German Coalition Unveils Fast-Track Dismissal for High Earners While Court Rulings Reinforce Vacation Rights

Germany’s governing coalition announced a reform package in early July 2026 that would allow courts to dissolve employment contracts of top earners for a severance payment of between 12 and 18 months’ salary—even if the termination lacks social justification. The new rules would apply to workers with an annual fixed salary of roughly €177,500.

Alongside the fast-track dismissal provision, the coalition is planning to permit fixed-term contracts without a specific reason for up to 48 months, with as many as six renewals. That temporary measure is slated to remain in effect through the end of 2030. Starting in January 2027, the written-form requirement for fixed-term agreements would be scrapped.

While the coalition’s proposals target high-income workers, separate court decisions have simultaneously strengthened the vacation rights of ordinary employees. In a recent ruling, the Solingen Labor Court examined a case where an employee signed a mutual termination agreement but then used the company’s internal purchasing system for private orders, billing them as business expenses. The court classified this as a disruption of the contract’s basis under section 313 of the German Civil Code (BGB). As a result, the worker forfeited a severance claim worth roughly €415,748 and a bonus of more than €21,500. However, the court allowed him to keep his vacation pay entitlement of €9,395. He was also ordered to pay €834.80 in damages.

In a separate decision from March 2026, the Thuringia Regional Labor Court made clear that employers cannot impose a blanket limit of two consecutive weeks of vacation. According to Section 7(2) of the Federal Vacation Act (BUrlG), annual leave must be granted in one continuous block unless urgent operational reasons prevent it. A female employee successfully obtained a temporary injunction securing her right to three consecutive weeks of holiday. Employers seeking to deny such a block must provide concrete evidence of staffing shortages. The ruling also emphasized that works councils have a co-determination right on vacation policies under Section 87 of the Works Constitution Act (BetrVG).

The Federal Labor Court weighed in on mass layoffs in spring 2026, ruling that dismissals are invalid if the mass-layoff notification is submitted before the consultation procedure with the works council has been completed. This principle affected, among other cases, proceedings involving Luftfahrtgesellschaft Walter dating back to 2020.

Another contentious issue involves medical certificates of incapacity for work. The Cologne Regional Labor Court determined that the evidentiary value of a sick note can be undermined if the timing of the illness coincides with workplace conflicts, raising doubts about the employee’s willingness to perform. In such situations, the employee must provide a detailed account of their health impairments to justify the absence.

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