German Labour Overhaul: Top Earners Face Easier Firing, Sick Notes Return, and a 31-Month Severance Reality Check
04.07.2026 - 06:15:27 | boerse-global.de
Restructuring a workforce in Germany costs the equivalent of 31 months of salary on average. In the United States that figure is 7 months, in Switzerland or Denmark just 2 to 3 months. That gap – one the federal government says is strangling corporate agility – sits at the heart of a 34-point reform package approved this week. The bundle touches dismissal protection, fixed-term hiring, sick-leave rules and tax treatment of extra pay.
High earners: a shorter path to severance
From January 1, 2027, employees earning more than 1.75 times the contribution assessment ceiling – roughly €177,450 gross a year – will lose the full shield of Germany’s strict unfair-dismissal law. Employers will be able to end a contract even after a socially unjustified firing by filing a judicial dissolution petition. The resulting severance will range between 12 and 18 months of pay. The model borrows from rules already in place for risk-takers in the financial sector, though the income threshold is set lower. The new regime will apply mainly to future contracts.
Reaction is sharply divided. Arbeitgeberpräsident Rainer Dulger welcomed what he called a “necessary change of course”. Verdi boss Frank Werneke, by contrast, called the move an attack on workers’ rights and has already threatened protests. IG Metall has also voiced strong opposition.
Fixed-term contracts: longer, more flexible
The package also loosens rules around temporary employment. For positions filled until the end of 2030, the maximum duration of a fixed-term contract without a specific reason will rise from 24 to 48 months. The number of possible extensions will double, from three to six. Starting January 2027, the current written-form requirement for such contracts will be scrapped altogether – a measure meant to cut red tape for businesses.
Sick notes return from day one
Telephone-based sick certification, introduced during the pandemic, is being abolished. Workers will once again have to present a doctor’s note starting from the very first day of illness. The change affects every employee regardless of income.
Tax adjustments sweeten the reform
Several tax measures accompany the labour changes:
- Severance pay receives preferential tax treatment if the employee quickly finds a new job.
- Sunday and public holiday supplements remain tax-free up to an hourly wage of €75.
- Mini?job flat tax will increase from 2 to 5 percent.
Legal nuance: a small group, a big hurdle
Labour lawyer Alexander Birkhahn downplays the practical scope of the high?earner rule, noting it touches only a tiny fraction of the workforce. “Mistakes in the social selection process remain by far the biggest risk in operational redundancies,” he says. Fellow attorney Sebastian Maiß adds that designing a genuine severance option without a court proceeding would raise constitutional difficulties – hence the roundabout route via a dissolution petition. “That is the only way to square it with the Basic Law,” he explains.
The reform is expected to face months of political and legal debate before its first provisions take effect in 2027.
