German Labour Reform Proposals Target Sick Leave and Fixed-Term Contracts as Courts Reinforce Worker Entitlements

The German government is pushing ahead with a package of labour-law changes that would scrap telephone sick notes and extend fixed-term contracts to up to 48 months, even as recent court rulings strengthen employees’ rights to carry over unused vacation and claim pay for changing times.

Under the planned reforms, employers would be able to offer fixed-term contracts without a specific reason for up to four years — a period now set to run until 31 December 2030. At the same time, the option of reporting sick by phone would be eliminated; workers would have to submit a doctor’s certificate from the very first day of illness. Tax incentives are also on the table, including breaks on severance pay for rapid job changes and higher tax-free allowances for hourly supplements of up to €75.

As German employers face tighter rules on sick leave and fixed-term contracts, UK businesses should examine their own compliance frameworks. Missing or outdated health and safety documentation can leave companies exposed to costly fines and enforcement action. A free toolkit provides ready-to-use risk assessments, checklists and templates designed to meet UK regulations. Download the free Health & Safety Toolkit

The push for stricter sick-leave rules comes against a backdrop of high absenteeism. According to figures from the Techniker Krankenkasse, the average sickness absence in 2025 reached 18.6 days per employee. Surveys suggest a notable share of workers occasionally call in sick without being genuinely unfit for work. Germany ranks seventh among OECD countries in lost working time due to illness, with a rate of 6.8 percent.

While the government signals a harder line on absence, several court rulings have expanded worker protections in other areas. A key decision came from the European Court of Justice on 22 September 2022 (case C-120/21), followed by Germany’s Federal Labour Court (BAG) on 20 December 2022 (case 9 AZR 266/20). The courts clarified that the three-year limitation period for holiday leave does not start until the end of the calendar year in which the employer specifically informs the employee about outstanding leave days and urges them to take them. If the company fails to give that active notice, the vacation entitlement never expires.

“An employer cannot rely on its own failure to meet its information obligations,” the reasoning runs, effectively barring firms from letting unused leave lapse through their own inaction.

In a separate ruling, the Higher Labour Court of Nuremberg (case 4 Sa 339/20) held that contractual time credits for changing clothes — in the specific case twelve minutes per day — must be taken into account even during sick leave or vacation. The BAG confirmed that a collective or individual agreement could exclude the obligation to pay for such time, but only if that exclusion is explicitly stated. Without such a clause, the entitlement remains.

Another BAG ruling, dated 26 November 2025 (case 5 AZR 239/24), reinforced the principle of equal treatment: employers cannot exclude staff from general wage increases simply because those employees refused to sign a contract amendment.

German courts continue to strengthen employee protections through active enforcement of legal obligations. Across the UK, the Health & Safety at Work Act 1974 places similar duties on employers — and failing to demonstrate compliance can have serious consequences. A free toolkit offers nine practical tools, including risk assessments, checklists and a director liability guide, to help your business stay on the right side of the law. Download the free Health & Safety at Work Act 1974 Toolkit

Despite these victories for workers, one barrier remains high: the burden of proving overtime. The BAG decided on 4 May 2022 (case 5 AZR 359/21) that the duty to record working hours does not shift the responsibility for evidence. Anyone claiming overtime pay must show in detail how much extra time was worked, and that the employer ordered, approved, or at least tolerated it.

Labour experts caution that existing employment contracts could shield workers from any deterioration in conditions, thanks to the “favourability principle” (Günstigkeitsprinzip) enshrined in German labour law. That principle blocks contractual changes that would place employees in a worse position than before, unless both sides explicitly agree to the new terms.

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