German Government’s Labor Gamble: 48-Month Contracts and End of Phone Sick Notes

A sweeping overhaul of German labor law has ignited fierce debate, with 59 percent of the public opposing one of its most contentious measures: a requirement to present a doctor’s note from the very first day of illness. A YouGov poll published alongside the reform package also found 58 percent of respondents against scrapping the option of phone-based sick leave.

The 34-point bundle, agreed by the coalition committee on July 2, marks the most dramatic shift in workplace rules in years. Employers’ associations applaud the plans as essential for competitiveness, while unions and economists warn of rising health risks and deepening insecurity for workers.

Mandatory Sick Notes Return, Phone Option Axed

Under the new rules, employees must produce a medical certificate starting with day one of any absence. This replaces the current system where a note is only required after three days. Chancellor Merz said workers would not have to visit a practice immediately—retroactive certification remains possible for up to three days—but the burden of proof on the employee is now stricter.

Critics argue the change is counterproductive. Daniel Graeber of the German Institute for Economic Research (DIW) noted that phone-based sick notes account for only 0.8 to 1.2 percent of all medical certificates. No causal link between them and high sickness rates has been established. Bavaria’s health minister, Gerlach (CSU), called the move a bureaucratic exercise that could actually increase infections by driving people to crowded waiting rooms.

Even within the governing parties, pushback is audible. Radtke, head of the CDU’s workers’ wing, urged reconsideration. The SPD’s patients’ commissioner, Schwartze, warned of “presentism”—employees showing up ill for fear of legal repercussions. AOK chief Reimann dismissed the measures as symbolic politics. Data from 2024 show that long-term sickness—absences over six weeks—accounts for roughly 40 percent of all days lost, meaning the tighter rules on short-term illness miss the real problem.

Fixed-Term Contracts Stretched to Four Years

The reform also dramatically loosens restrictions on fixed-term employment. Temporary contracts without a specific reason—previously capped at two years with three renewals—can now run up to 48 months, with up to six extensions. The deregulation is set to expire on December 31, 2030.

The German Federation of Trade Unions (DGB) condemned the move, warning it would create lasting uncertainty. According to the Institute for Employment Research (IAB), about 2.6 million employees in Germany currently hold fixed-term contracts. The DGB says extending the limit will discourage companies from offering permanent positions.

Separate changes affect mini-jobs: the flat-rate tax on these low-wage roles will rise from 2 to 5 percent. In exchange, tax-free supplements for Sunday and public holiday work will increase.

Existing Contracts and Tax Relief

Labor lawyers have pointed out that existing employment agreements with more generous sick-note rules may be protected under the “favorability principle,” meaning individual contracts could override the new default. Companies and workers remain free to negotiate different arrangements.

The package is paired with a tax reform effective January 1, 2027. Workers earning up to €60,000 annually will receive a €600 relief. At the top end, the wealth tax threshold tightens: incomes above €250,000 will be taxed at 45 percent, and above €280,000 at 47 percent. For high earners starting at €177,450, the reform also facilitates easier termination of employment against severance pay from 2027.

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