Germany Plans to Make It Easier to Fire High Earners Starting in 2027
Published on 07/23/2026 at 10:10 | Redaktion boerse-global.de
Germany’s governing coalition is preparing a sweeping overhaul of labor law that would allow employers to dismiss top earners more easily — provided they pay a severance package worth between 12 and 18 months of salary. The change, part of a broader “Program for Recovery and Employment” and a startup strategy unveiled on July 22, targets workers earning roughly €177,000 annually, or 1.75 times the social security contribution ceiling.
The reform package contains 150 measures aimed at helping young technology companies attract and swap talent more flexibly. Alongside the dismissal rules, the government plans to improve capital access and digitize administrative processes. The new termination option would give employers a simplified right to dissolve contracts for high-income staff, a move designed to reduce hiring hesitancy in fast-moving sectors like tech.
Fixed-term contracts could double in length
The proposal also dramatically expands the use of fixed-term contracts without a specific reason. The maximum duration would jump from 24 to 48 months, with up to six renewals allowed within that window. These rules would remain in effect until December 31, 2030. Additionally, the ban on rehiring former employees on fixed-term contracts would be loosened, and the requirement for written form when setting contract limits would be scrapped starting in January 2027.
Critics have raised alarms. Already in 2023, nearly 38 percent of new hires in Germany were on fixed-term contracts. Extending that further, they argue, weakens workers’ bargaining power — with knock-on effects on their ability to secure loans or rental housing.
Phone-based sick notes are out
The pandemic-era policy allowing workers to call in sick without a doctor’s note is being eliminated. Employees will need to present a medical certificate from the first day of illness. Penalties for proven abuse of sick leave will also increase.
To speed up job transitions, the federal cabinet approved a draft law on July 15 modernizing employment promotion. A new “job-to-job trial” period lets workers test a new employer for up to four weeks while keeping their existing job and salary paid by the original employer. The Federal Employment Agency will provide digital support for these processes. Officials estimate the changes will cut bureaucratic costs by €720 million per year.
Ifo Institute pushes for even tougher rules
Alongside the political debate, the Ifo Institute published research showing that average dismissal costs in Germany currently amount to 2.5 times an employee’s annual salary. The institute’s researchers recommend slashing that figure to 1.27 times. They propose lowering the income threshold for easier dismissals to roughly €101,400, which would affect about 10 percent of full-time workers — compared to the top 2 percent covered by the government’s current draft.
Other Ifo suggestions include shortening notice periods along Swiss lines and having the Federal Employment Agency cover 50 percent of the cost for transfer companies that help laid-off workers find new jobs.
Parliament is expected to debate the reform package during 2026, with the first legal changes likely taking effect no earlier than autumn of that year.
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