Is it standard practice to use the female gender in legal German?

I disagree with most of the other answers:

As used here, this language is plain and simply WRONG, and you should request a correction.

All the talk about generic masculinum, etc. correctly points out that there is an ongoing discussion about how to use gender, but misses the elephant in the room: That this discussion is about texts that refer to both men and women.

An employment contract is not in this category of things. An employment contract refers to one specific individual - you.

It is not too much to ask for an HR department to have two versions of a standard employment contract on file, and use either the male or the female version, depending on the employee. If they're worried about transgender people, they can offer both versions and let the employee pick, or have a third version.

The simple fact of the matter is that "Absolventin" does by the rules of the german language refer to a female person. It doesn't matter what political discussion is behind it, as they specifically refer to the "rules of the german language", this is a simple linguistic fact. In this text, which refers to a specific person, the words are not a generic masculinum/femininum/neutrum, because they aren't generic, they are specific.

One interesting aspect of the question is what the "rules of the German language" actually are. That came up during the 1996 orthography reform and the political and legal wrangling which followed.

• There is no official, general-purpose definition of the German language.
• German state-level education officials decide the standard for teaching and grading in school. They coordinate among each other and with other German-language nations.
• For all practical purposes, the Duden, a commercial dictionary, sets the standard in schools and elsewhere. They are trying to walk a balance between prescribing proper language use and describing actual language use. The addition and removal of words makes the occasional news article on slow news days ...

The other answers focus on forms where male and female are packed into one word, but miss the style that is used in the said work contract. It seems they used a form where they sprinkle male and female form more or less randomly over the text, so that everyone feels included. Often, this is accompanied by a disclaimer stating that male and female form are used interchargably and the use of one does not exclude the other. This way of expressing is especially usefull in spoken language, as it does not sound as awkward as the use of the "Gendersternchen", where the words are pronounced with a audible pause in place of the asterisk.

It seems to work, as I know a science podcast where the moderators always make sure to use the female form about 50% of the time, and feedback has been, that this motivated young females to start a carrer in science as they feel they have a place there.

This answer focuses on distinguishing "Rules of German language" from "Language policies of specific organisations"

The use of female forms in work contracts is not related to "rules of German language" (as your employer reportedly claimed), it is related to a language policy of that particular employer.

Generally, in "official" texts in German, authors tend to address both traditional genders ("male" and "female"), or sometimes they nowadays also try to include new, non-traditional genders such as "divers".

This is particularly so for texts issued by government organisations / authorities because they are bound to such practice by their internal directives. Likewise the HR departments of the bigger companies have that habit, most visibly so in job offers where they almost always offer jobs like

Friseur/Friseurin*
Bäcker/in
Auszubildende/r
Kaufmann/Kauffrau für Tourimus und Freizeit

which is rooted in the legal obligation to not discriminate against anybody in job offers etc. and the risk of being sued by other candidates for the job in case of alleged discrimination.

As for the spelling, there is no general rule how to spell these things for German language as such, but certain ways of spelling are established in certain areas of publishing, not least in legal contexts. The older way was to use a slash (/) or a capital "I" (BürgerInnen). There is a newer trend to use an asterisk (*), resulting in things like

Sehr geehrte*r Interessent*in

where the asterisk is meant to indicate openness to any possible gender (include non-traditional ones like divers)

Again, all this is not about the "rules of German language". It is about policy of certain institutions/organisations, or anti-discrimination laws in certain areas of public communication.

Opposed to that, you will hardly find "gendering" in belles lettres / poetry / fiction / nonfiction books. These are genres where elegance of language is usually seen as more important than political correctness, and a majority of readers (and professional writers) still find all the attempts of "gendering" too clumsy and cluttered. So you would then use

Die Lehrer gingen auf die Straße und protestierten, denn die
Lehrergehälter waren ihnen zu niedrig.  

where the female teachers (Lehrerinnen) are seen as automatically included.

In an "official" text, however, this sentence would rather be something like

Die Lehrer und Lehrerinnen gingen auf die Straße, denn ihre Gehälter waren ihnen zu niedrig
Die Lehrer/innen... 
Die Lehrer*innen... 

As you were wondering about your work contract: the employer would well have been able to use the correct gender for you (i.e. sticking to what you indicated him to be your gender), but most probably they use a broadly applicable template text fitting all possible genders just to save editing time. Claiming that this is because of the "rules of German language" is a typical utterance of a person not really educated in German linguistics.

For a long time, the standard in German was the generisches Maskulinum. This means in short that when the masculine form is used, any other sexes or genders are implicitely included. For example, "Absolvent" was supposed to refer to any "Absolventin"s as well.

Since about the 1980s, criticism of this practice grew. This isn't the place to reiterate this discussion, but for the last decades people tried to find more inclusive and equitable forms of speech.

For example, some people combine the male and the female form, like

Absolvent/in

AbsolventIn (note the capital I)

Absolvent*In

The asterisk in the last example is the "Gendersternchen" that you'll find mentioned occasionally. It's meant to refer to not only male and female, but other genders as well.

Others add the genders in brackets, so to speak. This is a form that you'll often find in job offers.

Absolvent (m / w) (meaning "männlich oder weiblich")

Recently, this form has been extended to include people who don't identify as male or female.

Absolvent (m / w / d) (with the "d" meaning "divers", "diverse")

Others again try to replace the the generisches Maskulinum with something like a generisches Femininum. Meaning, they use the female form with the unspoken implication that everybody else is meant as well.

Others yet again try to use forms that don't specify the gender at all. This is mostly used with somebody's current occupation, like

Studierende

Mitarbeitende

This form doesn't work in every case, you can't exactly say something like "Absolvierthabende" ;)

This is very much a "work in progress" and an ongoing discussion in society. Some people will rant for hours about "that ridicious genderization", others will lay into you if you don't gender things properly (the way they think it should be done).

MitarbeiterIn or Mitarbeiter/in would be correct, it's the default for male or female.
If it is Mitarbeiterin, always ask for correction - long live the bureaucracyland :D