The German government’s coalition committee has approved a 34-point reform package that dramatically extends the duration of fixed-term contracts without a specific reason — a move the Ifo Institute warns could derail the career paths of young workers.
Under the new rules, employers can hire staff on fixed-term contracts without providing a justification for up to 48 months, double the previous limit. Within that period, up to six contract renewals are permitted. The provision applies to all workers hired by December 31, 2030.
Employer associations applauded the flexibility. Trade unions, however, reacted furiously. Verdi chief Frank Werneke has already threatened protests.
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Sick Notes Required from Day One
The package also tightens sickness absence rules. Employees must now present a doctor’s certificate from the first day they are off sick — previously the requirement only kicked in from the fourth day. Phone-based sick notes are abolished entirely.
Chancellor Merz called it a “tough but necessary decision.” The DAK health insurance fund reported average sick days of 19.5 per person in 2025. Medical associations and the Green Party oppose the change, warning that doctor’s surgeries will become overloaded and infection risks will rise. Exemptions are permitted at the company level.
Workplace Safety Laws Unchanged
Existing occupational safety laws remain intact. Employers must still conduct risk assessments — a requirement that has covered mental strain since 2013. Companies with ten or more staff must document the results. Failure to comply can lead to fines and liability risks.
Craft trades are pushing for more flexible working hours, but a reform of the Working Hours Act was postponed by the coalition committee.
Dismissal Rules Tightened and Eased
The Federal Labour Court reaffirmed in March that mass redundancy notices are invalid if the notification required under Section 17 of the Protection Against Unfair Dismissal Act is flawed — and the error cannot be corrected retroactively.
The reform package introduces relief in other areas: dismissing high earners in exchange for a severance payment becomes simpler. Tax breaks are planned if the affected person quickly finds a new job.
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Tax Relief for Low Incomes, Higher Surcharge on the Wealthy
The package includes tax cuts for small and medium incomes — up to €600 per year. To finance them, a higher “rich tax” kicks in: a 45 percent rate from €250,000 annual income, and 47 percent from €280,000.
On pensions, the coalition plans a shift towards a capital-funded system and an increase in the retirement age beyond 67. The option to retire without deductions after 45 contribution years is to be abolished. The goal is to relieve statutory health insurance by roughly €16.3 billion by 2027.
