Compared to many other countries, Germany has rather strict labor and employment laws. The current government has just announced plans to make employment law more flexible through comprehensive changes. Among other things, these plans include:

• Allowing fixed-term employment contracts more frequently and for longer periods
• Enabling employers to terminate the employment of “high earners” in exchange for a severance payment, even without a specific reason
• Tightening the requirements for employees to take sick leave
• Making it easier to implement and update software in companies with a works council.

Against this background, employers should already assess how they can best benefit from the new regulations, for example with regard to employment contracts and proceedings in case of terminations. However, it should be noted that the plans still need to be approved by parliament and implemented into law. Changes to the plans are therefore possible.

Key takeaways

• For employees hired until December 31, 2030, it is planned that fixed-term employment contracts without objective grounds will be permitted for a maximum duration of up to four years and may be extended up to six times. This would provide additional flexibility for employers and is particularly helpful for companies that rely on such flexibility, such as start-ups.
• For high earners, it is planned to introduce a regulation effective January 1, 2027 that allows termination of the employment relationship in exchange for a severance payment. Even if a court does not consider the termination to be socially justified, this instrument would still allow the employment relationship to be terminated. This creates a promising tool in termination proceedings involving employees with high income.
• Other planned changes, such as stricter rules for employees taking sick leave, tax advantages for severance payments also appear attractive for businesses in Germany.
• Even though the resolutions of the coalition committee must still be approved by parliament, the plans are already quite tangible. The likelihood of approval is increased given that the proposals are the result of negotiations between the coalition parties.

In more detail

More flexibility for fixed-term contracts:

• For employees hired until December 31, 2030, it is planned that fixed-term employment contracts without objective grounds will be permitted for a maximum duration of up to four years – rather than the previous two years – and may be extended up to six times, instead of the previous limit of three extensions. In this context, it will also be possible to rehire an employee by the same employer for the first time.