Germany's Coalition Pushes Through Labour Overhaul: Severance Replaces Job Protection for Top Earners, Sick Notes Return
Published on 07/05/2026 at 05:13 | Redaktion boerse-global.de
Starting January 1, 2027, employees in Germany who earn roughly €177,450 per year will lose their traditional job protection. Instead, a model borrowed from the financial sector's risk-taker rules will apply: employers can dissolve the employment contract by paying severance, even if the dismissal would not be socially justified. The severance payment is capped at between 12 and 18 months' salary. The income threshold is linked to 1.75 times the contribution assessment ceiling for statutory pension insurance. Only new contracts signed after the law takes effect are affected.
The change is part of a 34-point package approved Thursday by the coalition committee. The government says the reforms aim to boost hiring flexibility and cut red tape. Employer groups have welcomed the relaxation as a long overdue modernisation, while unions warn it will weaken worker protections in a labour market already grappling with demographic shifts.
Fixed-term contracts also get a loosening. Starting immediately (the measure is time-limited until the end of 2030), employers can offer fixed-term contracts without a specific reason for up to 48 months, with as many as six extensions allowed within that period. The previous limit was shorter. The written-form requirement for such contracts will be dropped, a step the coalition calls bureaucratic simplification.
Another headline change: the telephone sick note, introduced during the pandemic, is being scrapped. From now on, employees must provide a doctor's certificate from the very first day of illness. Economists are divided. Supporters argue it will reduce absenteeism; critics warn it encourages presenteeism—showing up to work while sick—and adds pressure on workers already struggling with rising health-related absences.
The package includes several other shifts. The flat tax on mini-jobs (low-income part-time work) will rise from 2 to 5 percent. Tax-free bonuses for Sunday and public holiday work will now apply up to an hourly rate of €75. Meanwhile, works councils' co-determination rights when introducing AI systems are being streamlined. A long-debated extension of the small-company exemption—which weakens dismissal protections in firms with up to 50 employees—is still under political discussion.
The coalition has given Germany's social partners until October to submit their own proposals for further labour-market flexibilisation. The legislative details of the agreed key points are expected to be drafted in the coming months.
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