On July 1, 2026, the leaders of the German governing coalition, CDU/CSU and SPD, agreed on a thirty-four-point reform package during the coalition committee meeting, with labor and employment law reforms that include a relaxation of dismissal protections for top earners and the elimination of telephone-based sick leave certifications. We have summarized a selection of the most relevant reform proposals for employers. These decisions initially set the political direction; concrete legislative implementation is still pending.

• The German government’s governing coalition issued a reform package that includes labor and employment law proposals that would relax dismissal protections for top earners, provide tax benefits on severance payments for individuals who quickly take up new employment, and eliminate telephone-based sick leave certifications.
• The reform package would also allow fixed-term employment contracts without objective grounds for up to forty-eight months and to be extended up to six times.

Relaxation of Dismissal Protection for Top Earners

Under the proposal, starting January 1, 2027, employers would be permitted to dissolve employment relationships with employees whose annual income exceeds 1.75 times the contribution assessment ceiling for statutory pension insurance (Beitragsbemessungsgrenze (BBG)) in exchange for a severance payment. The regulation is to be structured analogously to the “risk-taker rule in the financial sector.” For the aforementioned...

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