Doing business in Germany – labour and employment law

There are many reasons to do business in Germany. As Europe's largest market, Germany is an attractive location for investors from all over the world.

Germany is an innovative leader in many areas of technology, has a highly qualified workforce and an excellently developed infrastructure. Small and medium-sized enterprises in particular benefit from the well-organised business environment and the secure legal climate.

Germany has an efficient legal system that ensures equality between foreign and domestic investors in the establishment and protection of industrial and intellectual property.

In most sectors of German industry, sales have increased in recent years despite considerable cyclical fluctuations. The German economy has overcome various challenges in recent years, including the COVID-19 pandemic and geopolitical tensions. Despite these fluctuations, many industries, particularly the service sector and the export sector, have seen a recovery and even growth in some cases.

The automotive industry is still the frontrunner. In 2024, the German automotive industry recorded a slight decline in sales of just under 4% compared to the record year 2023. However, with a total turnover of around 541.9 billion €, the industry remains one of the most important industrial sectors in the country. Because of its links to other industrial sectors, it also secures turnover for other areas such as the chemical, electrical engineering, steel, metal and textile sectors.

German branches of industry also achieve considerable sales outside the automotive sector. Two particularly relevant sectors are the healthcare industry and the electrical and digital industries. In 2024, the industrial healthcare industry, which includes medical technology and the pharmaceutical sector, reached exports worth 160.2 billion €. The industry's gross value added was 103 billion €, which underlines its growing importance for the German economy – both domestically and on international markets.

In the same year, the electrical and digital industry generated sales of around 223.2 billion €. Compared to the previous year, this corresponds to a decline of 6.2%, but the industry remains a key driver of innovation, digitalisation and the energy transition in Germany.

Also characteristic of the German economy is its innovative strength. This is particularly evident in the patent applications. In 2024, Germany was (again) in first place in a European comparison with 59,260 patent applications.

In order to maintain their innovative strength in the future, Germans invest in research and development. In 2024, 3.1% of Germany's gross domestic product (GDP) was spent on research and development. This means that Germany is one of the most research-intensive countries in the world.

Germany is one of the most advanced and strongest industrial nations in Europe. The backbone of the German economy is the manufacturing industry (“secondary sector”), especially the chemical, automotive and mechanical engineering industries. The sales of large corporations such as Volkswagen, Mercedes-Benz Group, BASF, Bayer or Henkel account for a large part of the total annual turnover in the industry, which is supported by a uniquely high number of innovative and efficient small and medium-sized enterprises (SME).

In addition to these traditional industries, Germany has developed a highly valued high-tech industry.

Like all Western countries, Germany has a broadly based service sector. The banking sector is particularly worth mentioning here. The banking sector includes regional banks (e.g. Landesbanken, Volksbanken, Sparkassen) on the one hand and commercial banks with an international reputation (e.g. Deutsche Bank, Commerzbank) on the other. At the same time, several specialised companies such as mortgage banks, leasing and insurance companies have diversified the finance market.

Unlike in some other European countries, such as France and Spain, Germany does not have a comprehensive “Labour Code” that provides a comprehensive overview of the applicable legal provisions. This leads to the fact that in German labour law a multitude of legal sources always have to be taken into account when structuring the employment relationship.

The most important sources of law are

• the German Civil Code (BGB),
• the General Equal Treatment Act (AGG),
• the Occupational Health and Safety Act (ArbSchG),
• the Working Time Act (ArbZG),
• the Federal Leave Act (BUrlG),
• the Maternity Protection Act (MuSchG),
• the Federal Parental Allowance and Parental Leave Act (BEEG),
• the Works Constitution Act (BetrVG),
• the Collective Agreements Act (TVG),
• the Part-Time Work and Fixed-Term Employment Act (TzBfG),
• the Dismissal Protection Act (KSchG),
• the Act on the Documentation of Essential Contract Terms (Nachweisgesetz, NachwG),
• the Minimum Wage Act (MiLoG), the Temporary Employment Act (AÜG) and the Remuneration Transparency Act (EntgTranspG),
• the Continuation of Remuneration Act (EFZG) and the Whistleblower Protection Act (Hinweisgeberschutzgesetz, HinSchG).

In addition, there are collective agreements and works agreements at company level. This list is not exhaustive and, depending on the constellation, other legal sources and ordinances must be consulted. Collective agreements play an important role in the employment of workers in Germany. In 2023, there were more than 88,000 collective agreements in Germany. However, the number of employees covered by collective agreements has fallen from 68% in 2000 to 49% in 2024. Overall, a decline in the number of employees covered by collective agreements can be observed. The number of establishments covered by collective agreements has also fallen, from 44% in 2000 to 26% in 2024. It remains to be seen what the further development will be. Overall, however, a decline in collective bargaining coverage can be assumed.

In addition, there are some principles to be observed. Among them is the so-called primacy of application (Anwendungsvorrang), according to which EU law takes precedence over German law. Within German law, the Basic Law (Grundgesetz) ranks above statutes. Below statutes there are the statutory ordinances. Below statutory ordinances are collective agreements, company agreements (works agreements) and, finally, the individual employment contract.

Within this hierarchy, the favourability principle (Günstigkeitsprinzip) applies, according to which a lower-ranking provision, in particular the employment contract, may deviate from a higher-ranking collective provision only in favour of the employee (cf. Section 4(3) TVG). Special rules apply to the relationship between collective agreements and works agreements (Section 77(3) and Section 87(1) BetrVG).

German labour law no longer distinguishes between salaried employees (Angestellte) and blue-collar workers (Arbeiter). The uniform term “employee” (Arbeitnehmer) is used throughout.

A significant addition to the German labour law landscape in recent years is the Whistleblower Protection Act (Hinweisgeberschutzgesetz, HinSchG), which entered into force on 2 July 2023 and implements the EU Whistleblowing Directive. The Act protects individuals who, in connection with their professional activity, have obtained information about breaches of certain statutory provisions and who report or disclose that information through the channels provided for by the Act, as well as persons who are the subject of, or otherwise affected by, such a report.

Employers with 50 or more employees are required to establish an internal reporting channel (interne Meldestelle) through which employees and certain other persons can report breaches confidentially, and the Act prohibits retaliation against whistleblowers. For employers with 50 to 249 employees, this obligation has applied since 17 December 2023. Failure to establish and operate an internal reporting channel has been punishable as an administrative offence since 1 December 2023; obstructing reports, retaliation and breaches of confidentiality may be sanctioned with fines of up to 50,000 €. Employers may entrust a third party (e.g. an external ombudsperson) with operating the internal reporting channel; the responsibility for following up on reports and remedying breaches nevertheless remains with the employer. If a whistleblower suffers a detriment after a report, it is presumed to constitute retaliation so that the employer bears the burden of proving the contrary (Section 36(2) HinSchG).

In addition to the contractually agreed remuneration, employers also incur costs in the context of hiring employees.

Salaries and wages in Germany depend to a large extent on the employee's qualifications. Decisive factors are professional experience, any additional qualifications and further trai

A job advertisement should contain information about the company, a description of the advertised position, a profile of requirements for potential applicants, information about the required application documents, remuneration, if applicable, and contact details. However, this information is not binding and is merely a recommendation on our part. Once the EU Pay Transparency Directive has been transposed into German law, information on the initial pay or pay range will become mandatory before the job interview (see below).

However, it is mandatory to ensure that job advertisements are non-discriminatory. As an employer, you may be liable to pay damages to applicants if job advertisements are discriminatory in nature. In practice, advertisements should be gender-neutral (e.g. “m/f/d” – male/female/diverse) and should avoid age-related wording such as “young, dynamic team”. Compensation under Section 15(2) AGG may amount to up to three months' salary even for an applicant who would not have been hired in the absence of discrimination. Claims must be asserted in writing within two months of receipt of the rejection (Section 15(4) AGG) and brought before the labour court within a further three months (Section 61b ArbGG).

An example from case law on this:

One of the questions that has occupied the labour courts is how far an employer's duties towards applicants extend once discrimination-sensitive information, such as a disclosed severe disability, becomes relevant during the application process. For example, the Federal Labour Court has held that a public-sector employer's obligation under Section 165 sentence 3 of Book IX of the Social Code (SGB IX) to invite a severely disabled applicant to an interview also includes an obligation to offer a replacement date where the applicant gives notice of a sufficiently weighty reason for being unable to attend the scheduled interview and a replacement date is reasonable for the employer.

The transition from a non-discriminatory to a discriminatory job advertisement can be fluid in individual cases and special caution is therefore required.

Strict attention must also be paid to avoiding discrimination of any kind during the interview. Particular caution is required with regard to the questions asked. The question about pregnancy, among others, is generally inadmissible. The applicant may answer this question untruthfully without any consequences for her; in particular, the employer cannot rescind the employment contract on grounds of deceit. The question about a disability or severe disability, if irrelevant for the job to be performed, is also generally inadmissible in the contract initiation phase and in the first six months of employment. Thereafter, the employer may ask about a severe disability, in particular in preparation for dismissals.

On the other hand, questions about education, qualifications and professional experience are permitted, as well as questions about language skills, as long as they are relevant to the employer. Furthermore, questions about time flexibility, willingness to transfer and willingness to work shifts are also permitted.

If applicants disclose a fact relating to their racial or ethnic origin, gender, religion or belief, disability, age or sexual identity (Section 1 AGG) without being asked, the employer should, in its own interest, point out that this fact is irrelevant for the recruitment and refrain from making a corresponding note about this in the interview records.

Data protection already plays an important role in the application process. Employers must ensure that application documents are carefully stored and handled. The processing of applicant data is governed by the GDPR and the Federal Data Protection Act (BDSG). Following the judgment of the Court of Justice of the European Union of 30 March 2023 (C‑34/21), the German provision on employee data in Section 26(1) BDSG can only be relied upon to a limited extent; processing should therefore be based directly on Art. 6(1)(b) and (c) GDPR. Applicants must be informed about the processing of their data in accordance with Art. 13 GDPR.

Application documents must be deleted if no employment relationship is established, but not before the deadlines for asserting claims under the AGG have expired; in practice, a retention period of up to approximately six months after the rejection is regarded as permissible. This also applies to records made during the interview as well as to the already completed personnel form if the employment relationship is not established after all. However, with the consent of the applicant, the records may also be stored for a further application procedure.

In contrast to employees, freelancers are not bound by instructions and do not perform work in an externally determined, personal dependency. However, when concluding freelancer contracts, there is a risk that they will be qualified as employment contracts by the labour courts or the social security authorities afterwards. The mere designation as a “freelancer contract” does not prevent German courts from a different legal qualification as an employment contract. Misclassification as bogus self-employment (Scheinselbständigkeit) may lead to the retroactive payment of social security contributions for up to four years (up to 30 years in the case of intent), interest on arrears and criminal liability of the managing directors (Section 266a of the German Criminal Code, StGB). Legal certainty can be obtained through a status determination procedure (Statusfeststellungsverfahren) before the German Pension Insurance (Section 7a SGB IV). Since the Federal Social Court's “Herrenberg” judgment of 28 June 2022 (B 12 R 3/20 R), integration into the client's organisation has been assessed more strictly. When concluding such a contract, you should therefore always seek legal advice.

Since 1 October 2022, the marginal earnings threshold (Geringfügigkeitsgrenze) is no longer a fixed amount but is dynamically linked to the statutory minimum wage; employees whose monthly remuneration does not exceed the applicable marginal earnings threshold are referred to as marginally employed. In 2026, the threshold is 603 € per month; it will rise to 633 € on 1 January 2027 in line with the minimum wage. These employees are not subject to social security contributions on their side, with the exception of a flat-rate pension insurance contribution from which they may opt out; the employer, however, pays flat-rate contributions to health and pension insurance as well as a flat-rate tax and levies. Employees in the so-called transitional area (Übergangsbereich, also referred to as “midijobbers”) are employees who receive a salary above the marginal earnings threshold up to an upper limit (currently 2,000 € per month) that is likewise reviewed periodically. The wages of employees in the transitional area, however, are subject to social security contributions, albeit at a reduced rate that increases gradually (a “sliding scale”). The share that employees have to pay starts at a reduced percentage at the lower end of the transitional area and increases gradually to the regular employee contribution rate at its upper end. The employer's share, by contrast, starts at a higher level at the lower end of the transitional area and decreases to the regular employer's share at its upper end; because both the marginal earnings threshold and the transitional-area limits are adjusted periodically, the current figures should always be checked at the relevant da

The employment of temporary workers can be a means, for example, to cover short-term staffing needs. According to the Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG), employers can provide their workers to third parties (hirers), provided they hold a permit from the Federal Employment Agency (Bundesagentur für Arbeit). The lender and the hirer must conclude a contract in text form (since 1 January 2025; previously, written form was required) in which the supply of temporary workers is explicitly designated as a supply of workers and the temporary worker is specified by name before the assignment begins.

No employment contract is concluded between the hirer and the temporary worker. However, the situation is different if the lender does not have the required permit to hire out workers or if the assignment is not properly designated and specified as described above. In these cases, an employment relationship with the hirer is deemed to exist by law (Sections 9 and 10 AÜG), unless the temporary worker declares in due time that he or she wishes to remain with the lender.

The same worker may not be assigned to the same hirer for more than 18 consecutive months (deviations are possible by collective agreement). Temporary workers are in principle entitled to the same working conditions and pay as comparable employees of the hirer (equal treatment); deviations by collective agreement are only possible to a limited extent and, as regards pay, generally only for the first nine months of an assignment. Temporary agency work is largely prohibited in the construction industry. In addition, the hirer is obliged to inform temporary workers about the jobs to be filled at the hirer's premises.

In contrast to the employment of already trained employees, the acquisition of practical knowledge and experience in preparation for a professional activity is in the foreground with interns.

In Germany, interns must generally be paid according to the Minimum Wage Act. However, this does not apply if the internship is a so-called “compulsory internship” under school or university regulations or if it is a voluntary internship of up to three months that serves to help the intern choose a vocational training or course of study, or that accompanies vocational training or studies (Section 22(1) MiLoG). The designation as “intern” is irrelevant for the legal qualification. The essential terms of an internship must also be documented in accordance with the NachwG.

Employment contracts may be concluded on a fixed-term basis for a maximum of two years without an objective reason. Within these two years, fixed-term contracts may be extended a maximum of three times. However, this limitation to a maximum of two years is only permissible if a fixed-term or unlimited employment relationship has not previously existed with the same employer. According to the Federal Constitutional Court (order of 6 June 2018, 1 BvL 7/14) and the Federal Labour Court, prior employment is only disregarded in exceptional cases, e.g. if it was very long ago, very short or of a completely different nature. Since 1 January 2026, this prohibition on prior employment no longer applies to employees who have reached the standard retirement age (Section 41(2) SGB VI), subject to further statutory limits.

The situation is different when a company is founded: In the first four years after foundation, a time limit of up to four years may be imposed without reason, including multiple extensions within this period.

Otherwise, a fixed term is possible on the basis of objective reasons, such as temporary operational need for work, replacement of an employee, reasons relating to the person of the employee, etc. Fixed-term contracts with an objective reason are not subject to a maximum duration; however, in the case of multiple consecutive fixed-term contracts, the labour courts review whether the use of fixed terms is abusive.

Important: A fixed term is only effective if it is agreed in written form, i.e. signed by hand by both parties, before the employee starts work (Section 14(4) TzBfG). Text form (e.g. e-mail or a simple electronic signature) is not sufficient. Otherwise, the employment relationship is deemed to have been concluded for an indefinite period (Section 16 TzBfG).

Employers are obliged under the Act on the Documentation of Essential Contract Terms (NachwG) to record the essential terms and conditions in writing and to hand the signed record to the employee. These include, among other things, the names and addresses of the parties, the date of commencement, the place of work, the agreed working hours, the agreed probationary period, details on overtime, the composition and amount of remuneration, any entitlement to employer-provided training, and the procedure to be observed on termination, including notice periods and the deadline for bringing an unfair dismissal claim. Following a substantial reform that entered into force on 1 August 2022, the catalogue of mandatory particulars was significantly expanded and the deadlines were shortened: certain core terms (including the parties' names and addresses, the start date, and the composition and amount of remuneration) must now be recorded and handed over no later than the first day of work, while the remaining particulars must follow within seven calendar days or, at the latest, one month after the agreed start of the employment relationship, depending on the particular. Since 1 January 2025 (Fourth Bureaucracy Relief Act, BEG IV), the record may also be provided in text form (e.g. by e-mail) if the document is accessible to the employee, can be stored and printed, and the employer asks the employee to confirm receipt. Employees may nevertheless request a written record with a handwritten signature, and text form is excluded for employers in the sectors listed in Section 2a of the Act to Combat Undeclared Work (SchwarzArbG), e.g. construction, hospitality, passenger and freight transport, and the meat industry. A breach of the obligations under the Verification Act can now also be sanctioned as an administrative offence (Ordnungswidrigkeit) with a fine of up to 2,000 €. 

The working hours of employees in Germany are regulated by the Working Time Act. The maximum working time per working day (Monday to Saturday) is generally eight hours. As Saturday counts as a working day, this results in a regular maximum of 48 hours per week. Daily working time may be extended to up to ten hours (i.e. up to 60 hours per week) only if an average of eight hours per working day is not exceeded within six calendar months or within 24 weeks (Section 3 ArbZG). Work on Sundays and public holidays is generally prohibited, subject to statutory exceptions. Employees working more than six hours must take a break of at least 30 minutes, and of at least 45 minutes if they work more than nine hours. The Working Time Act does not apply to executive employees (leitende Angestellte).

Employers in Germany are obliged to record the working time of their employees. This obligation was confirmed by the Federal Labour Court in its decision of 13 September 2022 (case no. 1 ABR 22/21), which held that employers are already obliged under Section 3(2) no. 1 of the Occupational Health and Safety Act (ArbSchG) to introduce a system by which the working time of employees can be recorded; as a consequence, a works council cannot enforce a codetermination right to compel the employer to introduce such a system, because the employer is already under a statutory obligation to do so. The decision is based on the judgment of the Court of Justice of the European Union of 14 May 2019 (C‑55/18, CCOO). This time recording can be done electronically or manually and may be delegated to the employees; the only important thing is that the employer checks whether the recording is actually done. Whether this regulation also applies to executive employees has not yet been finally decided. In June 2026, the Federal Ministry of Labour presented a draft bill amending the Working Time Act which provides, among other things, for a statutory obligation to record working time electronically and – depending on collective bargaining arrangements – the option of a weekly instead of a daily maximum working time. Following political debate, a revised draft is expected in autumn 2026. At the time of this overview, the reform had not yet been enacted; employers should monitor further developments closely.

As in other member states of the European Union, the minimum rest period for workers after the end of the daily working time is eleven consecutive hours (Section 5 ArbZG); shorter rest periods are permitted only in certain sectors (e.g. hospitals, hospitality, transport) and subject to compensation. Attention must be paid to the observance of rest periods.

In employment contracts under German law, a probationary period of no more than six months may be agreed. During the probationary period, the employment relationship may be terminated by either party with two weeks' notice (Section 622(3) BGB). Notice of termination only has to be received within the agreed probationary period, but the end of the notice period can also be after the end of the probationary period. The probationary period must be distinguished from the six-month waiting period under the Dismissal Protection Act, which applies irrespective of any agreed probationary period. In fixed-term employment relationships, the probationary period must be proportionate to the expected duration of the fixed term and the nature of the work (Section 15(3) TzBfG); according to the Federal Labour Court, there is no fixed standard value, but an individual assessment is required (judgment of 5 December 2024, 2 AZR 275/23).

Since 1 January 2015, a statutory minimum wage has been in force in Germany in accordance with the Minimum Wage Act (MiLoG). The minimum wage has amounted to 13.90 € gross per hour since 1 January 2026, will increase to 14.60 € on 1 January 2027, and is adjusted at regular intervals by statutory instrument on a proposal of the Minimum Wage Commission (Mindestlohnkommission), which reviews the level of the minimum wage every two years; the current rate should always be verified, as it is updated more frequently than this overview. The minimum wage applies to all employees working in Germany, regardless of whether they are nationals or foreigners or are employed by a German or foreign company. Exceptions apply in particular to minors under 18 without completed vocational training, apprentices and long-term unemployed persons during the first six months of employment. Higher sector-specific minimum wages (e.g. in temporary agency work and care) may apply on the basis of collective agreements declared generally binding or statutory ordinances. Breaches may be punished with fines of up to 500,000 €. In principle, the minimum wage also applies to interns; however, this does not apply if the internship is compulsory under school or university law and in the further cases described above.

German law does not recognise a general principle of “equal pay for equal work”. There is no duty of equal treatment if the employer pays individual employees higher wages than others for the same work on the basis of freely negotiated contracts and does not follow a general principle. This freedom of contract is, however, limited by specific prohibitions of discrimination, in particular on grounds of gender (see below).

However, the limit to unequal treatment is regularly exceeded by the employer if it grants benefits in remuneration according to a certain principle (general principle of equal treatment under labour law) and does not do so in the same way for all. The same applies to salary increases. There must also be no unequal treatment between full-time and part-time employees or between fixed-term and permanent employees (Section 4 TzBfG), unless objectively justified.

Men and women are entitled to equal pay for equal work or work of equal value (Art. 157 TFEU; Sections 3 and 7 EntgTranspG). The Federal Labour Court has significantly strengthened this principle: according to its judgment of 16 February 2023 (8 AZR 450/21), higher pay for a male colleague cannot be justified merely by his better negotiating skills. In its judgment of 23 October 2025 (8 AZR 300/24), the Court held that a comparison with a single better-paid colleague of the other gender performing equal or equivalent work (“pair comparison”, Paarvergleich) is sufficient to give rise to a presumption of gender-based pay discrimination. If the employer cannot rebut this presumption with objective, gender-neutral reasons, it must pay the remuneration paid to the comparator. Transparent and documented pay structures are therefore essential.

Employees in establishments with more than 200 employees working for the same employer are entitled to individual information on the median monthly gross pay and up to two pay components of comparable employees of the other gender, provided they can reasonably identify a comparable activity (Vergleichstätigkeit) performed predominantly by employees of the other gender. In addition, EU Directive 2023/970 on pay transparency and the enforcement of the principle of equal pay for equal work or work of equal value between men and women entered into force in 2023 and should have been transposed into German law by 7 June 2026. Germany has missed this deadline; at the time of this overview, a government bill amending the Remuneration Transparency Act was still in preparation, and the new rules are expected to enter into force in 2027. Once implemented, the new rules will significantly extend employers' pay transparency obligations, including information on the initial pay or pay range for applicants before the job interview, a prohibition on asking about applicants' pay history, a right to information for all employees irrespective of the size of the establishment, gender pay gap reporting for employers with 100 or more employees (staggered by size) and a joint pay assessment with employee representatives where an unjustified gender pay gap of at least 5% is identified. Even before transposition, Art. 157 TFEU applies directly, and the labour courts are likely to interpret German law in conformity with the Directive. Employers operating in Germany should monitor the domestic implementing legislation closely and review their pay structures now.

In Germany, employees are entitled by law to at least 24 working days of holiday per year based on a six-day week. If you employ your workers only five days per week, the holiday entitlement is 20 working days per year. Severely disabled employees are entitled to five additional days. The employee will continue to be paid during the entire holiday. The full holiday entitlement arises for the first time after a waiting period of six months; before that, employees acquire partial leave of one twelfth per full month of employment. If the employee falls ill during his/her recuperation leave, the days of illness are not counted towards the annual leave if he/she proves his/her inability to work by means of a medical certificate. It is also not uncommon in Germany for employers to grant additional days of “contractual leave”.

The period of leave shall be determined in agreement with the employer, taking into account the operational requirements and the personal wishes of the employees. In principle, leave must be granted and taken in the current calendar year. Carry-over to the next year is only possible if justified by urgent operational reasons or reasons relating to the employee. If this is the case, the leave must in principle be granted and taken in the first three months of the following calendar year. However, according to the case law of the CJEU and the Federal Labour Court, statutory leave only lapses if the employer has specifically requested the employee in good time to take the leave and has informed him or her that it will otherwise lapse. In the case of long-term illness, statutory leave generally lapses 15 months after the end of the holiday year. Statutory minimum leave cannot be waived while the employment relationship continues, not even in a court; untaken leave must be compensated in cash upon termination.

Employees are obliged to notify their employer immediately of their incapacity for work and its expected duration. This notification by the employee must be made on the first day during the first working hours. The employee does not have to provide information on the nature of the illness. However, there is an exception if the nature of the illness requires immediate intervention by the employer. This is the case with contagious diseases where protection of other workers is required. If the incapacity for work lasts longer than three calendar days, the employee must provide a medical certificate no later than the following working day; the employer may request it earlier (Section 5(1) EFZG). For employees with statutory health insurance, the certificate is no longer submitted on paper; since 1 January 2023, the employer has retrieved it electronically from the health insurance fund (eAU). The evidential value of a certificate may be shaken, for example, if it covers exactly the notice period following a resignation or dismissal (Federal Labour Court, 8 September 2021, 5 AZR 149/21; 13 December 2023, 5 AZR 137/23). If the employee is unable to perform his/her work due to illness and is not at fault, he/she is entitled to continued payment of his/her remuneration for a period of up to six weeks per illness. However, this entitlement only arises after four weeks of uninterrupted employment. After six weeks, employees with statutory health insurance receive sickness benefit (Krankengeld) from their health insurance fund. Employers with up to 30 employees are reimbursed a share of the continued remuneration under the U1 levy procedure.

In Germany, mothers are under special protection. This is regulated in the Maternity Protection Act. For employers, this means that they are not allowed to employ pregnant women during the last six weeks before delivery. The calculation of the period is based on the expected date of delivery, which is determined by a doctor or midwife. After the birth, the employer may not employ a woman until eight weeks have elapsed (twelve weeks in the case of premature or multiple births and, upon request, if the child is diagnosed with a disability). Before the birth, the pregnant woman may expressly declare her willingness to work (revocable at any time), but this is not possible after the birth. Since 1 June 2025, women who suffer a miscarriage from the 13th week of pregnancy are also entitled to a staggered protection period (two weeks from the 13th week, six weeks from the 17th week and eight weeks from the 20th week of pregnancy), during which they may only work if they expressly declare their willingness to do so.

A pregnant woman receives maternity benefit from her statutory health insurance fund during the six weeks before the birth and the eight weeks afterwards. Employers pay a supplement to the maternity allowance amounting to the difference between the maternity benefit (max. 13 € per day) and the average net salary; this supplement is fully reimbursed to the employer under the U2 levy procedure. A pregnant woman is entitled to the full amount of her leave, and it is not reduced.

The Maternity Protection Act also provides for special protection against dismissal. Dismissal is inadmissible

• during pregnancy,
• up to four months after a miscarriage that occurred after the 12th week of pregnancy as well as
• until the end of the post-natal protection period, but at least up to four months after delivery.

This only applies if the employer had knowledge of the pregnancy, the miscarriage after the 12th week of pregnancy or the delivery at the time of receipt of the notice of termination or up to two weeks thereafter. In exceptional cases, the competent state authority may declare a dismissal admissible.

In Germany, it is also possible for both parents to apply for parental leave and parental allowance. The entitlement to parental leave exists until the child reaches the age of three; up to 24 months may be taken between the child's third and eighth birthdays. It may be spread over three periods per parent, or more with the employer's consent. Parental leave must be requested in text form at least seven weeks (or 13 weeks for periods after the child's third birthday) before it begins. Part-time work of up to 32 hours per week is permitted during parental leave, and employees of employers with more than 15 employees may, under certain conditions, claim a reduction of their working time. During parental leave, the employment relationship is suspended, i.e. the employer is released from the obligation to pay the salary, and the employee is released from the obligation to perform the work. After parental leave, employees are entitled to continued employment and remuneration under the terms of their employment contract. Employees on parental leave also enjoy special protection against dismissal, as the employer may not terminate the employment relationship from the time parental leave is requested (at the earliest eight weeks before it begins, or 14 weeks before for periods after the child's third birthday) until the end of the parental leave, except with the approval of the competent authority in exceptional cases.

Parental allowance is a benefit paid by the state. The amount of parental allowance depends on the income from gainful employment before the birth and generally amounts to 65% to 67% of the previous net income, subject to a minimum of 300 € and a maximum of 1,800 € per month. For children born on or after 1 April 2025, there is no entitlement if the parents' taxable income in the year before the birth exceeded 175,000 €.

In Germany, works councils can be elected in establishments (Betriebe) with at least five permanent employees entitled to vote, three of whom are eligible for election. There is no legal obligation to establish a works council; the initiative lies with the employees or a trade union represented in the establishment. However, the employer must not obstruct or influence a works council election; doing so is a criminal offence (Sections 20 and 119 BetrVG). The works council represents the employees. It is obliged to cooperate with the employer in a spirit of trust. All employees who have been with the company for at least six months and are at least 18 years old may stand for election. In turn, all employees who have reached the age of 16 may vote. Depending on the size of the company, the German Works Constitution Act stipulates how many members the works council must have. For example, in a company with 21 to 50 employees, the works council has three members. The works council's term of office is four years; regular elections take place throughout Germany between 1 March and 31 May every four years, most recently in 2026.

The works council in a company has various responsibilities. Its general tasks include monitoring compliance with the regulations that apply in favour of employees, such as enforcing equality between women and men, promoting older employees in the company and implementing occupational health and safety measures. The works council must be informed by the employer in a timely and comprehensive manner when it comes to tasks to which the works council is entitled under the Works Constitution Act. Works councils also have a right of co-determination in numerous matters of workplace organisation, in particular in social matters (Section 87 BetrVG) such as working time arrangements, remuneration principles and the introduction and use of technical systems capable of monitoring employees' behaviour or performance – which in practice covers most IT and AI applications (Section 87(1) no. 6 BetrVG). In companies with more than 20 employees, the employer requires the works council's consent for hirings, transfers and regroupings (Section 99 BetrVG), and operational changes such as restructurings or closures trigger negotiations on a reconciliation of interests and a social plan (Sections 111 et seq. BetrVG). The works council must be consulted before every dismissal; a dismissal without proper consultation is invalid (Section 102 BetrVG).

Works councils can also conclude company agreements with the employer on various topics, such as the recording of working time, occupational health and safety, conduct towards customers or mobile working. Works agreements are also referred to as the “law of the workplace”.

For the sake of a well-functioning workplace, good cooperation between employers, works councils and employees should always be worked towards.

Employees are protected by law against dismissal under the Dismissal Protection Act (KSchG). The law applies to all employees who have worked at a company continuously for at least six months and if the employer regularly employs more than ten employees (not counting apprentices; part-time employees are counted pro rata). Employees hired before 1 January 2004 may benefit from a lower threshold of more than five employees under the applicable transitional provisions. Where the Dismissal Protection Act does not apply, for example in very small businesses or during the first six months of employment, dismissals are still subject to the general limits of good faith and public policy, but not to the specific social justification requirements described below.

The issuing of an ordinary dismissal then requires the existence of a social justification, i.e. a reason. An employee who wishes to challenge a dismissal must file an action with the labour court within three weeks of receiving the notice; otherwise, the dismissal is deemed effective (Sections 4 and 7 KSchG).

A distinction is made between reasons for dismissal based on personal reasons, behavioural reasons and operational reasons.

• Personal reasons: e.g. long-term illness or frequent short-term illnesses with a negative prognosis and considerable operational impact, loss of a required work permit or licence, long-term imprisonment
• Behavioural: unexcused absences, refusal to work, insults; as a rule, a prior warning (Abmahnung) is required
• Operational: closure of the company or of individual departments, if there is no possibility of continued employment; in addition, the employer must carry out a social selection among comparable employees based on length of service, age, maintenance obligations and severe disability (Section 1(3) KSchG)

In addition, special protection against dismissal applies to certain groups of employees, in particular pregnant women and employees on parental leave (see above), severely disabled employees (prior consent of the Integration Office, Section 168 SGB IX, and prior consultation of the representative body for severely disabled employees, Section 178(2) SGB IX), members of the works council (ordinary dismissal generally excluded, Section 15 KSchG) and data protection officers. If an employer intends to dismiss a larger number of employees within 30 days, it must consult the works council and notify the Federal Employment Agency before giving notice (mass dismissal procedure, Section 17 KSchG); errors in this procedure may render the dismissals invalid.

In principle, an employment relationship in Germany can be terminated by either party with four weeks' notice to the 15th or to the end of a calendar month. During the probationary period, both parties can terminate with two weeks' notice.

The period of notice for the employer is extended the longer the employment relationship exists. It can also be extended in the same way for the employee in the employment contract; the notice period for the employee must not be longer than that for the employer (Section 622(6) BGB). Different notice periods may also result from collective agreements. After two years, the statutory notice periods for termination by the employer are extended as follows:

2 years: one month to the end of a calendar month

5 years: two months to the end of a calendar month

8 years: three months to the end of a calendar month

10 years: four months to the end of a calendar month

12 years: five months to the end of a calendar month

15 years: six months to the end of a calendar month

Extraordinary termination usually takes place without observing a period of notice. This is referred to as extraordinary termination without notice. However, it can also be given with a period of notice, which does not have to correspond to the statutory or agreed period of notice.

The existence of an important reason is always required for an extraordinary dismissal (Section 626 BGB), which must be established on the basis of a weighing of all circumstances of the individual case. This includes particularly serious conduct by employees such as theft or fraud to the detriment of the employer, sexual harassment, working time fraud or persistent refusal to work, etc. The notice must be received by the employee within two weeks after the employer has become aware of the relevant facts (Section 626(2) BGB).

The parties to the employment contract can also terminate the employment relationship by concluding a termination agreement. When concluding a termination agreement, the employer and the employee are neither bound to observe notice periods nor to any official approvals, and the works council does not need to be consulted. However, the agreement must be in written form with handwritten signatures (Section 623 BGB). A termination agreement may result in a blocking period of up to twelve weeks for unemployment benefits (Section 159 SGB III). There is no statutory right of withdrawal; however, an agreement may be invalid if the employer has violated the requirement of fair negotiation.

Severance payments are not generally payable with each termination of an employment relationship. Severance payments are paid upon termination of employment in the following cases:

• the employment contract provides for a contractual severance payment,
• the parties agree on a severance payment (judicial or extrajudicial) to settle a termination dispute – in practice, 0.5 gross monthly salaries per year of service are frequently used as a starting point,
• the employer offers severance pay of 0.5 monthly salaries per year of service in a notice of dismissal for operational reasons and the employee does not file an action (Section 1a KSchG),
• the court terminates the employment relationship against payment of severance pay if it determines that, despite the invalidity of the termination, the continuation of the employment relationship would be unreasonable for the employer or the employee (generally up to twelve, in certain cases up to 18 monthly salaries, Sections 9 and 10 KSchG), or
• if a social plan provides for severance pay in connection with an operational change (e.g. a restructuring or mass dismissal).

Social insurance is the most important institution of social security in Germany and consists of a total of 5 branches:

• Statutory health insurance
• Long-term care insurance
• Pension insurance
• Unemployment insurance
• Statutory accident insurance

Contributions are usually paid equally by employees and employers. An employee's salary is subject to social security contributions, which are paid equally by the employee (withheld by the employer) and the employer. The employer's share is approximately 21% of the employee's salary; however, contributions are only levied up to the respective contribution assessment ceilings (Beitragsbemessungsgrenzen) – in 2026, 5,812.50 € per month for health and long-term care insurance and 8,450 € per month for pension and unemployment insurance –, which differ between the branches of social insurance and are redetermined annually by statutory instrument so that the amounts should always be checked for the current year. Special rules apply to employees earning an amount at or below the marginal earnings threshold. Students are exempt from certain social security contributions (in particular if they work no more than 20 hours per week during the semester). Accident insurance contributions are paid by the employer alone, as are the levies for the reimbursement schemes (U1, U2) and the insolvency allowance levy.

In Germany, income remains tax-free up to the basic tax-free amount (12,348 € in 2026). This is to ensure that the subsistence level is not further reduced by tax deductions and that the living conditions are not additionally burdened. If the earned income exceeds the currently applicable basic exemption amount, the initial tax rate of 14% applies. Since income tax has a linear progressive tax burden, the tax rate increases with each additional euro earned. The top tax rate is 42%, which applies from a taxable income of approx. 70,000 € (2026). Income above approx. 278,000 € is taxed at the so-called “rich tax” rate (Reichensteuer) of 45%. These amounts apply to single persons and are doubled for jointly assessed spouses. In addition, a solidarity surcharge of 5.5% on the income tax (only for higher incomes) and, where applicable, church tax (8% or 9%) may be levied. Income tax on employment income is withheld by the employer as wage tax (Lohnsteuer). Since 1 January 2026, employees who continue to work after reaching the standard retirement age can earn up to 2,000 € per month tax-free (“Aktivrente”).