the main contract and a sideletter, courts decide according to the principles of contractual interpretation and the intent of the parties.
International Context and Cross-Border Scenarios
Choice of Law and Applicable Law
In international agreements, it is often expressly stipulated which substantive law is to apply to side agreements. If such a provision is missing, the applicable law is determined by the general rules of conflict of laws, such as the Rome I Regulation (Regulation (EC) No. 593/2008).
Entry into Force and Recognition
A sideletter is not legally recognized in all countries. Abroad, particularly in common law countries such as the United Kingdom and the USA, sideletters have a long tradition and are regarded as legally binding agreements, provided they meet the basic requirements of a contract.
Summary
The term “Side” in legal parlance refers to collateral agreements and supplementary arrangements that apply as supplementary, deviating, or specific provisions to an existing main contract and may cover different regulatory matters. The legal treatment is based on the general principles of law of obligations. Decisive are rules concerning form, content, and validity, which are also influenced by statutory requirements and internationally applicable regulations. Sideletters and side agreements are indispensable tools in complex contract drafting and require careful, legally secure formulation to minimize legal and economic risks.
Frequently Asked Questions
What legal requirements must be met for a side job in Germany?
Anyone wishing to take up secondary employment in Germany must observe various legal aspects. First, it must be checked whether the employment contract with the main employer excludes certain secondary activities or makes them subject to approval. In the absence of a corresponding provision in the main employment contract, such activity is generally permitted as long as the secondary employment does not compete with the employer or jeopardize its business interests. In addition, labor protection laws, especially the Working Hours Act (§ 3 ArbZG), must not be violated; this includes, among other things, the daily and weekly maximum working time limit. Social insurance and tax obligations should also be taken into account: secondary income must always be declared and is taxed together with the main income, with the income tax class being relevant. For certain activities, there is also a notification obligation to the health insurance provider. There are also specific rules for civil servants, trainees, and students, who may be subject to stricter restrictions.
Must secondary employment be reported to the employer and can the employer prohibit it?
There is generally no universal obligation to report secondary employment. However, employment or collective agreements may impose a notification or approval obligation (§ 60 HGB for commercial employees). The employer may only prohibit the exercise of certain secondary activities if company interests, statutory provisions, or collective bargaining agreements are violated – for example, if permissible working time is exceeded, there are health risks, professional competition, or breaches of confidentiality. If secondary employment is carried out despite prohibition, employment law consequences such as a warning or, in the event of recurrence, even termination may ensue.
How is the taxation of income from a side job regulated?
Income from secondary employment is subject to income tax and must be declared in the tax return. There are, however, exceptions, such as for minor employment (450-euro job/minijob, § 8 SGB IV), for which flat-rate tax rates may apply. In the case of freelance or self-employed activities, income must be entered on Schedule S (freelance) or Schedule G (commercial) of the income tax return. Tax-free secondary employment (§ 3 no. 26 EStG, so-called ‘Übungsleiterpauschale’) only applies under certain conditions, e.g., in the nonprofit sector. For the tax office, the classification as main or secondary employment is generally irrelevant; only the amount and type of income matter.
What are the social security implications of secondary employment?
Social insurance is mandatory in Germany for all dependent employment relationships, even with multiple employers. For secondary employment in addition to a main job, it is checked whether the thresholds for minor employment are exceeded or whether main jobs subject to social insurance exist. The minijob is usually exempt from social security contributions for the employee; however, additional employment may trigger contribution requirements due to aggregation obligations (§ 8 SGB IV). Parallel employment must be reported to the health insurance provider, otherwise contribution back payments may result. For freelance work, individuals must independently arrange health, pension, and possibly unemployment insurance (§ 2 SGB VI for self-employed persons).
What liability risks and legal obligations exist in connection with secondary employment?
Secondary employment can create independent liability risks, especially if it is performed on a self-employed basis. Employees are generally personally and fully liable for damages caused in the course of their secondary employment. Insurance coverage through the main employer usually does not cover secondary activities. Therefore, it should be considered whether separate professional liability insurance is necessary. Violations of statutory provisions, such as confidentiality obligations, working hours regulations, or non-competition clauses, may result in civil or even criminal consequences.
What specific regulations apply to civil servants, trainees, and students regarding secondary employment?
Civil servants are subject to the strict regulations of the Civil Servants Status Act (BeamtStG), which only permits secondary employment with prior approval (§ 40 BeamtStG). For trainees, the Vocational Training Act (BBiG) applies, which allows secondary employment as long as it does not jeopardize the purpose of the training (§ 8 BBiG). Students may work as working students in a side job while enrolled in statutory health insurance – however, only up to 20 hours per week during lecture periods (§ 6 SGB V). Exceeding this threshold may result in compulsory insurance as an employee. In all cases, the general maximum working hours and social security obligations apply.
How are violations of employment law requirements in secondary employment sanctioned?
If an employee violates employment contract provisions, statutory regulations, or collective bargaining agreements by engaging in secondary employment, the employer may first issue a warning. In the case of repeated or serious violations, such as endangering the main employment relationship or company interests, (extraordinary) dismissal may be issued. Failure to comply with tax or social security obligations (such as undeclared work) can result in severe fines and even criminal prosecution. Additional claims for taxes and social security contributions are also common sanctions.
