German Court Bolsters Job Security as Government Eases Hiring Rules and Raises Top Taxes
Published on 07/08/2026 at 18:34 | Redaktion boerse-global.de
A landmark ruling by Germany’s highest labour court has strengthened workers’ right to remain on the job, even as the coalition government pushes through a package of reforms that loosens dismissal protections and tightens sick?leave procedures. The tension between the two developments underscores a deliberate trade?off: more flexibility for employers in exchange for higher taxes on high earners and increased child benefits, all aimed at closing a €34?billion hole in the federal budget.
Federal Labour Court closes loophole on unpaid leave
On 25?March?2026, the Bundesarbeitsgericht (docket number 5?AZR?108/25) ruled that pre?formulated clauses forcing employees to take unpaid leave are invalid. Until an employment relationship actually ends, workers have a fundamental right to be given duties, the court held. A company may only place an employee on leave without pay if its own interest clearly outweighs the worker’s interest in that specific case. The decision effectively scraps many standard?form “Freistellungsklauseln” commonly inserted into contracts.
Government reforms: longer temporary contracts, no signature needed
The cabinet’s “Programm für Aufschwung und Beschäftigung” (Programme for Recovery and Employment) introduces several changes that run in the opposite direction. Fixed?term contracts without a specific reason will now be allowed for up to 48?months, with as many as six renewals. The rule is initially valid until the end of 2030. Starting in January?2027, companies will no longer need a physical signature to conclude a fixed?term agreement – an email will suffice.
High earners – those grossing more than €177,500 a year – see their dismissal protection weakened. From the same date, employers can terminate such staff by paying a severance settlement. To encourage rapid re?employment, workers who quickly find a new job will receive a tax break on the transition.
Sick notes from day one, end of phone?only certification
Perhaps the most immediate change for ordinary employees: a doctor’s certificate will be required from the very first day of illness, replacing the previous rule that allowed a four?day grace period. The phone?based sick certification introduced during the pandemic is to be abolished entirely. Chancellor Merz stressed that individual businesses remain free to adopt more worker?friendly arrangements.
Labour lawyers expressed caution, citing international experience. According to OECD data, Germany already ranks seventh among developed nations for lost working time due to sickness, at 6.8?%. Studies elsewhere suggest that an early?attest requirement can lead to longer overall sick?leave durations.
Income tax rises at the top, child benefit up
To finance the package, the top marginal income tax rate will climb. It rises to 45?% on annual earnings above €250,000 and to 47?% above €280,000. At the same time, child benefit is increased to €272 per month.
For mini?job holders, the flat?rate tax paid by employers goes from 2?% to 5?%. As a sweetener, extra pay for Sunday and public?holiday work remains tax?free up to €75 per hour.
What employees should know about contract changes
Many firms are already trying to adjust terms through amendment contracts (“Änderungsverträge”). Legal experts point out that nobody is obliged to sign. If the proposed change falls outside the employer’s right of direction, the boss cannot impose it unilaterally. Refusing to sign leaves the company only one option: a dismissal with an offer of amended terms. That route is especially difficult for pay cuts.
Workers facing such a dismissal have three choices: accept the new conditions, reject them (which risks actual termination), or accept “under protest”. The last option triggers a three?week deadline to file a lawsuit.
SPD leader Klingbeil said the reform bundle is designed as a grand bargain to stabilise public finances while stimulating hiring. The opposition has criticised the mix as penalising high earners without guaranteeing job creation.
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