Germany's New Dismissal-Protection Threshold: Who Actually Benefits From the 177,450-Euro Rule?

The coalition government's decision to loosen dismissal protections for high earners has sparked a pointed rebuke from one of Germany's most prominent labor market researchers, who argues the reform will touch barely a fraction of a percent of the workforce.

On July 31, 2026, Union and SPD leaders agreed to raise the income ceiling above which employees can be let go with greater ease. Under the planned changes, workers earning more than 177,450 euros in gross annual salary would see their dismissal protection significantly reduced.

The Bonus Question Splits the Coalition

What sounds like a straightforward threshold is actually mired in a contentious internal debate. At the heart of the disagreement: how to treat variable compensation when calculating whether an employee crosses the 177,450-euro line.

For top earners, bonuses and stock options frequently represent a substantial slice of total pay. Whether those components count fully toward the threshold will determine just how many employment contracts fall under the new, weaker protection regime. Include them, and the pool of affected workers grows considerably.

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A Researcher's Warning About Career Mobility

Enzo Weber, a labor market expert at the Institute for Employment Research (IAB), pushed back against the plan on the same day the coalition announced it. His calculations put the affected group at roughly 0.27 percent of all employees in Germany — a sliver of the workforce, and one composed almost entirely of senior management.

Weber called the initiative counterproductive. His concern centers on what the signal does to internal career dynamics: if companies can shed top-level staff more easily, the incentive structure for climbing the corporate ladder shifts in ways that could stall upward mobility. Rather than legislating flexibility from above, he argued, the government would do better to nurture structural flexibility within companies themselves.

The Investment Argument Behind the Reform

The push to soften dismissal rules has been simmering for years, framed repeatedly as a matter of international competitiveness. The cost of severing ties with employees has long been cited as a drag on corporate investment decisions — a 2024 study by researchers Coste and Coatanlem explicitly identified high separation costs as a meaningful barrier to investment.

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By carving out an exemption for the highest earners, the coalition hopes to make personnel changes in leadership positions more predictable and less financially risky. Whether the newly agreed income threshold — and the unresolved treatment of bonuses and stock options — will actually move the needle on investment remains an open question, one that will continue to fuel political and economic debate in the months ahead.

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