German Coalition Deal Reshapes Dismissal Rules and Targets Shell Companies Used to Bypass Worker Rights

A broad reform package agreed by Germany’s governing coalition in July 2026 will introduce significant changes to employment law, including looser dismissal protections for high earners and stricter rules on so-called shelf companies used to circumvent worker representation. The measures come as tensions between national labor standards and cross-border corporate strategy play out in high-profile disputes.

Curbing the Use of Shelf SEs and Simplifying AI Co-Determination

One of the package’s core aims is to prevent companies from using pre-registered European Companies (Societas Europaea, or SEs) primarily as a tool to avoid co-determination obligations. According to experts at PwC Legal, the reforms also seek to streamline how employee representatives engage with employers on the use of artificial intelligence in the workplace.

At the same time, the government is relaxing some rules for employers. Fixed-term contracts without a specific reason will be permitted for up to 48 months, with up to six possible extensions, though this provision is capped until 2030. From January 1, 2027, the written form requirement for such contracts will be dropped. Employees earning more than €177,450 annually will see their dismissal protection weakened. In a separate change, the legal default will shift to requiring a medical certificate from the first day of illness.

Staying compliant with health and safety law is a core duty for any employer, and the right documentation makes all the difference. A free toolkit provides ready-to-use risk assessments, checklists, and guides that help UK businesses meet their obligations under the Health & Safety at Work Act 1974. Download the free Health & Safety at Work Act 1974 Toolkit

Swedish-Owned Plant in Germany Faces Job Cuts

The limits of national co-determination are starkly illustrated by the case of Walter AG, a subsidiary of Sweden’s Sandvik group based in Münsingen. The company plans to move blank production to Sweden and the manufacturing of indexable inserts to the Czech Republic. On July 23, 2026, the works council and the IG Metall union protested the plans, which could eliminate an estimated 160 of the 500 jobs at the site.

Worker representatives argue the German facility holds a technology-leading position within the group. The dispute underscores the difficulty local works councils face when trying to influence strategic decisions made at foreign headquarters.

EU Pushes ‘EU Inc.’ While OECD Standards Face New Scrutiny

At the European level, the European Commission has been working since March 2026 on an initiative called “EU Inc.” This new optional legal form is designed to simplify startup creation across borders. National labor and tax law will explicitly remain unaffected. A final vote is expected by the end of 2026.

Separately, a July 2026 analysis of the OECD Guidelines for Multinational Enterprises examines how National Contact Points and investment committees can strengthen these standards. The focus is on the interplay between voluntary guidelines and legally binding instruments.

Court Reinstates Hotel Works Council Chair, Factory Elects First Body

The Offenbach Labor Court dealt with the summary dismissal of the works council chair at the Offenbach Sheraton Hotel on July 24 and 25, 2026. The dismissal, issued on June 26, 2026, provided no reasons. The court ruled it invalid because the works council had not consented. A further hearing is scheduled for late August.

In Elmshorn, employees of Nutracorp (part of The Quality Group) achieved a milestone after a three-year legal battle spanning five instances, up to the Federal Labor Court. On June 24, 2026, a works council was elected for the first time. The body began its work on July 3, 2026.

Group Transport Counts as Paid Working Time

A European Court of Justice ruling from October 9, 2025 (case C-110/24) remains critical for companies with mobile workforces. It states that employer-organized group transport to changing work sites must be fully counted as working time. This affects sectors such as construction, nursing, and skilled trades.

With mobile workforces and changing work sites, a comprehensive health and safety approach is essential. Over 37,000 UK businesses already use a free toolkit that covers everything from risk assessments to fire safety and first aid, helping protect employees and visitors alike. Get the free Health & Safety Toolkit

Failure to comply can push the effective hourly wage below the statutory minimum of €13.90, which has been in effect since January 1, 2026. Legal experts warn that violations risk back payments and fines, with a three-year statute of limitations.

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