German Courts and Government Reshape Labour Rules: Fixed-Term Contracts Extended, Severance for High Earners from 2027

Germany's labor landscape shifts with longer fixed-term contracts, new severance for high earners, and key court rulings on works councils, foreign firms, and tariff agreements.

Germany’s labour landscape is shifting on multiple fronts. While the federal government unveiled a wide-ranging reform package on 2 July 2026 that includes longer fixed-term contracts and new severance options for top earners, several recent court rulings have clarified long-disputed boundaries between local and central works councils, the reach of German co-determination to foreign companies, and the primacy of collective agreements.

Reform: More Time for Fixed-Term Contracts, Severance Path for High Earners

The government’s proposed changes, announced in early July, target two key areas. First, fixed-term employment without a specific reason (sachgrundlose Befristung) would be extended to a maximum of 48 months — doubling the current legal limit. Second, employees earning at least 1.75 times the contribution assessment ceiling for social insurance would, from 2027, have new options to end their contracts in exchange for a severance payment.

The reform has drawn mixed reactions from business associations and unions, but the legislative timeline is moving quickly.

Courts Draw Lines on Works Council Authority

A decision by the Verband deutscher ArbeitsrechtsAnwälte, citing a recent ruling, makes clear that a central works council (Gesamtbetriebsrat, GBR) cannot intervene in local working-time issues merely for administrative convenience. Cost-saving motives or a centralised payroll do not justify overriding plant-level decisions. Only when employees at different sites collaborate so closely that isolated regulation at one location becomes impractical does authority shift to the GBR.

In a separate case, the Berlin-Brandenburg Regional Labour Court (Landesarbeitsgericht Berlin-Brandenburg) ruled on 15 April 2026 that German co-determination rules apply to foreign-owned companies operating in the country. A foreign airline with bases in Malta and Ireland lost its emergency appeal after unilaterally setting rosters for pilots stationed at Berlin Brandenburg Airport (BER). The judges affirmed the international jurisdiction of German labour courts over those pilots, blocking any attempt to evade co-determination by shifting functions abroad.

Tariff Agreements Trump Company Pacts

On 6 March 2026, the Cologne Regional Labour Court (Landesarbeitsgericht Köln) reinforced the hierarchy between collective and company-level agreements. The question was whether shift workers who are sick on a public holiday receive a time credit in addition to pay. The court held that the federal public-service tariff agreement (TVöD-F) only guarantees compensation for lost wages — no extra time off. Company-level works councils cannot create additional entitlements that go beyond the tariff contract.

Time Recording: No Minute-by-Minute Tracking Required

Working-time recording rules also saw judicial attention. On 2 July 2026, the Stralsund Labour Court (Arbeitsgericht Stralsund) rejected a union lawsuit demanding minute-precise electronic timekeeping for overtime. Monthly timesheets approved by a supervisor are sufficient to meet documentation obligations.

A practical reminder for employers: clauses in employment contracts that waive overtime pay (Abgeltungsklauseln) are valid only if they specify a concrete upper limit — typically between 10 and 15 percent of regular working hours. Without such a cap, standard legal overtime compensation rules apply.