Employment Contracts for Associations, Foundations, and Nonprofit LLCs in Germany

What nonprofit organizations need to consider when drafting employment agreements

Types of employment in nonprofit organizations

Few sectors have as wide a variety of employment arrangements as the nonprofit sector. Full-time and part-time employees, mini-job employees, staff hired on fixed-term project contracts, independent contractors, members of governing bodies, and volunteers often work side by side. This diversity is justified by the nature of nonprofit work. At the same time, however, it creates significant potential for legal misclassification – mistakes that can become expensive.

The Nachweisgesetz in nonprofit organizations: formal requirements for employment agreements

Anyone who drafted employment agreements before 2022 rarely had to pay much attention to the German Act on Written Proof of Employment Conditions. It was generally sufficient to specify the contracting parties, the employment start date, the employee's duties, the place of work, and compensation. That changed fundamentally on August 1, 2022, when Germany implemented EU Directive 2019/1152. Section 2 of the Nachweisgesetz now requires employers to provide a comprehensive list of mandatory employment terms in writing. Each individual violation may result in an administrative fine of up to EUR 2,000. Based on the EU definition of "worker," these requirements also extend to external managing directors and civil servants. The long-held assumption that the managing director of a nonprofit LLC falls outside the scope of the Nachweisgesetz is therefore no longer correct.

The applicable deadlines vary depending on the information involved. Some details must be provided no later than the employee's first day of work, while others may be supplied within seven calendar days or one month. Employers who fail to meet these deadlines risk administrative penalties.

A significant simplification took effect on January 1, 2025, with the Fourth Bureaucracy Relief Act. Since then, employers have been permitted to provide the required information in text form under Section 126b BGB. An e-mail with a PDF attachment is sufficient, provided the document is accessible, can be saved and printed by the employee, and the employer obtains proof of receipt, such as a read receipt. However, if an employee expressly requests the traditional written form bearing an original signature, the employer must provide it without undue delay. For industries considered particularly vulnerable to illegal employment practices under Section 2a of the German Act to Combat Illegal Employment (SchwarzArbG) – including construction, hospitality, passenger transportation, and similar sectors – the traditional written form with an original signature remains mandatory.

Home office and remote work in employment contracts for nonprofit organizations

When people at the office talk about working from home, almost no one means what the term might imply from a legal standpoint. In fact, "home office" is not a legal term under German law. Instead, it is commonly used to describe two legally distinct working arrangements.

• Telework, as defined in Section 2(7) of the German Workplace Ordinance (ArbStättV), requires a permanently established workstation in the employee's home that is set up by the employer. In this case, the Workplace Ordinance applies in full, meaning the employer is responsible for providing the necessary equipment, covering the associated costs, and conducting a workplace risk assessment.
• Mobile work, by contrast, allows employees to decide where they perform their work – whether at home, in a coffee shop, at a train station, or elsewhere. In these situations, the Workplace Ordinance generally does not apply, although Germany's working time and occupational health and safety laws continue to apply in full.

The distinction may sound technical, but it can have significant financial consequences. An employer that simply promises "home office" in an employment agreement without defining the arrangement may unintentionally create a telework arrangement, including the obligation to fully equip the employee's home office.

Employment agreements should therefore clearly:

• specify the place of work,
• define the scope of remote work,
• include both a transfer clause and a revocation clause allowing employees to return to the office,
• address responsibility for work equipment and related expenses, and
• establish the employee's required availability.

The Nachweisgesetz already requires employers to specify either the employee's place of work or that the employee is free to choose where to work. As a result, these contractual provisions serve two important purposes.

For nonprofit organizations, there is an additional consideration that rarely exists in the private sector. Grant providers frequently impose requirements regarding where employees must work, for example, requiring a physical presence at the project site. Fixed-term project positions may therefore come with different on-site attendance requirements depending on the project. For that reason, it is often advisable to address remote work in a separate supplemental agreement with its own term, which may itself be fixed for the duration of a particular project. This approach allows organizations to adapt the arrangement as future projects impose different requirements without having to renegotiate the main employment agreement each time.

Compensation in nonprofit organizations: balancing employment law and nonprofit tax rules

In the nonprofit sector, compensation is rarely just a matter of employment law. While the same employment, tax, and social security rules apply as in any other organization, nonprofits must also comply with a second set of legal requirements. Under Sections 51 et seq. of the German Fiscal Code (AO), compensation must be reasonable and consistent with what is normally paid for comparable work. Organizations that pay excessive compensation risk far more than reputational damage. Disproportionately high compensation violates the requirement that nonprofit organizations operate selflessly under Section 55 AO. The consequences can include repayment claims, personal liability for those responsible, and even the loss of the organization's tax-exempt status – an existential risk for any nonprofit that depends on tax-deductible donations or tax benefits.

The benchmark is the compensation customarily paid for comparable positions, including in the private sector. Organizations have some flexibility up to the upper end of the usual salary range, but not beyond it. Relevant factors include the employee's responsibilities, the scope of the position, the organization's financial situation and size, and the compensation paid by comparable organizations. For senior executives, obtaining an independent compensation assessment is often advisable – not as a matter of prestige, but to provide reliable evidence that compensation is appropriate if challenged by the tax authorities.

Vacation entitlements in employment contracts: common pitfalls for nonprofit organizations

In vacation law, one structural distinction determines the financial consequences at the end of an employment relationship: the clear separation between statutory minimum vacation entitlement and additional contractual vacation entitlement. The statutory minimum vacation entitlement under the German Federal Vacation Act (BUrlG) amounts to 24 working days for a six-day workweek and 20 working days for a five-day workweek (Sections 3 and 13(1) BUrlG). This statutory minimum vacation is subject to strict protection under the BUrlG and the case law of the Court of Justice of the European Union (CJEU). Additional contractual vacation beyond the statutory minimum can largely be structured freely. If an employment agreement combines both types of vacation entitlement without distinction, all vacation days are automatically treated as statutory minimum vacation. As a result, employers may be required to pay out every remaining vacation day when the employment relationship ends. A simple carryover provision stating that statutory minimum vacation is used first and additional contractual vacation only afterward can often reduce these costs significantly.

For employees who join during the year, the full statutory minimum vacation entitlement is earned after six months of employment (Section 4 BUrlG). If an employee leaves after June 30, the full annual statutory vacation entitlement generally remains in place. These rules are mandatory for statutory minimum vacation. For additional contractual vacation, employers can and should include a pro rata provision. When hiring new employees, organizations should also look back: obtaining a vacation certificate from the employee's previous employer under Section 6 BUrlG prevents duplicate vacation claims during the year of transition.

The most significant development in recent years is the employer's obligation to actively inform employees about unused vacation, which was developed by the German Federal Labor Court based on CJEU case law. Vacation does not expire at the end of the year unless the employer has previously informed employees, at least in text form, of the specific number of unused vacation days, requested that they take the vacation, and clearly explained the consequences of failing to do so. A general statement in an employment agreement or collective bargaining agreement is expressly insufficient. The notice must be provided individually each year and in a manner that can be proven later. In practice, providing the notice no later than the third quarter of the year is recommended. Employers that fail to meet this obligation may see unused vacation accumulate silently over many years. Both forfeiture and limitation periods are excluded in such cases. The financial consequences often become apparent only when the employee leaves and may reach significant amounts.

In cases of long-term illness, vacation generally expires 15 months after the end of the vacation year. Employees who worked during the vacation year before becoming ill benefit from this 15-month expiration rule only if the employer previously fulfilled its duty to provide notice. If the employee has been continuously ill since the beginning of the vacation year, however, the vacation may expire even without prior notice. This distinction is subtle but can be decisive in individual cases.

Legally compliant drafting of forfeiture and limitation clauses

Forfeiture and limitation clauses are among the understated but important elements of every employment agreement. They limit the period during which the parties may assert claims against one another and thereby create legal certainty. Common structures include single-stage clauses, which require a claim to be asserted out of court within a specified period, and two-stage clauses, which additionally require the claim to be pursued through legal proceedings within a further deadline.

Although these clauses are intended to provide certainty, courts have significantly increased the requirements for their enforceability in recent years. Many existing clauses therefore fail judicial review. An enforceable forfeiture clause must be drafted clearly and understandably, be clearly identified as a forfeiture or limitation clause, require only text form under Section 309 No. 13 BGB for asserting claims. The written form requirement that was common in older agreements is now a frequent reason for invalidity. The limitation period may not be shorter than three months from the date the claim becomes due and must apply equally to both parties. Certain categories of claims must be expressly excluded, including:

• claims based on intentional conduct (Section 202(1) BGB),
• claims arising from injury to life, body, or health, or from gross negligence (Section 309 No. 7 BGB), and
• all legally non-waivable claims, particularly those arising under the German Minimum Wage Act (MiLoG), the Posted Workers Act (AEntG), the Occupational Pensions Act (BetrAVG), the Works Constitution Act (BetrVG), and the Collective Agreements Act (TVG).

Claims that have already been acknowledged or are undisputed also may not be subject to forfeiture periods (BAG, judgment dated December 3, 2019, case no. 9 AZR 44/19).

If a clause fails to meet these requirements, it is invalid and has no blocking effect. Claims that an employer previously considered resolved based on the clause may still be asserted within the regular three-year statute of limitations. Older employment agreements, especially those drafted before 2017, often contain clauses that would not survive even a single day of judicial review today. A systematic review of existing employment agreements is therefore worthwhile. In many cases, the effort pays for itself the first time a separation agreement is prepared.