In principle, a settlement concluded in court may constitute an objective ground for fixing the term of an employment relationship. However, this requires the court to have participated in bringing about the settlement. This was clarified by the Bundesarbeitsgericht (BAG, Federal Labour Court) in its judgment of 4 March 2026 (Az. 7 AZR 297/24, case no. 7 AZR 297/24).
Employment and original fixed term
The claimant had been employed by the defendant or its legal predecessor since 16 September 2018. The employer was a company that operated a nuclear power plant generating electricity. The claimant worked there as a skilled worker with advanced specialist knowledge in the “Monitoring, Chemistry” organisational unit. His employment contract was initially fixed-term until 15 September 2022.
The claimant challenged this fixed term before the Arbeitsgericht (Labour Court), as he took the view that there was no objective ground for limiting the duration of his employment relationship. No agreement was initially reached during the conciliation hearing. The parties subsequently continued their settlement negotiations in writing outside the court hearing.
Conclusion of a court settlement
Ultimately, the parties agreed that the employment relationship would end upon expiry of the fixed term on 30 June 2023. At the same time, they agreed that the claimant would be released from his duty to work until that date while continuing to receive his remuneration.
The defendant submitted the jointly negotiated settlement to the Arbeitsgericht and applied for the court to record its conclusion pursuant to § 278 Abs. 6 ZPO (German Code of Civil Procedure). After the claimant had also consented to the settlement, the Arbeitsgericht issued an order on 27 October 2022 recording that the settlement had been concluded.
Renewed action challenging the fixed term
At the beginning of June 2023, however, an affiliated company within the defendant’s group advertised a position as a skilled monitoring worker for the power plant concerned. The claimant applied unsuccessfully for this position. He then brought another action, arguing that the fixed term agreed to expire on 30 June 2023 was invalid. In particular, he contended that the court settlement did not constitute a sufficient objective ground for the fixed term. Moreover, the job advertisement showed that there continued to be a permanent need for the work.
The Arbeitsgericht Lingen (Lingen Labour Court) initially upheld the action. On the defendant’s appeal, however, the Landesarbeitsgericht Niedersachsen (Lower Saxony Higher Labour Court) overturned that decision and dismissed the action. The claimant appealed on points of law to the Bundesarbeitsgericht.
Judgment of the Bundesarbeitsgericht
The Bundesarbeitsgericht allowed the claimant’s appeal on points of law and set aside the judgment of the Landesarbeitsgericht Niedersachsen. This reinstated the first-instance decision of the Arbeitsgericht Lingen.
According to the official hearing result published by the Bundesarbeitsgericht, the judgment of the Landesarbeitsgericht Niedersachsen of 10 September 2024 – 10 Sa 818/23 (case no. 10 Sa 818/23) – was set aside; the first-instance decision was a partial judgment of the Arbeitsgericht Lingen of 14 November 2023 – 4 Ca 174/23 (case no. 4 Ca 174/23) –, against which the defendant’s appeal was dismissed. The decision was handed down by the Seventh Senate of the Bundesarbeitsgericht.
The BAG held that the employment relationship had not ended on 30 June 2023 as a result of the fixed term agreed in the court settlement. Rather, the fixed term was legally invalid because it was not justified by an objective ground within the meaning of § 14 Abs. 1 Teilzeit- und Befristungsgesetz (TzBfG, German Part-Time and Fixed-Term Employment Act).
Requirements for a court settlement as an objective ground
Of particular significance is the BAG’s clarification of the requirements for a court settlement to constitute an objective ground pursuant to § 14 Abs. 1 Satz 2 Nr. 8 TzBfG. According to the Court, it is not sufficient for a settlement merely to be recorded by the Arbeitsgericht. Rather, the court must have played a responsible role in bringing about the settlement.
There was no such involvement in the present case. The parties had negotiated the settlement independently and subsequently submitted it jointly to the Arbeitsgericht for it to be recorded. The court had merely confirmed the conclusion and content of the settlement.
Court involvement under § 14 Abs. 1 Satz 2 Nr. 8 TzBfG
The BAG based its decision, first, on the specific requirements of § 14 Abs. 1 Satz 2 Nr. 8 TzBfG. Under that provision, a fixed-term employment contract may be objectively justified by a court settlement if the settlement is concluded to resolve a legal dispute concerning the continuation or renewal of the employment relationship.
The rationale behind this statutory provision is that the Arbeitsgericht’s involvement in the settlement is intended to ensure that the interests of both parties are appropriately taken into account. In particular, it is intended to prevent employees from losing their statutory protection against termination through a settlement without sufficient grounds. The court’s involvement therefore performs a protective function that would otherwise have to be fulfilled through judicial review of the fixed term.
Distinction between the alternatives under § 278 Abs. 6 ZPO
The decisive issue was therefore the distinction between the two possibilities under § 278 Abs. 6 Satz 1 ZPO. A court settlement may be concluded either
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by the court submitting a settlement proposal that the parties accept (Alternative 2),
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or by the parties submitting a mutually agreed written settlement proposal to the court (Alternative 1).
In the BAG’s view, only the first of these options generally meets the requirements of § 14 Abs. 1 Satz 2 Nr. 8 TzBfG. Under the second option, the court’s activity is generally limited to recording the settlement already negotiated between the parties. The court does not play any responsible substantive role in bringing it about.
This was not altered by the fact that the presiding judge of the Arbeitsgericht may have raised the possibility of a further fixed term during the preceding conciliation hearing. The court had not been involved in determining the specific terms of the settlement subsequently agreed, particularly the duration of the fixed term. Nor had it adopted the settlement subsequently negotiated as its own by issuing a settlement proposal.
No justification based on other objective grounds
The BAG also examined whether the fixed term could be justified on other grounds.
In particular, it rejected the existence of an objective ground under § 14 Abs. 1 Satz 2 Nr. 4 TzBfG based on the specific nature of the work performed. A fixed term could not be justified by every distinctive feature of an employment relationship. Rather, there had to be special circumstances under which the employer’s interest in employment for a limited period outweighed the employee’s interest in continued employment. No such circumstances existed in this case.
Nor could the fixed term be justified by a temporary operational need pursuant to § 14 Abs. 1 Satz 2 Nr. 1 TzBfG. Such an objective ground requires it to be foreseeable, on the basis of specific indications at the time the fixed-term agreement is concluded, that there will no longer be any permanent need for the work after the intended end of the contract. Mere uncertainty about future employment opportunities is not sufficient.
The mere resolution of a legal dispute concerning a previous fixed term likewise does not, in itself, constitute an independent objective ground for a further fixed term.
No breach of good faith
Finally, the BAG also found no breach of the principle of good faith pursuant to § 242 BGB (German Civil Code). Despite having consented to the settlement, the claimant was entitled to rely on the invalidity of the fixed term.
Participation in a settlement alone does not create legitimate reliance that precludes subsequent judicial review. The fact that the claimant had initially participated in winding up the employment relationship likewise did not prevent him from relying on the invalidity of the fixed term.
Significance of the decision for employment law practice
In its judgment, the Bundesarbeitsgericht makes clear that the mere recording by a court of a settlement negotiated between the parties is not sufficient to justify a fixed term agreed in that settlement under § 14 Abs. 1 Satz 2 Nr. 8 TzBfG. Rather, the Arbeitsgericht must play a responsible substantive role in bringing about the agreement.
For employment law practice, this means that employers and employees must take particular care when drafting court settlements that provide for a fixed-term employment relationship. The fact that the settlement is concluded in court proceedings is not sufficient in itself. Merely submitting a settlement already negotiated between the parties for the court to record does not provide an adequate basis for the validity of the fixed term. In that case, the court’s involvement is limited to recording the settlement reached by the parties.
By contrast, a fixed term remains valid if the court itself submits a written settlement proposal and the parties accept it in written pleadings. According to the Bundesarbeitsgericht’s grounds for the decision, a settlement concluded in this manner meets the requirements for an objective ground under § 14 Abs. 1 Satz 2 Nr. 8 TzBfG. What is decisive is therefore the court’s independent involvement in the settlement proposal, rather than merely formally recording it.
When drafting such a settlement, the parties may therefore consider asking the court to issue its own settlement proposal or seeking to have it expressly adopt a proposal prepared by the parties as its own. This makes it apparent that the settlement proposal can be attributed to the court. In this respect, the Seventh Senate expressly adheres to its previous case law on court settlements as an objective ground. The decision therefore does not constitute a change in the case law, but clarifies the requirements for concluding a court settlement that may justify a fixed-term employment relationship.
The judgment thus strengthens employees’ statutory protection of continued employment and underscores that open-ended employment relationships remain the general rule under the TzBfG.
MTR Legal Rechtsanwälte advises on employment law; further information is available at Employment Law Advice.
