Fixed-term employment under a court settlement

In its judgment of 4 March 2026 (case no. 7 AZR 297/24), the Federal Labour Court (Bundesarbeitsgericht, BAG) made clear that a fixed term agreed in a court settlement is only valid if the court helped to shape what the settlement says. The decision confirms the BAG’s existing case law on fixed-term agreements in court settlements.

 

Facts

From September 2018, the claimant worked as a skilled worker at a nuclear power plant under a fixed-term employment contract. He brought a claim challenging the validity of that fixed term. At the conciliation hearing, the parties discussed a settlement but could not agree. They then continued negotiating through written submissions. In the end, they agreed that the employment relationship would end on 30 June 2023 under a further fixed term. Until then, the claimant would be released from work on full pay. The parties sent the settlement they had negotiated to the Labour Court as a joint proposal. By order of 27 October 2022, the court formally recorded that the settlement had been concluded under section 278(6), first sentence, first alternative, and second sentence of the German Code of Civil Procedure (Zivilprozessordnung, ZPO).

Shortly before the agreed fixed term ended, the claimant applied for a similar position within the group but was unsuccessful. He then brought a claim that the fixed term was invalid. The BAG held that the fixed term was invalid and that the employment relationship continued.

 

Decision

The key question was what a court settlement must involve to count as one within the meaning of section 14(1), second sentence, no. 8 of the Part-Time and Fixed-Term Employment Act. The BAG drew a distinction between the two alternatives in section 278(6), first sentence, ZPO.

If the court gives the parties its own written settlement proposal and they accept it (second alternative), the court takes responsibility for, and helps to shape, the content of the settlement. The position is different where the parties simply send the court a settlement they have already negotiated so that it can be formally recorded (first alternative). In that case, the court’s role is limited to recording the settlement. It takes no responsibility for the settlement itself.

The reason for this distinction is that a court settlement can only justify a fixed term if the court’s responsible involvement in reaching it ensures that the employee’s interests are protected. This involvement must relate to the substance of the settlement, not just to the procedure by which it was concluded.

 

Practical note

The core finding of the judgment is well-established case law of the BAG. A court settlement only justifies a fixed term if the court has taken responsibility for its content. The latest judgment expressly confirms this approach.

In practice, therefore, the rule remains the same. If a fixed term is to be validly based on a court settlement, the court must take responsibility for, and help to shape, the content of that settlement.

To do so, the court must either make its own settlement proposal (second alternative), or adopt one party’s proposal as its own and put it to the parties. As an alternative, a settlement reached directly at the oral hearing and recorded in the minutes will usually involve the court sufficiently.