Germany Unveils Sweeping Labor Overhaul: Doctor’s Note From Day One, Longer Fixed-Term Contracts, and Mandatory Military Leave

In a rapid-fire legislative week, the German government and courts have reshaped the rights and obligations of millions of employees and their employers. A three-pronged reform—covering sick leave, fixed-term contracts, and military reservist duties—promises to increase flexibility for some workers while imposing new burdens on companies. At the same time, two rulings from Germany’s highest labor court have tightened procedural requirements for mass layoffs and salary deductions.

On 2 July 2026, the federal cabinet adopted a 34-point package to flexibilise the labour market. The most headline-grabbing measure: the abolition of the telephone sick note (telefonische Krankschreibung). From the entry into force of the package, a medical certificate will be required from the first day of incapacity for work. Once the norm during the pandemic, the phone-based exemption had allowed employees to stay off work for up to three days without a doctor’s visit. Employers and health insurers have long criticised the rule for facilitating absenteeism.

Alongside the sick-note clampdown, the government is extending the maximum period for fixed-term contracts without objective grounds (sachgrundlose Befristung) from 24 to 48 months. Up to six renewals will be allowed, though this relaxation is capped until 31 December 2030. The requirement for written form in such contracts will be abolished as of 1 January 2027. Companies that rely on temporary staffing, particularly in retail and logistics, welcomed the change; unions warned it would erode job security.

The package also relaxes dismissal protection for top earners. Employees with a monthly gross salary of roughly €15,000 or more will face a lighter regime: companies will no longer have to justify dismissals under the general protection against unfair dismissal. Critics from the left accuse the coalition of creating a two-tier labour market; supporters argue that high earners in leadership roles already negotiate individually and do not need the same statutory shield.

A day later, on 3 July 2026, Defence Minister Boris Pistorius presented a draft law that strikes at the core of a long-standing principle of the German reserve system: the “double voluntariness”. Until now, reservists could only be called up if both the soldier and the employer agreed. The reform abolishes the employer’s veto. From 2027 onward, former professional soldiers, fixed-term soldiers, and volunteers who completed military service can be ordered to reserve exercises for up to 12 weeks per year and a cumulative maximum of 12 months, without needing their boss’s consent.

Employers are entitled to eight weeks’ notice, and can apply for postponement if urgent operational reasons exist—for instance, when a key employee is indispensable at a critical moment. During the exercise period, the company is no longer obliged to pay the worker’s salary; the Bundeswehr compensates the net loss of earnings directly to the reservist. Still, business associations such as the BDA and the IHK have voiced strong opposition, arguing that even a short-term absence of a specialist can disrupt small and medium-sized firms.

Labour lawyer Arnim Buck warns that in affected workplaces, remaining colleagues will have to shoulder overtime or face holiday bans. The government’s target is to raise the number of deployable reservists from 60,000 to 200,000 by 2035—a goal that depends on the willingness of thousands of former soldiers to accept frequent, sometimes lengthy, interruptions to their civilian careers.

Meanwhile, the Federal Labour Court (BAG) has clarified the formal hurdles for employers planning mass layoffs. In a ruling dated 1 April 2026 and a decision from 19 March 2026, the court stated that procedural mistakes in the mass-dismissal process render the dismissals void. Crucially, a notification that is missing or submitted before the conclusion of the consultation procedure cannot be retroactively “healed”. A slight relaxation came on 25 June 2026: if the number of employees to be dismissed is only marginally overstated and the purpose of informing the Federal Employment Agency is not impaired, the error may be harmless. But serious misstatements—such as listing the wrong occupational groups—still invalidate the entire procedure.

In a separate decision on 26 February 2026, the Cologne Regional Labour Court (LAG Köln) reinforced a basic principle of wage law: employers must pay the contractually agreed salary up to the last day of employment. Deductions—for training costs, unused allowances, or other items—are only permissible if a clear contractual basis exists. The ruling underscores that unilateral cutbacks without explicit agreement are unlawful.

Taken together, the bundle of reforms and rulings signals a complex shift: the state demands more from workers (mandatory reserve service, earlier doctor visits) and gives employers more room to hire flexibly (longer fixed terms, lighter protection for high earners), while simultaneously tightening the procedural screws that protect employees from arbitrary dismissal and underpayment. For companies and employees alike, the new landscape will require careful navigation.

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