Germany’s 2027 Labour Overhaul: Longer Fixed-Term Contracts, Same-Day Sick Notes Become Law
Published on 07/26/2026 at 07:02 | Redaktion boerse-global.de
A broad package of labour-law changes announced by Germany’s ruling coalition on 24 July 2026 will, from 1 January 2027, scrap the written-signature requirement for fixed-term contracts, extend the maximum duration of such contracts to 48 months, and make a doctor’s note mandatory from the first day of illness. The reforms, reported by PwC Legal, are designed to give employers more staffing flexibility while accelerating the adoption of artificial intelligence in the workplace.
Under the new rules, fixed-term contracts without a specific reason can run for up to four years, during which time up to six extensions are permitted. The previous ban on rehiring former employees on such contracts will also be relaxed, making it easier for companies to bring back experienced workers. The abolition of the written-form requirement for fixed-term agreements is intended to reduce administrative burden, particularly for small and medium-sized enterprises.
The sick-note rule marks a significant shift. From 1 January 2027, employees will generally be required to submit a medical certificate from the first day they are absent due to illness. Until now, this obligation was typically set out in individual employment contracts or collective agreements; making it the legal default is expected to reduce absenteeism and simplify payroll processing for firms.
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High earners will face a different set of rules. Employees with a gross annual salary of at least €177,450 — equivalent to 1.75 times the social-security contribution ceiling — will be subject to simplified dismissal procedures from the start of 2027. In such cases, the employer can terminate the contract by paying a severance package, bypassing the usual protection against unfair dismissal. To encourage rapid re-employment, the government will introduce a tax break for workers who find a new job quickly after receiving a severance payment.
The coalition is also closing a loophole used by some companies to avoid employee codetermination rights. The use of shelf companies structured as a Societas Europaea (SE) — a European legal form that has been exploited to sidestep German board-level worker representation — will be banned. The move follows years of criticism from unions and labour lawyers who argued that the SE vehicle allowed firms to circumvent mandatory supervisory-board seats for employees.
On the compensation side, the package raises the tax-free ceiling for Sunday and public-holiday supplements to €75 per hour, effective 1 January 2027. The increase is aimed at industries with heavy shift work and weekend schedules, such as healthcare, logistics and manufacturing, where employers have struggled to fill posts.
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The coalition’s broader goal is to modernise labour law for a digital economy. The simplification of codetermination rules for AI deployment — a separate element of the package — is meant to remove barriers to introducing automation and data-driven tools. Taken together, the changes represent the most significant overhaul of German employment legislation in a decade, balancing employer demands for flexibility with continued protections for the majority of the workforce.
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