Germany’s Coalition Drives Through Sweeping Labour Changes: Easier Firings for Top Earners, End of Phone Sick Notes
03.07.2026 - 01:41:43 | boerse-global.de
A new 34-measure package from Germany’s CDU/CSU and SPD coalition is set to remake the labour landscape, hitting high earners with a cut in dismissal protection while doubling the length of fixed-term contracts and scrapping the pandemic-era rule for phone-based sick notes. The reforms, touted by Chancellor Merz as a “necessary step” to remove barriers in the jobs market, have drawn sharp lines between business groups and unions.
Workers earning roughly €15,000 a month (around €177,000 a year) will become easier to let go under the plan. In a twist, those who are dismissed and quickly find a new job can receive a tax-privileged severance payout. The government argues this encourages mobility. “Fair and necessary,” says Wirtschaftsweiser Gabriel Felbermayr. The IG Metall union calls it an “attack on workers’ rights.” As a counterbalance, tax-free supplements for Sunday and public holiday work rise to as much as €75 an hour, meant to reward those who take on antisocial shifts.
The coalition also lengthens fixed-term contracts without a specific reason from 24 to 48 months, and allows employers to renew them up to six times – double the previous limit. The relaxation applies to anyone hired before the end of 2030. The employers’ association BDA applauds the added flexibility. But DGB chair Yasmin Fahimi calls the move an “unnecessary encroachment on employee rights,” and Ver.di chief Werneke says it is “not acceptable.” Data from the Hans-Böckler-Stiftung shows that nearly 38 percent of new hires were already on fixed-term deals in 2023, with the figure rising to around half for career starters.
Sick leave rules are also tightening. The emergency phone-based certification introduced during the pandemic disappears, restoring the requirement to present a doctor’s note from the first day of illness. Companies can still opt out individually. The government frames it as a “return to proven standards”; general practitioners warn of a “massive bureaucratic wave” in their surgeries. Accompanying the change is a so-called report relief law and a “deemed approval” rule: applications to government agencies that receive no response within four months will automatically be considered granted.
On the tax side, low and middle incomes will see relief starting in January 2027, worth around €10 billion a year. Higher basic and child allowances, together with a flatter progression, are designed to lighten the burden. A family with two children stands to save up to €600 annually. Financing comes from raising the top tax rate for high earners: 45 percent kicks in at €250,000 of income and 47 percent at €280,000. Mini-jobs, a staple of the German labour market, become more expensive for employers as the flat tax on them rises from 2 to 5 percent.
Pension reform is also on the table, with a deadline of end-2026 to implement all 33 recommendations from the Alterssicherungskommission. These include introducing a funded capital pension, gradually lifting the retirement age beyond 67, and abolishing the option to draw a full pension after 45 years of contributions without deductions. DIW president Marcel Fratzscher has voiced scepticism, calling the overall package a “symbolic one” that only partially solves the country’s deeper structural problems. Opposition parties are split, with some decrying a social step backwards and others arguing the measures are too timid to spark a genuine economic revival.
