Germany’s New Coalition Deal Eases Firing of Top Earners, Doubles Contract Caps
02.07.2026 - 14:13:35 | boerse-global.de
Spitzenverdiener in Germany face a sharply different employment landscape after the coalition government agreed to weaken dismissal protection for workers earning more than roughly €14,787 per month. The move is part of a 34-point reform package passed by CDU, CSU, and SPD that aims to give companies more flexibility and cut red tape. Chancellor Merz called the measures “a necessary step to remove regulatory hurdles.”
Under the new rules, the maximum duration for fixed-term contracts without a specific reason jumps from 24 to 48 months — a doubling of the previous limit. Within those four years, employers can renew the contract up to six times. The provision applies to workers hired before the end of 2030.
Dismissal protections are loosened for high earners: severance payments will receive a tax privilege, but only if the employee finds a new job quickly.
"The reform sends a clear signal that top salaries come with less job security," said DGB chair Yasmin Fahimi, calling the changes an unnecessary attack on worker rights. Ver.di boss Frank Werneke described the plan as "an unacceptable signal of distrust." Business groups struck a different tone: employers’ president Rainer Dulger praised the labour market flexibilisation as long overdue.
Phone Sick Notes Gone, Paper Required on Day One
One of the most controversial elements is the permanent scrapping of the telephone sick note introduced during the pandemic. From now on, employees must present a medical certificate from the very first day of illness. The coalition also announced tougher penalties for feigned illnesses.
The German Association of General Practitioners warned of a "significant increase in bureaucracy in doctors' offices." Unions criticised the move harshly. "This is a gratuitous intrusion into workers' rights," Fahimi added.
Tax Relief From 2027 – But High Incomes Pay More
The package includes tax cuts worth roughly €10 billion. They take effect on 1 January 2027 and reach full impact in 2028. A family of four with a gross annual income of €60,000 could save over €600 per year, according to coalition calculations.
The basic tax-free allowance rises gradually to €12,900, and child benefits increase to €272 per month by 2028.
To finance the cuts, the so-called wealth tax is tightened. An income of €250,000 will trigger a rate of 45%, and €280,000 will push it to 47%. The top income-tax rate of 42% remains unchanged and starts at €70,600.
The craftsmen's bonus drops to 15%, and the flat-rate tax on mini-jobs (low-wage part-time jobs) jumps from 2% to 5%.
Pension Overhaul: Capital Fund, Higher Retirement Age
The coalition plans a capital-funded pension component, dubbed "Kapitalrente." The retirement age will rise above 67, and the penalty-free pension after 45 contribution years will be eliminated. Self-employed workers and politicians will also be required to contribute to the statutory pension system. Implementation based on the pension commission's recommendations is due by the end of 2026.
In healthcare, the coalition aims for €16.3 billion in relief within the statutory health insurance system by 2027.
Analysts at Deka Bank argued the reforms could prevent the social systems from being drained. DIW President Marcel Fratzscher, however, called the package "a mere symbolic project with social imbalances."
