German Labor Overhaul: Electronic Time Tracking, Faster Dismissals for High Earners, and 48-Month Fixed Terms
Published on 07/08/2026 at 05:44 | Redaktion boerse-global.de
The federal government’s reform package, approved in early July, touches on working time, dismissal protection, co-determination, and fixed-term contracts. Perhaps the most far-reaching shift is the electronic recording of daily working hours – a requirement that the Federal Labor Court had already signaled in September 2022 but that now comes with precise legislative teeth.
A draft bill from the Ministry of Labor specifies that companies must electronically log the start, end, and duration of each employee’s daily work. Trust-based working time remains permitted, but it does not relieve the employer of the documentation obligation. The phase-in periods are staggered: one year after the law takes effect for most firms, two years for businesses with fewer than 250 employees, and five years for those with under 50. Micro-enterprises with up to ten staff and executive managers can be exempted entirely.
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Works councils gain a say in how the time-tracking systems are designed, but not in whether they are introduced – the law already mandates that.
Dismissal Rules Eased for High-Income Earners
The reform also relaxes dismissal protection for employees earning above €177,500 gross annually. Starting in early 2027, these high earners will be able to terminate their contracts more easily against a severance payment. At the same time, severance payments become tax-privileged when an employee switches jobs quickly.
Separately, the government is expanding the scope of fixed-term contracts without objective reason. From 2027, such contracts can last up to 48 months with a maximum of six extensions – though this option expires at the end of 2030. A significant administrative simplification: as of January 1, 2027, the written-form requirement for fixed-term agreements is abolished.
Phone Sick Notes Scrapped, Digital Payslips Confirmed
Employees will no longer be able to obtain a sick note by telephone. Instead, a certificate of incapacity for work must be submitted from the very first day of illness.
On the digital front, the Federal Labor Court ruled in January 2025 that payslips can be provided in text form – for example, via email or a portal. The employer remains responsible for the correctness of the payroll, even if errors originate from system changes.
Co-Determination and AI: Where Works Councils Can Intervene
Increasing use of artificial intelligence is raising new questions about co-determination rights. According to legal experts, the Works Constitution Act applies when AI agents process personal data that enables performance or behavior monitoring. Purely process-controlled applications in production or logistics, which do not involve employee data, are generally not subject to co-determination. The European AI Regulation does not create an independent new co-determination right.
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Industry Tensions Over Longer Hours
The debate over working time and planning security is causing friction, especially in the automotive sector. There have been protests against proposals to extend working hours while keeping wages unchanged. Frank Sell, a works council member at Bosch, has called for a roundtable involving politicians, employers, and unions. IG Metall has announced intensified protests in the coming months. Criticism of working-time arrangements has also surfaced at Volkswagen and BMW.
Smaller Changes: Minijob Tax and Sunday Pay
The reform package also raises the flat-rate tax on minijobs from two to five percent. In compensation, allowances for work on Sundays and public holidays up to €75 per hour will remain tax-free. To strengthen co-determination, the government plans to prevent companies from using shell SE corporations to circumvent employee rights.
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