German Court Nixes Standard Severance Language as New Labour Law Looms

Germany’s highest labour tribunal has invalidated a widely used clause that allowed employers to immediately release workers from duties pending dismissal. The Federal Labour Court (BAG) ruled on 25 March 2026 that pre-formulated exemption-from-work clauses are unenforceable unless the employer can show a “predominant, protectable interest” in sending the employee home. The decision landed just months before a sweeping set of statutory changes—the government’s labour law reform package—take effect on 1 January 2027.

The BAG also tightened rules around references. In a separate ruling on 7 May 2026, it held that clauses giving workers the right to submit a draft of their own job reference are enforceable in principle, but only as long as the final document stays truthful and clear. Purely notional grading clauses without any concrete wording remain unenforceable.

48-Month Contracts and a Return to Day-One Sick Notes

At the heart of the legislative overhaul is a significant expansion of fixed-term contracts without a specific reason. From January 2027, employers will be able to use such contracts for up to 48 months, with up to six renewals. The temporary rule runs until the end of 2030. The requirement that a contract extension be made in writing is also being scrapped.

Trade unions have reacted furiously, arguing that the looser rules undermine job security and increase uncertainty for workers.

Simultaneously, the government is tightening rules on sick leave certificates. A doctor’s note will become mandatory from the first day of illness, ending the phone-based sick note that was introduced during the pandemic. However, a labour law specialist points out that the “favourability principle” protects existing contracts: anyone who currently has a contractual clause requiring a note only after the third day keeps that protection. Several experts doubt the measure’s effectiveness; experience suggests that a day-one requirement often leads to longer periods off work.

The head of a major health insurer called the change “symbolic politics”, noting that phone-based certifications already accounted for a tiny fraction of cases.

Protests Erupt as Automakers Plan Thousands of Job Cuts

While politicians rewrite the rules, industrial unrest is simmering. On 9 July 2026, demonstrations took place at numerous German automotive sites. In Stuttgart, around 250 vehicles formed a convoy; in Neckarsulm, more than 500 people protested threatened social cuts. At Volkswagen, the IG Metall union called for action days in Wolfsburg, Kassel, Braunschweig and Salzgitter.

The backdrop is a reported restructuring that could see up to 100,000 jobs axed worldwide, with potential plant closures. Worker representatives have condemned the plans as short-sighted and warned that they threaten the country’s codetermination structures. The VW supervisory board was simultaneously meeting in Wolfsburg to discuss the next phase of cost-cutting.

Fatigue on the Job: Germany Ranks High for Lost Time

A fresh look at working conditions across Europe paints a mixed picture. According to OECD statistics, Germany ranks seventh globally with 6.8% of working time lost—a measure that includes absences and downtime. In neighbouring Austria, works councils report a sharp rise in pressure: 54% of respondents in a survey said productivity had increased over the past three years, often at the expense of health.

Despite a well-documented skills shortage, many German businesses remain hesitant to hire long-term unemployed people or workers over 50.

Little Relief for Small Firms, Stricter Rules on “Shell” SEs

The reform package does contain some red-tape cuts for small and medium-sized enterprises: they will get an easier path to comply with the General Data Protection Regulation (GDPR). At the same time, Berlin wants to curb the use of “shelf” European Companies (SEs) – a structure frequently used to bypass worker participation rights.

On safety, the government is reinforcing the existing alcohol ban at work while keeping drug tests tightly constrained: they must remain voluntary, subject to works council approval, and only triggered by specific cause. Official figures from the DGUV show that in 2024 there were around 173,500 reportable commuting accidents, 215 of them fatal.

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