German Coalition Overhauls Fixed-Term and Sick Leave Rules as Court Cancels €415,748 Severance for Compliance Breach

A landmark ruling from the Solingen Labour Court has stripped a former employee of a gross severance payment worth €415,748, after a serious compliance violation came to light only after the termination agreement had been signed. The case underscores a growing tension between individual employment rights and corporate governance — and arrives as Germany’s coalition government pushes through a wide-ranging reform of fixed-term contracts and sick?note procedures.

The Solingen judgment, dated 15 June 2026, concerned an employee who had placed private orders through the company’s internal purchasing system. Although the employment relationship had already ended when the misconduct surfaced, the court applied § 313 of the German Civil Code (BGB), ruling that the discovery amounted to a fundamental disruption of the contractual foundation. As a result, the obligation to pay the hefty severance was voided. Labour lawyers point out that such cases remain rare, but they highlight the growing weight courts place on compliance breaches — even post?termination.

That ruling forms a dramatic backdrop to a separate, but equally significant, development: the coalition’s planned overhaul of employment protection rules. A reform package currently in the pipeline would extend the maximum duration of fixed?term contracts without a material reason from two to four years. For employees hired by 31 December 2030, up to six contract extensions would be allowed. Employers’ associations have welcomed the flexibility, but unions sharply criticised the plans in early July, warning that the change would increase insecurity for young professionals entering the labour market. Currently, around six percent of German employees work on fixed?term contracts, and more than half of those agreements are concluded without a specific justification.

The same reform package targets sick?leave certification. The government intends to require a doctor’s note (Arbeitsunfähigkeitsbescheinigung) from the first day of illness, effectively abolishing the current option of a telephone-based certificate. Labour lawyers have cast doubt on the effectiveness of this measure, noting that forcing employees to obtain documentation earlier often leads to longer overall absence periods. For existing contracts, the principle of Günstigkeitsprinzip (the “favourability principle”) applies: any clause that currently allows a certificate to be presented only from the third day remains valid for that worker. Individual agreements between employer and employee are still permitted.

At the heart of many workplace disputes, however, is the simple act of refusing to sign an amendment contract. Employers frequently present staff with revised terms and hope for a signature — but employees are under no legal obligation to agree. Without the worker’s consent, the employer cannot unilaterally impose new conditions. Experts advise any employee who receives such a document to seek thorough legal review before signing.

If a worker refuses, the employer’s only remaining tool is often a “change dismissal” (Änderungskündigung): terminating the current contract while simultaneously offering re?employment on modified, usually less favourable terms. This type of dismissal faces strict legal hurdles. It must be socially justified and backed by a solid, objective reason. Pay cuts, in particular, have frequently been found untenable in court. When a workforce reduction is involved, a flawed social selection process is one of the most common errors on the employer side, labour lawyers say. Many such disputes end in a settlement and a severance payment — though, as the Solingen case shows, even that settlement can later unravel.

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