German Labor Courts Reshape Vacation Rules and Sick-Leave Scrutiny

Recent German labor court rulings limit employer power to override vacation laws, while tightening sick note scrutiny. EU pay transparency and Working Time Act reforms loom.

Two recent rulings from German labor courts have shifted the balance between employer authority and employee protections, making clear that long-standing company practices cannot override statutory rights.

In a decision dated March 2, 2026 (case number 4 Ta 15/26), the Thuringian State Labor Court struck down a company rule that limited consecutive vacation to two weeks. The judges found that such a restriction violated Section 7, Paragraph 2 of the Federal Vacation Act, which guarantees workers a sufficiently long recovery period. The case involved an employee who wanted three consecutive weeks off. The employer refused, citing a long-standing "company practice." But the court ruled that a mere internal custom is not enough—valid operational reasons are required. It granted the worker's three-week request via temporary injunction.

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The ruling aligns with a line of higher-court precedent. In July 2025, the Federal Labor Court had already clarified that vacation claims for ill workers only expire 15 months after the end of the relevant vacation year.

While the vacation-length ruling strengthens employee rights, a separate decision by the Heilbronn Labor Court in March 2026 sends a warning about abuse. The court dismissed a worker's claim for continued wage payment of 700.21 euros after he submitted a sick note immediately following his vacation. The court found the doctor's note's evidentiary value was undermined by a recurring pattern over two years—plus the fact that the employee had previously requested a vacation extension that the employer denied. Under such circumstances, the burden of proof shifts: the employee must provide more substantial evidence of illness. The court followed the Federal Labor Court's approach (case 5 AZR 149/21), which had set similar standards for sick notes submitted right after a dismissal notice.

EU Pay Transparency and Legislative Changes Loom

Germany has missed the implementation deadline for the EU Pay Transparency Directive, adopted in 2023. Starting June 8, 2026, some provisions will apply to the public sector and state-owned enterprises—but the European Commission has already threatened infringement proceedings. The gender pay gap in Germany currently stands at 16 percent. Legal experts attribute the delay primarily to political disagreements within the federal government.

A major overhaul of the Working Time Act is expected in the second half of 2026. The Federal Ministry of Labor has announced it will present a draft bill by June 2026. Anticipated key points include:

• Mandatory electronic working-time recording
• A shift from daily to weekly maximum working hours
• Retention of the 48-hour weekly ceiling
• Earliest possible enactment: 2027

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Vacation During Short-Time Work and Public Sector Updates

During short-time work (Kurzarbeit), vacation entitlements are proportionally reduced based on actual hours worked. Under "zero-hour short-time work," no vacation claims accrue at all—this follows settled case law from the European Court of Justice and the Federal Labor Court.

In Lower Saxony, municipal employers and the Verdi union agreed to arbitration after the sixth round of public-transit negotiations. The employer side is offering an additional vacation day from 2027 plus converting two existing free days into vacation days—totaling 33 vacation days.

Meanwhile, the Berlin Labor Court rejected a bid by the state of Berlin to ban strikes in municipal day-care centers. The judges ruled that strikers' demands for minimum staffing levels and compensatory measures are legally permissible collective-bargaining subjects.