Service contract

Service contract

September 08, 2021

What is a service contract?

The service contract is regulated in sections 611-630 of the German Civil Code (BGB). According to the definition of a service contract in section 611 BGB, the party who agrees to perform a service is obliged to perform the service. In return, the other party undertakes to pay a previously agreed remuneration. The contract of service thus arises between the service beneficiary, who is the creditor of the service, and the service obligor, the debtor.

How does a service contract is concluded, when can it exist and what must it look like?

Since the written form is not required for the conclusion of a service contract, it can be concluded without form and thus also orally. The parties to such a contract should first agree the mutual rights and obligations. What is to be performed and at what price? When is the service to be rendered? May the debtor use the help of third parties? What happens if the service is not provided as agreed (in terms of time or quality)? Should the contract be terminable or end on a previously agreed fixed date? These are only a few considerations that can accompany the design. Although a verbal agreement would also be sufficient, it is advisable to put what has been agreed in writing. On the one hand, this creates legal certainty. On the other hand, it forces the parties to talk about what they want and to agree. This prevents subsequent conflicts and creates clarity for both sides.

Since a service contract can also be concluded orally, a contractual obligation can already be created by a simple conversation in which the parties share their ideas and agree on the essential points. A service contract can also be concluded by e-mail. This also applies to sending the agreements as a scanned document. The use of an electronic signature (e.g. Docu Sign) is also not necessary here, unlike in cases where written form is required.

The following details should be regulated in the service contract:

  • Naming of the contracting parties
  • Determination of the type, scope and duration of the rendered service;
  • remuneration and the necessary payment modalities
  • Completion dates
  • Since it may happen that the service is not provided as desired, the consequences in the event of a defect should be determined (liability issues).
  • Time lapse, termination and/or termination of the service relationship

Should the service not be performed as desired, it is advantageous in case of conflict to set out in writing a detailed agreement on the content of the service and the scope of performance.

What exactly is owed by the service contract?

The service contract obliges the debtor to provide a service. Here, the subject matter of the contract constitutes services of any kind according to section 611 (2) BGB. It should be noted that the service provider is obliged to provide the service personally according to section 613 BGB. However, the parties may contractually agree otherwise. Essential for the differentiation from a contract to produce a work is that no specific performance result is owed (unlike in a contract for work). Only the service, i.e. the performance of the desired activity, is required.

What must be considered in a service contract ?

The object of the service contract can be a service of any kind. The person entitled to the service does not owe any concrete success, but only the use of labour. The labour input leads to the fulfilment of the contract. Thus, the doctor does not owe the concrete healing of the patient, but his treatment according to the valid rules of art, just as the lawyer owes the proper conduct of the case in compliance with the applicable laws and the supreme court guidelines, but not the winning of the case.

It is therefore important that the stipulated remuneration according to section 614 BGB is paid for work performed, even if the desired success is not achieved. However, the remuneration is always due only after the service has been completed, so the service provider is obliged to perform in advance, unless otherwise agreed.

In the event of defective performance, the claim to remuneration cannot be reduced as in the case of a reduction. However, non-performance constitutes a breach of duty, whereby the debtor is in default.

The person entitled to the service must comply with certain duties of care, such as the duty to care for the sick under section 617(1) BGB and the duty to ensure protective measures under section 618 BGB. The BGB further stipulates that these duties of care cannot be waived by contract.

General grounds for invalidity may also apply to a service contract. This is to be assumed according to § 134 BGB if the contract violates a legal prohibition, for example, if undeclared work is carried out by means of the service contract. Nor may it be contrary to morality under section 138 BGB, which may be the case if particular inexperience is exploited.

Requirements of the service owed and consequences of not fulfilling this service

The service provider is obliged by section 611 I BGB to perform the service. In case of doubt, he is obliged to perform the service himself. If the service cannot be provided, the service recipient has the right to terminate the relationship.

In the case of a service contract, poor performance cannot be justified by the fact that the desired result did not occur, since unlike in the case of a contract to produce a work, only the performance of the agreed service is owed. Accordingly, only the improper performance of the act can be asserted. Thus, the service provider has a claim to payment of wages if the performance of the service was carried out conscientiously.

Possible rights of rescission that want to be asserted before the expiry of the service contract are superseded by the existence of the rights of termination as special provisions under section 626 BGB.

When is a service contract terminated and how can a service contract be terminated?

According to section 629 I BGB, a valid fixed-term employment contract is deemed terminated upon expiry of the agreed term.

Furthermore, the employment contract may be terminated by notice of termination. The termination of the employment relationship does not require the written form. This results from section 623 BGB, which only refers to employment relationships. Since the written form requirement does not apply to the termination of the employment contract, as it does to the conclusion of the contract, no particular form is prescribed. For example, unlike an employment contract, the termination of a service contract can be given orally or communicated by email. In contrast to an employment relationship, the termination of a service contract does not constitute protection against dismissal.

In the case of fixed-term service contracts, the ordinary right of termination is generally excluded. However, the parties to the contract may agree on a provision deviating from this principle, which makes it possible to give ordinary notice of termination even within the framework of a fixed-term contract. If the duration of the employment relationship has not been determined and cannot be inferred from the nature or purpose of the service, either party may give notice of termination. The provisions of sections 621 and 623 of the Civil Code apply.

Extraordinary termination of the employment relationship is possible in any case if there is good cause, section 626 BGB. This is the case if the continuation of the employment relationship is no longer reasonable. In this case, the interests of the parties must be weighed against each other and the circumstances of the individual case must be taken into account.

Can a service contract be limited in time and if so, how often?

Unlike in employment law, a service contract can be limited in time without any restrictions or reasons. If the service contract is limited in time, it is not necessary to terminate it when it expires. Since the law does not specify a maximum period for which a service contract relationship may be limited, a service contract may be limited for any length of time. If the fixed term is regulated in general terms and conditions (GTC), this may be invalid if the commitment is unreasonably long in accordance with sections 307 cont. BGB. The service contract then runs for an indefinite period and can be terminated with due notice.

How does the service contract differ from the contract to produce a work?

The difference between a service contract and a contract to produce a work is the obligation to produce a specific work. The production of the specific work is the owed success. If the paid work does not meet the specified requirements of the contract for work, the contract is considered as not fulfilled or poorly fulfilled. This must be examined in each individual case. In summary, in the case of a service contract, the focus is only on the performance of the service, whereas in the case of a contract to produce a work , the occurrence of the specific owed success must be present. Whether a contract for services or a contract to produce a work exists can therefore be determined by taking into account the overall picture and the existence of an owed occurrence of success.

The exact determination in practice of whether a contract for services or a contract to produce a work has been agreed can therefore be extremely difficult in retrospect. However, it can be relevant in order to determine whether a contract to produce a work or a service contract applies, and which claims can be asserted in the event of defects.

In practice, classification difficulties are particularly apparent in the area of software development. In software development, a service contract can be agreed, but also a contract to produce a work. In fact, the distinction is often not easy to make in practice; after all, in the rarest of cases a contract type is deliberately selected, but the mutual rights and obligations are defined and a framework for the performance structure is negotiated. In particular, the treatment of preparatory and consulting activities is more often problematic. For example, in an IT project, maintenance and services are also agreed upon, from consulting to the implementation of jointly developed ideas, so that the assignment to a contract type can be very complex and difficult.

IT and software development contracts often contain elements of both service contract law and work contract law. The legal profession then also speaks of a so-called mixed or mixed-type contract. For some service elements, success may be owed (which then indicates a contract to produce a work), while for other elements, only the service itself is owed and success does not have to occur (for example, in the case of consulting, maintenance, or services). If a contract to produce a work is established, the customer is obligated to accept the service. This has an effect on the distribution of the burden of proof with regard to the freedom from defects of the subject matter of the contract. In the case of a service contract, it is sufficient to show that the agreed service has or has not been provided. In the case of a contract to produce a work, the customer must demonstrate and, if necessary, prove that the work has not been produced as agreed. This often involves considerable effort and entails risks in the event of a dispute. As a preventive measure, it can only be recommended to describe the performance owed as precisely as possible (for example, in a so-called specification sheet), so that the question of whether the performance was in accordance with the contract or defective is easier to answer.

Typical types of contracts that come in the form of service contracts

  • Consulting contract
  • Treatment contract
  • Teaching contract
  • IT contract
  • Software contract
  • Network maintenance contract
  • Influencer contract
  • Mandate contract
  • Insurance contract