Legal Ninja Snapshot: #Employment Contracts: Digital Employment Contracts in Germany – But When is a Wet Ink Signature Still Required?

Digital Employment Contracts Are Now Generally Allowed

With the new year, the Fourth Bureaucracy Reduction Act ("BEG IV") brings more flexibility by replacing the need for written form and qualified electronic signatures with text form in many situations, enabling companies to embrace digital workflows. However, some key exceptions still require traditional written form or a qualified electronic signature.

Relying Solely on Headlines About Digital Employment Contracts Can Lead to Legal Issues.

Previously, employment contracts had no formal requirements and could be agreed upon digitally, via email, or even verbally. Yet, the German Evidence Act required employers to provide the employee written (i.e., wet ink signatures) documentation of the essential terms of the employment contract. This became crucial after 2022, when a law was introduced, that non-compliance could result in fines. The initial requirement for written documentation faced criticism, and BEG IV addresses this by allowing essential contract terms to be documented in text form (like email, PDF or digital signatures such as Docusign) as long as the document can be sent to the employee electronically, is accessible to the employee, can be stored and printed, and the employer requests the employee to acknowledge receipt. This change simplifies administration and supports digital workflows, particularly benefiting start-ups using modern tools.

But What Start-ups Need to Keep in Mind

However, depending on what you want to stipulate in an employment contract, some parts of employment contracts might still need to be in written form (i.e., wet ink signatures or qualified electronic signatures). These include important clauses often found in employment contracts of technology companies, like post-contractual non-competition agreement (nachvertragliches Wettbewerbsverbot), assignments of the right of use an employee's work in a way that are not known at the time of the employment contract, and fixed-term employment contracts.

1. Post-Contractual Non-Competition Agreement: According to section 74 of the German Commercial Code, post-contractual non-compete agreements must be in written form to be valid.
2. Unknown Types of Use Under Copyright Law: According to section 31a of the German Copyright Act, if an employer wants to obtain rights to exploit an employee's work in ways that are not known at the time of the agreement (as would be best practice), the employee will need to grant those rights in written form. Without written form, the grant of rights will be invalid.
3. Fixed-Term Employment Contracts: According to section 14 para. 4 of the German Part-Time and Fixed-Term Employment Act, fixed-term employment contracts need to be in written form to be valid. This rule applies to both the original contract and any extensions. If this written form is not used, the contract is considered indefinite, meaning the employee gets the same rights and protections as permanent employees.

Best Practices for Start-ups

1. (Simple) Electronic Signature: Simple electronic signatures may be used for employees who: (i) are not involved in intellectual property creation, (ii) do not have post-contractual non-compete provisions in their employment contracts, and (iii) are not employed under fixed-term employment contracts.
2. Wet Ink / Qualified Electronic Signature: If an employee falls under any of the above categories (notably, software engineers and designers whose IP creation may be important for the start-up), the employment contract should be signed in wet ink or by way of a qualified electronic signature. When in doubt, always opt for wet ink signatures over electronic tools to mitigate legal risks and maintain compliance with statutory requirements.

Important Notice: This summary outlines key legal considerations for employment contracts under German law. It serves informational purposes only and does not constitute comprehensive legal, tax or other advice. Employers and employees should consult legal professionals to address specific circumstances and ensure compliance with applicable regulations. For tailored advice or further assistance, please contact a member of our TCG / Employment team.