Germany’s coalition government has approved sweeping changes to employment rules that will make it simpler to dismiss workers earning more than €177,450 a year, part of a broader package aimed at reviving the country’s sluggish economy.
The reform, branded the “Programme for Recovery and Employment,” marks a significant departure from Germany’s famously strict job protections. Starting in January 2027, high-income employees will gain a simplified termination right — meaning their contracts can be ended more easily, provided the employer pays a severance package.
Roughly two percent of full-time workers are expected to fall into this category. The Ifo Institute plans to release a study this autumn examining the real cost of separations. Researcher Yann Coatanlem estimates that the average expense of firing someone in Germany currently equals 2.5 times their annual salary. He has proposed lowering the income threshold for relaxed protections to €101,400 and introducing shorter notice periods modelled on Switzerland’s system.
As German employers prepare for a more flexible labour market, UK businesses face their own set of compliance pressures — particularly around workplace safety documentation. A free toolkit provides ready-to-use risk assessments and checklists to help you stay on the right side of the Health & Safety at Work Act 1974. Download the free Health & Safety at Work Act 1974 Toolkit
Fixed-Term Contracts Stretched to Four Years
The government is also dramatically expanding the use of fixed-term employment without a specific reason. Companies will be allowed to offer such contracts for up to 48 months, with as many as six renewals within that window. The temporary measure runs through the end of 2030. From January 1, 2027, the requirement for written form on these contracts will be scrapped.
Other changes include:
- Sick notes tightened: Telephone-based medical certificates for illness will be abolished. Employees must now provide a doctor’s note from their first day off sick.
- Sunday work expanded: Bakeries will be permitted to operate for five hours on Sundays from January 2027, up from the current three.
- Tax-free bonuses extended: Employers can pay tax-free supplements for Sunday and public holiday work up to an hourly wage of €75.
Pushing for 80 Percent Collective Bargaining Coverage
On July 22, the cabinet approved a National Action Plan to boost collective bargaining. The backdrop is stark: in 1996, 79 percent of employees were paid according to industry-wide agreements; today, that figure has slumped to 49 percent. The government wants to push coverage back to 80 percent, aligning with European Union targets.
Unions will gain digital access to company premises under the plan. Businesses that adhere to collective agreements will receive greater flexibility on working hours — for instance, switching from a daily to a weekly maximum. DGB chairwoman Yasmin Fahimi has criticised the proposals as insufficient.
Trial Periods for Job Switchers
Earlier, on July 15, the cabinet passed a draft law modernising employment promotion. Its centrepiece is a “job-to-job trial” scheme: workers facing potential redundancy can spend four weeks testing a role at a new company while keeping their existing contract intact. The idea is to create seamless transitions rather than gaps in employment.
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On the same day as the collective bargaining plan, the government unveiled its startup strategy, containing 152 separate measures. Thomas Hoppe, national chair of the Young Entrepreneurs association, praised cuts to red tape and improved employee equity participation. The startup sector recorded 3,053 new businesses in the first half of 2026 — a 52 percent increase — with total investment reaching €5.3 billion.
Chancellor Friedrich Merz defended the reform drive as essential for competitiveness and public finances, promising further steps on pension provision and clamping down on welfare abuse. Saxony’s state premier, Michael Kretschmer, called for more aggressive cuts to payroll taxes and bureaucracy.
