Germany’s governing coalition has agreed on a wide-ranging reform package aimed at increasing labor market flexibility and reducing administrative burdens.
Key measures include:
- Eased Dismissal Protection for High Earners: employers may be granted the ability to terminate employment against payment of a statutory severance for employees earning more than 1.75 times the statutory pension contribution assessment ceiling.
- Digitalization and AI: the coalition intends to facilitate the implementation of AI systems.
- Greater flexibility for fixed-term employment: fixed-term contracts without objective grounds may be permitted for up to 48 months (currently two years), with up to six extensions (currently three), and renewed fixed-term hiring by the same employer may become possible.
- Changes to sickness absence rules: telephone sick notes may be abolished and employees may be required to provide a medical certificate from the first day of absence.
The proposals are not yet law and must undergo the legislative process. Employers with operations in Germany should monitor the legislative process closely, as the proposals could significantly affect hiring, workforce planning, restructuring and workplace technology projects from 2027 onward.
We can help you track developments, assess the potential impact on your workforce strategy and employment framework, and prepare for any changes affecting fixed-term employment, senior-level exits, absence management, and the implementation of AI systems. We have also prepared a practical overview of the current German works council participation and co-determination rights relevant to the implementation of AI systems, which can help employers assess potential consultation and approval requirements at an early stage.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Employment practice.
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