Germany’s 2027 Labour Overhaul: Longer Fixed-Term Contracts, Stricter Sick Leave, and a Push for 80% Collective Bargaining

A sweeping reform package dubbed “Upswing and Employment,” unveiled by the German government on 2 July 2026, is set to reshape workplace rules from January 2027. The changes touch fixed-term contracts, severance pay, working hours, and sick leave, prompting companies and works councils to brace for a new legal landscape.

When Mediation Boards Can Be Called In

Before a company can request a formal mediation board (Einigungsstelle), it must first demonstrate that serious negotiations have taken place. Only in exceptional cases—such as one party stonewalling, a deal appearing hopeless, or unlawful preconditions being set—can the board be summoned directly. If delays threaten, firms may also seek a court order to establish the board, provided the application is not obviously groundless. This provision is particularly relevant for time-sensitive restructurings, like the one at Zalando’s planned logistics hub in Erfurt, where a social plan has already been approved ahead of the site’s scheduled closure at the end of September 2026.

As German companies prepare for these new workplace rules, ensuring your own health and safety documentation is up to standard is equally critical. A free toolkit provides ready-to-use risk assessments and checklists that help UK employers stay compliant with current regulations. Download the free Health & Safety Toolkit

Fixed-Term Contracts: Up to 48 Months, No Written Form Required

The reform introduces major changes to fixed-term employment without a specific reason. Starting in January 2027, such contracts can run for up to 48 months, with as many as six renewals. This rule is itself temporary, expiring on 31 December 2030. Additionally, the requirement for a written form for fixed-term agreements will be abolished from the same date.

High earners—those with an annual salary exceeding €177,450—gain a special termination right from early 2027. Employers can end the employment relationship by paying severance of between 12 and 18 months’ salary. Tax incentives are designed to encourage rapid re-employment of affected workers.

Other Key Measures at a Glance

The package includes several additional changes:
- Sick leave: The option for a telephone-based sick note will be scrapped. Employees must present a doctor’s certificate from the first day of illness.
- Overtime pay: Tax-free thresholds for bonuses will rise for hourly wages up to €75.
- Shell companies: The formation of shelf European Companies (Vorrats-SE) will be banned.
- AI and co-determination: Social partners have until October 2026 to propose rules on worker participation in decisions involving artificial intelligence.

Boosting Collective Bargaining: A National Action Plan

Alongside the legislative changes, the government is pursuing a separate goal: raising the collective bargaining coverage rate from its current 49% to the EU target of 80%. The National Action Plan includes measures such as granting unions digital access to workplaces and replacing the daily maximum working hours with a more flexible weekly limit.

Top executives have voiced support for this flexibility, arguing that modernised working time models and lower social security contributions are essential for Germany’s international competitiveness. Employer associations have welcomed the reform package, while union representatives say the action plan does not go far enough.

Navigating complex employment law changes is challenging, but your workplace safety obligations remain a constant priority. A free toolkit focused on the Health & Safety at Work Act 1974 gives you nine practical tools, including director liability guides and compliance checklists, to help protect your workforce. Get the free Health & Safety at Work Act 1974 Toolkit

Dismissal Protection: Ifo Study Suggests Further Easing

Academic debate continues over potential relaxation of dismissal rules. A study by the Ifo Institute, published in the second half of 2026, proposes simplifying termination procedures for the top 10% of earners—those with salaries around €101,400 or more. Recommendations include abandoning individual case reviews and shortening notice periods in line with international practices.

Currently, dismissal proceedings in Germany cost employers on average about 2.5 times an employee’s annual salary. The reform efforts aim to reduce this burden. Yet the courts remain strict: the Lower Saxony Regional Labour Court (case reference: 5 SLa 465/25) recently reaffirmed the mandatory three-week deadline for filing dismissal protection claims, though it granted a one-week grace period in a specific instance.

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