Germany's Labour Law Labyrinth: Overtime Tax Breaks Stall, Court Rulings Split on Work Time, and EU Pay Gap Deadline Missed

Courts uphold café time-fraud sacking but reverse home-office cases; overtime tax break only for full-timers as Germany misses EU pay transparency deadline.

A cleaner who claimed to be working while sitting in a café lost her job—and the court backed the dismissal. Just weeks earlier, three employees accused of time-fraud in their home offices got their jobs back after a German labour court found their employer had mishandled the case. The contrasting rulings highlight how German labour law is grappling with the blurred boundaries of modern work.

The Landesarbeitsgericht (Higher Labour Court) in Hamm upheld the summary dismissal of a cleaning employee who falsified her working hours by logging time from a café. The court ruled it was deliberate false documentation; neither long tenure nor a recognised disability could shield her from termination. A very different outcome came from the Arbeitsgericht (Labour Court) in Bochum in March 2026, which declared invalid three dismissals for alleged home-office time fraud. The employer had failed to inform the works council about smartworking rules and missed deadlines for a dismissal based on suspicion.

Meanwhile, the German government is trying to make overtime more financially attractive—but only for full-time staff. A draft of the Arbeitsmarktstärkungsgesetz (Labour Market Strengthening Act) proposes that overtime premiums up to 25 percent of the base hourly wage remain tax-free. The benefit, however, is reserved for employees working 34 to 40 hours per week, cutting out the roughly 30 percent of the workforce who are part-time. The law was originally slated for 1 January 2026 but has not yet taken effect.

According to data from the Institute for Employment Research (IAB), German employees averaged 28.2 hours of overtime per person in 2024, of which only 13.1 hours were paid. Under the planned reform, someone earning €3,000 gross per month who works 13.1 paid overtime hours could see a net gain of around €30 per month. Critics argue the measure disproportionately helps full-timers while ignoring a large share of the labour market.

The courts are also tightening rules on what counts as working time. The European Court of Justice has clarified that travel from a central location to changing work sites counts as working hours. Driving on a supervisor's instructions or reviewing files during a business trip must be compensated. In a separate case, the Sächsisches Landesarbeitsgericht (Saxon Higher Labour Court) ruled that a bus driver with sleep apnoea lost his right to pay. Although he held a valid driving licence, he failed to submit required medical reports despite a doctor's certificate. The court held that without proof of fitness to drive, no wage claim exists.

Advertisement

Compliance with workplace regulations doesn't stop at working time and pay. UK employers also have a legal duty under the Health & Safety at Work Act 1974 to protect their staff. A free toolkit provides nine ready-to-use tools—including risk assessments, checklists, and a directors' liability guide—to help you meet those obligations and avoid costly fines. Download the free Health & Safety at Work Act Toolkit

On annual leave, the Bundesarbeitsgericht (Federal Labour Court) made it explicit: employees cannot claim compensation for untaken holiday while still employed. A payout is only possible when the job ends.

On the transparency front, Germany officially missed the EU deadline for implementing the Pay Transparency Directive on 8 June 2026. Family Minister Prien has promised a low-bureaucracy version by early 2027. The gender pay gap in Germany stands at 15.6 percent, markedly above the EU average of 11.1 percent. Austria, with an even wider gap of 17.6 percent, is further along: Labour Minister Schumann has tabled a draft law requiring companies with 100 or more employees to publish income reports and granting individual workers a right to request pay information. Business associations warn of heavy bureaucracy, while employee representatives welcome the move. Future job advertisements in Austria will need to state salary ranges.