With the “Programme for Economic Recovery and Employment” adopted by the coalition committee, the Federal Government has announced numerous reforms to labour law. The aim is to ease the burden on businesses, make the labour market more flexible and reduce red tape.
The announced changes are already attracting considerable attention. On closer inspection, however, it becomes clear that many of the proposals affect only a limited group of employers or can already be implemented to a large extent under current law. There is currently no need for companies to make hasty adjustments. It is, however, advisable to monitor further legislative developments closely and, where necessary, to respond in due course.
Protection against dismissal for high earners
Protection against dismissal is to be relaxed for employees with an annual income of more than 1.75 times the contribution assessment ceiling for statutory pension insurance (currently around 178,000 euros per year). In future, it will be made easier for this group to terminate their employment through judicial dissolution of the employment contract in return for a severance payment. This is intended to remove the risk for employers of having to continue a dismissal protection case despite an invalid dismissal due to the employee’s continued employment.
However, the significance of this change is likely to be overestimated. Only a very small proportion of employees actually reach this income threshold. Furthermore, senior executives already have the option of terminating their employment contract via a court application for termination without giving reasons, in return for a severance payment, and many employees above the aforementioned income threshold are likely to be senior executives.
Interim conclusion: For the vast majority of employers, nothing will change in their current practice regarding employment protection law.
Practical advice: Employers with highly paid executives should review their existing separation strategies as soon as the legislative change has been implemented. For all other companies, there is no need for action.
Fixed-term contracts without objective grounds
According to the Federal Government’s plans, employment contracts entered into by the end of 2030 will in future be able to be fixed-term for up to 48 months without objective grounds. At present, the maximum duration for fixed-term contracts without objective grounds is 24 months. Furthermore, it is to be made possible to enter into a new fixed-term contract without objective grounds with the same employer, and the written form requirement for fixed-term contracts is to be replaced by the less stringent ‘text form’ requirement from the start of 2027.
Interim conclusion: This would significantly liberalise the law on fixed-term contracts compared with the current legal situation. However, it seems questionable whether the changes to the law on fixed-term contracts will actually lead to any noticeable practical change. Even today, many employers do not refrain from using fixed-term contracts because of the legal limits, but because they wish to retain suitable skilled workers on a permanent basis. It remains to be seen whether the planned new regulations will raise issues under EU law. The Fixed-Term Work Directive requires effective protection against the abuse of successive fixed-term contracts, but leaves Member States considerable discretion regarding the specific details of implementation.
Practical tip: Companies should not rush to amend existing contract templates at this stage. Only once the new legislation has been adopted will it be possible to assess what options will actually be available.
Certificate of incapacity for work
The planned changes regarding incapacity for work are the subject of particularly intense debate. In future, under the Continued Remuneration Act, a certificate of incapacity for work will be required from the very first day of illness. Furthermore, sick notes issued over the telephone are to be abolished, and the issuing of incorrect certificates of incapacity for work will be subject to stricter penalties.
Interim conclusion: It remains to be seen whether these measures will actually reduce sick leave. Under the Continued Remuneration Act, employers are already entitled to require employees to provide a certificate of incapacity for work from the very first day of illness. However, to date, this option has often been deliberately not utilised. The reason for this is practical experience, which shows that, not infrequently, a visit to the doctor results in a certificate of incapacity for work being issued for several days or even the whole week. In the case of short-term illnesses, which might otherwise have been overcome after just one or two days, this can actually prolong the period of absence. The abolition of sick notes issued over the telephone is likely to be largely symbolic. This is because such sick notes account for less than two per cent of all certificates of incapacity for work.
Practical tip: Employers who already consider it sensible to require a certificate of incapacity for work from the first day of illness do not need to wait for the new legislation to come into force. They can instruct their employees right now that a certificate of incapacity for work is required from the first day of illness. Employers, on the other hand, who are critical of a requirement for a medical certificate from the first day and wish to continue relying on the existing relationship of trust, can inform their employees at an early stage that they will adhere to their current company policy, provided this remains legally permissible. Federal Chancellor Merz has indicated that companies may deviate from the new rules.
Collective labour law
The Coalition Committee wishes to give the parties to collective agreements greater scope in future to deviate from statutory provisions – for example, in the areas of fixed-term contracts or health and safety at work. At the same time, consideration is to be given to how the introduction of AI systems and other technical equipment within the workplace can be accelerated, despite the works council’s rights of co-determination.
Interim conclusion: The second point, in particular, is of interest from a business perspective. In practice, co-determination under Section 87(1)(6) of the Works Constitution Act (BetrVG) often leads to considerable delays when introducing new software or AI applications. Whether the announced reforms will actually lead to a noticeable acceleration in this regard, however, depends largely on their specific legal framework.
Practical tip: Employers should review existing works agreements on IT systems and AI as of now. Irrespective of the planned reforms, it is advisable to involve the works council at an early stage.
Working Hours Act
Contrary to expectations, the reform package does not contain any amendments to the Working Hours Act. In particular, the switch from a daily to a weekly maximum working time, as announced in the coalition agreement, is not reflected in the resolutions of the coalition committee. Employers therefore do not currently need to take any action in this regard. It remains to be seen whether and when the Federal Government will take up this proposal in a separate legislative process.
Conclusion
The Federal Government has announced comprehensive reforms. The political signal this sends is significant – yet the immediate impact on day-to-day business practice is likely to remain manageable in many cases. The changes to the law on fixed-term contracts are to be regarded as the most far-reaching.
It should be emphasised, however, that these are currently merely political declarations of intent. It remains to be seen how the planned measures will ultimately be shaped in law. In particular, the announced changes to the law on fixed-term contracts and the requirement for a medical certificate are likely to be the subject of intense debate. It cannot be ruled out that the Federal Government will scale back the planned changes.
We are monitoring the legislative process and will keep you informed about the final changes and their practical implications.