Labour law in a state of flux
On 2 July 2026, the leaders of the CDU, CSU and SPD agreed on a reform package comprising 34 measures relating to taxation, the labour market and the reduction of red tape. These are currently political proposals which still need to be translated into specific draft legislation and adopted through the legislative process. Nevertheless, significant changes are already on the horizon, and employers in particular should keep a close eye on them at an early stage.
Fixed-term contracts without objective grounds: greater flexibility, greater responsibility
The plan is to allow fixed-term contracts of up to 48 months, without objective grounds, for employees recruited up to 31 December 2030, with up to six extensions; it will also be possible to be re-hired by the same employer. This significantly extends the previous limit of 24 months and gives employers greater flexibility in their staff planning. At the same time, there is a growing responsibility under employment law to plan and document chains of fixed-term contracts carefully and in a legally compliant manner, in order to avoid allegations of abuse.
Tax incentives for changing jobs quickly
In future, severance payments are to be given tax relief if the employee takes up new employment promptly – the sooner they do so, the greater the tax benefit. This can make mutually agreed termination agreements more attractive and significantly shorten the duration of employment disputes. Employers should adapt their settlement and termination strategies at an early stage to take account of these potential tax incentives.
High earners: Planned exit mechanism with severance pay
For high earners with incomes exceeding 1.75 times the contribution assessment ceiling for the statutory pension scheme, a termination mechanism with a severance pay option is to be introduced from 1 January 2027. This can make the departure of key personnel more predictable and faster, and establish a clear legal framework for mutually agreed terminations. Details regarding eligibility criteria, procedures and the levels of severance pay are still to be finalised – employers should therefore assess in good time how executive contracts can be structured and adapted in future.
Compulsory sick leave from the first day
In order to tackle the high levels of sick leave that have risen in recent years, the practice of issuing sick notes over the phone is to be abolished; at the same time, there are plans to introduce a requirement to submit a certificate of incapacity for work from the first day of illness. It should be possible to deviate from this in individual contracts, collective agreements or works agreements. For employers, this means greater transparency and predictability; for employees, however, it entails additional organisational effort.
Opportunities and risks of the reform
The specific legal framework and the exact timetable have yet to be finalised, but implementation is expected within the next few months to a few years. Employers should already be prepared for the changes and review and adapt their processes and policies within the organisation, even if there is no urgent need for action at present. Alongside other measures, such as more tax-favoured Sunday and public holiday allowances or schemes to tackle unemployment, many of the changes were, in principle, welcome to a wide range of stakeholders in the labour market. Depending on the specific provision, however, these may entail advantages or, conversely, disadvantages for employers and/or employees. With regard to the extended option for fixed-term contracts, there is criticism that this amounts to a ‘perpetual probationary period’, which, in some circumstances, may lead to unreasonable and growing uncertainty for employees.
This raises the question: Is that really fair – and fair to whom?
It remains to be seen what impact these changes will have on working life and whether they will actually achieve the desired results.
