Major reforms to employment laws in Germany have been backed by Germany’s coalition government.

The coalition committee of the CDU/CSU and SPD agreed the package during the early hours of 2 July 2026, with the overarching aims of making Germany a more attractive country to set up and operate a business and promoting economic growth. The package (12-page / 152KB PDF) is designed, among other things, to reduce bureaucracy and make the labour market more flexible. For employers, some of the main changes proposed concern the way employment relationships are established and terminated, as well as the handling of sickness-related absences.

“At this stage, these are still only political decisions, which must now be translated into specific draft legislation. Nevertheless, the announcements already provide a clear indication of the direction employment law could take in the coming years,” said employment law expert Sarah Klachin of Pinsent Masons.

More scope for fixed-term contracts

For employers, the planned changes to the law on fixed-term contracts could give them more flexibility. Under the package agreed, fixed-term employment without objective grounds is to be permitted for up to 48 months in future, with the possibility of extending it up to six times within that period. This would be a substantial expansion compared with the current legal position, under which fixed-term employment without objective grounds is generally permitted only for up to two years with scope to...

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