Sick-Note and Dismissal Changes Dominate Germany’s 2027 Labor Reform as Court Cases Jump 60%

Germany's 2027 labor law reforms mandate sick certificates from day one, loosen dismissal protection for high earners, and require electronic time recording, amid a 60% surge in legal conflicts.

Legal conflicts in German workplaces have escalated sharply since 2021, with labor-law insurance cases climbing more than 60 percent, according to fresh industry data. The first half of 2026 alone posted a nearly 10 percent increase. Dismissal-protection suits remain the bulk of filings, and a growing share come from mid- and high-income earners. Against this backdrop of rising contention, a broad reform package approved by the federal government in early July is set to take effect on 1 January 2027 — provided the legislative details are finalized by then.

One of the most immediate changes will hit anyone calling in sick by phone. The so-called “yellow note” issued remotely will disappear. Instead, a medical certificate will be required from the first day of illness. Existing employment contracts that allow a later submission of the sick note may still be valid, thanks to the Günstigkeitsprinzip (the principle that contractual provisions more favorable to the employee prevail over statutory rules).

High earners face a significant shift in job security: employees with gross annual pay above €177,450 will become easier to dismiss. The government is relaxing dismissal protection for this group while simultaneously introducing tax incentives designed to speed up their re-entry into the labor market after a termination. Fixed-term contracts are also being loosened — non-material-cause fixed terms can now run up to 48 months, with a maximum of six renewals.

Artificial intelligence is entering the picture in a way that strengthens works councils. A new analysis by the Association of German Labor Lawyers (VdAA) warns that so-called AI agents trigger co-determination rights as soon as they process personal data that could be used to monitor behavior or performance. The mere technical possibility of such monitoring is enough to involve the works council under Section 87(1)(6) of the Works Constitution Act (BetrVG). The EU AI Act does not create independent co-determination rights — national rules remain the foundation.

Time recording is becoming mandatory — and electronic. Since September 2022, employers have had to log the start, end, and duration of daily working hours. A draft amendment to the Working Hours Act now stipulates that this recording must be done electronically. Transition periods range from one to five years, depending on company size. The works council retains a co-determination right over the specific design of the system, as well as over flexible-hour models. However, there is no statutory entitlement to a fixed number of flex-days per month; one to two days is typical under company agreements.

A recent ruling by the Berlin-Brandenburg State Labor Court in late May 2026 upheld the summary dismissal of a senior manager who violated internal control rules for invoice approval. Because of her high level of responsibility and compensation, the judges found a prior warning unnecessary.

Apprentices gained a victory in company pension law. The Federal Labor Court ruled in early July 2026 that trainees are entitled to benefits under company pension schemes if works agreements use the term “employees” without explicitly excluding them. In a separate decision from May 2025, the same court clarified that managers in matrix organizations are eligible to vote in all plants where they supervise staff, leading to larger committees and more complex co-determination structures.

Legal experts advise companies to review contracts and processes early — but warn against rushing to adjust before the political plans are fully enacted into law.