AI, 48-Month Contracts, and a Dismissed Works Council Chief: Germany’s Labour Landscape Shifts
Published on 07/23/2026 at 17:43 | Redaktion boerse-global.de
A sweeping reform package containing 34 measures is set to fundamentally reshape German labour law, introducing longer fixed-term contracts, tighter sick-note rules, and new digital obligations for works councils. The changes, bundled under a government “Programme for Recovery and Employment,” take effect in phases starting January 2025.
Fixed-term contracts get a major extension. Employers will soon be able to offer contracts without a specific reason for up to 48 months, with as many as six renewals allowed within that period. This temporary rule runs until 31 December 2030. From 1 January 2027, the written-form requirement for such contracts will be scrapped entirely, a move designed to speed up hiring but one that critics say could weaken worker protections.
Employees earning more than €177,450 gross annually will gain a new dissolution option from January 2027. Tax incentives for severance payments are also planned, provided the worker quickly moves to a new job.
Sick notes return to day one. The pandemic-era practice of phone-based sick certification is being abolished. From now on, employees must present a medical certificate from the very first day of illness.
AI and co-determination get new rules. The government plans to accelerate co-determination procedures when companies introduce artificial intelligence. To prevent circumvention, shelf SE companies—empty corporate shells—will be banned. A recent HR report underscores the urgency: 57% of respondents cited cost pressure as their top concern, and 55% named digitalisation and AI. Yet while 81% of HR professionals already use AI tools daily, only 4% of the broader workforce is considered adequately prepared.
Playmobil fires its works council chief. In a stark illustration of co-determination conflicts, toy manufacturer geobra Brandstätter Stiftung & Co. KG, known for Playmobil, dismissed its works council chairperson in July for alleged serious breaches of duty. The firing came shortly after the closure of a plant in Dietenhofen at the end of June, which cost 350 jobs.
Federal Labour Court to rule on key questions. In August, Germany’s top labour court will decide several fundamental issues: whether the representative body for severely disabled employees may forward sick notes, and whether works councils have discretion in scheduling meetings during working hours. Earlier this year, the court clarified that the right to information under the Pay Transparency Act covers only the last completed calendar year and applies at the plant level, not company-wide. Future EU directives could force a reassessment.
Tariff law gets more flexibility. New opening clauses will make it easier for companies to deviate from collective agreements. Higher tax-free allowances for Sunday, holiday, and night work supplements will apply for hourly wages up to €75. In-house arbitration boards can now be convened without lengthy preliminary negotiations if a deadlock is evident; court review will only check whether the request is obviously unfounded.
Training push for horticulture. In June, the NAWIGALA II project launched, offering two years of free training for the horticulture sector, funded by the Federal Family Ministry and the European Social Fund Plus. Meanwhile, regulatory training is gaining urgency: the NIS-2 directive will impose management obligations on company directors and executives from September 2026, requiring enhanced qualifications.
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