Berlin's Labour Overhaul: Longer Fixed-Term Contracts, Day-One Sick Notes, and a Symbolic Nod to Top Earners

The president of the German Institute for Economic Research (DIW) has dismissed one of the government’s flagship labour proposals as “largely symbolic”. The comment came after the coalition unveiled a sweeping package of reforms on 9 July, branded the “Programme for Economic Upturn and Employment”.

At the heart of the plan are three major changes: an extension of fixed-term contracts, a new requirement for medical certificates from the first day of illness, and a partial removal of dismissal protection for high earners. The reforms also include tax breaks on severance pay for those who quickly move into a new job.

Fixed-term contracts doubled to 48 months

Employers will soon be able to hire staff on fixed-term contracts without a specific reason for up to 48 months—double the current limit. Until the end of 2030, they may also extend such contracts up to six times. Supporters argue the change will stimulate hiring. Trade unions, however, warn it will deepen job insecurity for millions of workers.

Sick notes from day one—but legacy contracts may shield workers

The government intends to reintroduce the requirement for a doctor's note from the first day of absence, while abolishing the option of a telephone sick note—a pandemic-era convenience that allowed employees to stay home without visiting a practice. A specialist employment lawyer has cautioned that existing employment contracts with later deadlines for submitting a sick note are protected by the principle of favour (Günstigkeitsprinzip). The head of the AOK health insurance fund criticised the move as “symbolic politics”, pointing out that telephone sick notes account for only a small share of all certifications.

Dismissal protection lifted for the top 0.27%

From 2027, workers earning a monthly gross salary of roughly €15,000 or more will lose the standard protection against dismissal under German law. The measure affects barely 0.27 per cent of all employees, and more than half of this group is over 55 years old. An expert from the Institute for Employment Research (IAB) warned that the salary threshold could act as a career ceiling, discouraging promotions. The DIW president’s assessment echoed that point: the reform is largely symbolic.

Court rulings clarify pay equality and overtime burden

Germany’s Federal Labour Court (BAG) ruled in late 2025 that employers cannot deny a general pay rise to staff simply because they refuse to switch to a new standard contract. Doing so, the court said, violates the principle of equal treatment.

On overtime, the BAG has made clear that the burden of proof remains with the employee. In a ruling from May 2022, the court stated that the mandatory recording of working hours is primarily an occupational safety measure. Anyone claiming overtime pay must prove that the extra hours were ordered, approved, or absolutely necessary for completing the job.

EU cuts red tape for short business trips

Since 7 July, the A1 certificate—a document proving social security coverage in the home country—is no longer required for short business trips of up to three days per month. The construction sector is exempt. For “workations” abroad, there is still no legal right to this simplification; from a social insurance perspective, such stays are treated as postings.

Platform work report delivers scathing verdict

The “Fairwork Report”, published on 10 July, paints a harsh picture of Germany’s gig economy. One delivery service scored seven out of ten points, but several major ride-hailing and food-delivery platforms received zero points. The report recommends a mandatory direct employment model. The EU Platform Work Directive must be transposed into national law by 2 December 2026.

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