Digitalisation of HR work is advancing steadily: An overview of the most important employment law changes introduced by the Fourth Bureaucracy Reduction Act

Nearly three years ago, the German governing coalition consisting of the Social Democrats, the Greens and the Free Democrats took over the reins of government under the slogan “Daring to make more progress”. A key focus of their coalition agreement was reducing bureaucracy for businesses. The aim was to cut unnecessary bureaucratic processes and alleviate the burden on employers. However, in 2022, a step backward occurred when the legislature revised the German Evidence Act (Nachweisgesetz ‒ NachwG), imposing stricter documentation requirements for terms and conditions of employment that exceeded European directive standards. More than two years have passed since the stricter requirements for documenting terms and conditions of employment in the German Evidence Act came into force.

The Fourth Bureaucracy Reduction Act (Bürokratieentlastungsgesetz – BEG IV) is now set to take an important step towards reducing bureaucracy and enhancing digitalisation, which is particularly relevant for employers. This is because the Fourth Bureaucracy Reduction Act introduces changes to several laws, including the German Evidence Act, the Sixth Book of the German Social Security Code (Sozialgesetzbuch VI ‒ SGB VI), the German Federal Parental Allowance and Parental Leave Act (Bundeselterngeld- und Elternzeitgesetz – BEEG), the German Temporary Agency Workers Act (Arbeitnehmerüberlassungsgesetz ‒ AÜG) and the German Trade, Commerce and Industry Code (Gewerbeordnung ‒ GewO).

The Fourth Bureaucracy Reduction Act was passed by the Bundesrat (Upper House of the German legislature) on Friday, 18 October 2024. The changes introduced by the Act will come into force on 1 January 2025.

Changes to the German Evidence Act: electronic documentation in the future

The German Evidence Act is intended to make employment more transparent and predictable for employees. According to Section 2 of the German Evidence Act the employer has to provide an extensive list of material terms and conditions of employment to employees at the start of their employment contract. Previously, this information had to be delivered in paper form and signed by hand (“written form” or “wet ink”), and electronic documentation was explicitly excluded under sentence 3 of section 2(1) of the German Evidence Act.

What will be easier?

The Fourth Bureaucracy Reduction Act will make it easier to fulfil the formal requirements of the German Evidence Act. In concrete terms, this means that in the future, the material terms and conditions of employment, as defined in section 2 of the German Evidence Act, can be documented in text format and sent electronically to the employee.

However, this only applies if

• the document is accessible to the employee,
• it can be saved and printed and
• the employer requests proof of receipt from the employee with the transmission.

A medium accessible to the employee must therefore be used for transmitting the material terms and conditions of employment.

It is important to note that each employee must receive their notification individually; a general announcement to all employees will not be sufficient.

Practical tip: If, for example, an employer sends the material terms and conditions of employment, or the employment contract containing this information, to the employee by email, the employer must use the email’s acknowledgement of receipt function. This step is intended to ensure that the employee has received the documentation in view of any potential uncertainties associated with electronic transmission.

If the employment contract includes the information required under section 2(1) of the German Evidence Act and it has been sent to the employee in the form described above, there is no need for additional proof of the terms and conditions of employment (section 2(5) of the German Evidence Act).

What remains as it was?

However, the extended formal requirements in section 2 of the German Evidence Act do not apply without restriction:

Employees retain the right to request their terms and conditions of employment in written form (sentence 3 of section 2(1) of the German Evidence Act, as amended). If the employee makes such a request, the employer must provide the documentation of the terms and conditions of employment to the employee without undue delay. If, despite the employee’s request, the employer fails to provide written documentation, or does not provide it in full or in good time, this will constitute an administrative offence (section 4(1)(2) of the German Evidence Act, as amended).

Moreover, these new formal requirements do not apply to companies operating in economic sectors or industries that are particularly affected by illegal workd (e.g. the construction and catering industries). In these industries, terms and conditions of employment must still be documented in written form (“wet ink”).

Previously, any changes to the material terms and conditions of employment had to be communicated in writing no later than the day they took effect (section 3(1) of the German Evidence Act). Going forward, these changes can also be communicated electronically unless the employee requests documentation in written form. The newly added section 3(2) of the German Evidence Act clarifies that the obligation to notify does not apply to changes in the material terms and conditions of employment if the change is part of an amendment agreement concluded in written form or electronically.

Verdict on the German Evidence Act

The amendments to the German Evidence Act are to be welcomed. In this way, the legislature is paving the way for digital employment contracts. This change will be particularly beneficial for employment relationships where employees and employers are not in the same location and previously relied on postal services for exchanging original signatures. However, caution is necessary with regard to fixed-term agreements as these must still be in written form (section 14(4) of the German Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz – TzBfG)). If an employment contract includes a provision for a fixed term along with the terms and conditions of employment under the German Evidence Act, maintaining the written form is crucial.

Changes to the Sixth Book of the Social Security Code: simplifying age-related limitations in fixed-term agreements

Nevertheless, an exception to the general requirement for written fixed-term agreements will apply to “age-related limitations” in fixed-term agreements. An age-related limitation is an agreement between an employer and an employee stipulating that the employment relationship will automatically end when the employee reaches the statutory standard retirement age.

Until now, like all fixed-term agreements, these agreements had to be concluded in writing. Accordingly, an age-related limitation in an employment contract could only be effectively agreed upon until now if both parties provided handwritten signatures. This specifically prevented the use of digital signatures (e.g. via DocuSign) for concluding an employment contract.

The Fourth Bureaucracy Reduction Act also relaxes this formal requirement by allowing age-related limitations to be agreed electronically. Contrary to what might have been expected, however, this change is not found in the German Part-Time and Fixed-Term Employment Act. Instead, it is included in the new section 41(2) of the Sixth Book of the German Social Security Code (Sechstes Sozialgesetzbuch – SGB VI), which was newly introduced by the Fourth Bureaucracy Reduction Act. Additionally, it will also be possible to postpone the agreed age-limitation, which is already possible under current legislation, by using email (section 41(1) of the Sixth Book of the Social Security Code, as amended).

These changes represent another significant step towards digitalising the workplace, complementing the amendments to the German Evidence Act and facilitating digital employment contracts.

Changes to the Federal Parental Allowance and Parental Leave Act: electronic parental leave applications in the future

The Fourth Bureaucracy Reduction Act not only provides for simplifications for employers but also reduces bureaucratic hurdles for employees. Under the new provisions, it will be possible to assert a parental leave application (section 16 of the Federal Parental Allowance and Parental Leave Act) and an application for working part-time during parental leave (section 15(7) of the Federal Parental Allowance and Parental Leave Act) electronically.

Until now employees were required to submit their parental leave applications in writing pursuant to sentence 1 of section 16(1) of the Federal Parental Allowance and Parental Leave Act. Applications submitted by email, on the other hand, were considered invalid, with the consequence for the employee of being absent from work without authorisation and not being covered by the statutory protection against dismissal in accordance with section 18 of the Federal Parental Allowance and Parental Leave Act.

In contrast to applications for working part-time in accordance with sections 8 and 9a of the Part-Time and Fixed-Term Employment Act, which can already be submitted in text form, applications for working part-time during parental leave also required the written form until now. Conversely, employers also had to reject such applications for working part-time during parental leave by providing reasons in written form.

The Fourth Bureaucracy Reduction Act also replaces those written form requirements under the Federal Parental Allowance and Parental Leave Act by electronic form, simplifying communication between employees and employers. This change aligns logically with the existing electronic form requirements under the Part-Time and Fixed-Term Employment Act. In the future, employees will therefore already enjoy special protection against dismissal when emailing their parental leave application to their employer. The employer will no longer be able to rely on the lack of written form.

Further changes to the Federal Parental Allowance and Parental Leave Act due to the Fourth Bureaucracy Reduction Act address, among other things, the processing of applications for a parental allowance and what is known as “parental allowance plus” (section 25 of the Federal Parental Allowance and Parental Leave Act).

Changes to the Temporary Agency Workers Act: changes to the formal requirements for temporary employment contracts

With the amendment to sentence 1 of section 12(1) of the Temporary Agency Workers Act the requirement for contracts between Temporary work Agencies and Hirers to be in written form will also no longer apply, the text format will be sufficient in the future. This means that it will, for example, be possible to conclude temporary employment contracts by email or text message.

In the past, failing to meet the written form requirement could have far-reaching consequences: the temporary employment contract generally had to be in written form before the start of the assignment. Creating it afterwards did not meet legal requirements, so the contract was considered void in case of doubt. This was also considered an administrative offence, punishable by a fine of up to €30,000. In addition, the breach led to the presumption of an employment relationship with the Hirer and thus to a change in employer obligations.

In practice, the written form requirement therefore presented a significant practical hurdle. This meant that it was only possible to respond quickly to changing circumstances in the workplace with considerable effort. The amendment is therefore to be welcomed as it removes an outdated, bureaucratic hurdle and the associated legal uncertainties.

Changes to the German Trade, Commerce and Industry Code: electronic references

Another important development involves the possibility of employment references in digital form. Prior to the recent amendment, issuing employment references electronically was expressly prohibited by law under section 630 sentence 3 of the German Civil Code (Bürgerliches Gesetzbuch ‒ BGB) and section 109 para.3 of the German Trade, Commerce and Industry Code. The amendment introduced by the Bureaucracy Reduction Act now allows companies to issue employment references electronically provided they have the employee’s consent. This is a significant step towards digitalising personnel administration processes, enabling faster and more efficient processing of requests for references. Reducing paper consumption and postage will also contribute to more sustainable business practices.

However, the practical application of the electronic form has one major drawback: in practice, employment references are often issued retrospectively, especially during ongoing employment law disputes. Since electronic signatures indicate the issuance date, discrepancies may occur between the actual and intended issuance dates. To prevent this, reverting to the use of the written form might be necessary. This could undermine the intended improvements. The same issue applies to correcting references.

Introducing electronic employment references is undoubtedly the right step towards a digital working environment. However, the requirement for a qualified electronic signature significantly restricts their applicability. As a result, a substantial reduction in bureaucracy is unlikely.

Conclusion

Overall, the changes introduced by the Fourth Bureaucracy Reduction Act are certainly to be welcomed. However, whether they will actually reduce bureaucracy in HR departments remains to be seen and will only become clear through the application of the new provisions. However, it is encouraging that in future temporary employment contracts and age-related limitations can now be effectively concluded by email, generally meeting the requirements of the German Evidence Act. These changes are timely, given the ongoing digitalisation and more agile work arrangements. Nevertheless, employers should remember that fixed-term employment contracts still require strict adherence to the written form.

The progress in digitalisation is also positive for employees: they will no longer be entirely reliant on postal services and will be able to submit their parental leave applications and employment contracts by email.

The path to reducing bureaucracy is still a long one, with the new Fourth Bureaucracy Reduction Act marking only the initial steps. Nonetheless, the direction set by the Fourth Bureaucracy Reduction Act is certainly to be welcomed.