German Labour Reform Targets AI Works Council Rights, Bans 'Shell' European Companies
Published on 07/23/2026 at 21:52 | Redaktion boerse-global.de
A legal battle at the Ravensburg Labour Court is exposing deep rifts in German workplace representation, even as the government pushes through its most ambitious labour reform package in years. The Christian Metalworkers’ Union (CGM) is seeking to oust Achim Dietrich, the head of the main works council at automotive supplier ZF Friedrichshafen, accusing him of orchestrating the collapse of a works meeting and adopting a deliberate obstructionist stance. The hearing is set for 24 July 2026.
The CGM holds just 4 of 33 seats in the commercial-vehicle division — a clear minority position. A works council spokesperson rejected the allegations, while ZF itself declined to comment. The case underscores the tensions that can arise when minority factions challenge dominant council leadership.
Sick Leave Doesn’t Strip Council Mandate
A separate ruling on 22 July 2026 has clarified a long-standing ambiguity for Germany’s 200,000-plus works councillors. Being signed off sick does not automatically void a council member’s mandate, the court decided. Members may participate in meetings if they explicitly declare themselves fit to do so.
The practical consequence for council chairs: they must formally invite members even when those members are on sick leave. A blanket assumption that illness prevents attendance is no longer permissible. Instead, each case requires an individual assessment of whether the member is genuinely unable to exercise their duties.
Government Bans ‘Shell’ SEs, Accelerates AI Co-Determination
The centrepiece of the government’s “Reform Package for Upturn and Employment,” passed on 2 July 2026, contains 34 individual measures — including a bombshell for corporate governance. The government plans to ban so-called “Vorrats-SE” — shelf companies registered as European Companies (Societas Europaea) purely to bypass German co-determination rules requiring worker board representation.
Alongside the SE ban, the package speeds up co-determination procedures when companies introduce artificial intelligence systems. Other key changes: fixed-term contracts without a specific reason are extended to 48 months through 2030. From 1 January 2027, the written-form requirement for such contracts will be dropped. And employees earning more than €177,450 annually will gain a new right to dissolve their contracts from 2027 — effectively making high-earners easier to dismiss.
Phone Sick Notes Scrapped, Paper Note Required From Day One
The reform also abolishes telephone sick notes. From now on, employees must submit a doctor’s certificate from the first day of illness — a sharp reversal of the pandemic-era relaxation that employers had long criticised as open to abuse.
National Plan to Boost Collective Bargaining Coverage
On 22 July 2026, the federal cabinet adopted a National Action Plan to strengthen collective bargaining coverage. The trigger: an EU directive requiring member states to act when coverage falls below 80 percent. Germany currently sits at just 49 percent.
The plan includes a digital access right for unions to enter workplaces. Additionally, the Federal Collective Bargaining Compliance Act has applied since May 2026 to public contracts worth €50,000 or more. DGB chairwoman Yasmin Fahimi dismissed the plan as insufficiently ambitious. Her federation is demanding that collective agreements continue to apply during corporate restructurings and that works council members receive stronger legal protection. According to DGB calculations, the flight from collective bargaining costs the German economy roughly €123 billion annually.
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Arbitration First, Litigation Last
The reform also tightens rules on the Einigungsstelle — the mandatory arbitration body for works council disputes. Legal experts stress that parties must engage in genuine negotiations before calling in an arbitrator. A court may still impose arbitration if talks are clearly blocked or futile. The number of meetings held is irrelevant; the only test is whether the application is manifestly unfounded.
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