German Election #7: What can we expect in employment law?

1. Maximum working hours

The comprehensive reform of working time legislation that has been called for for years does not appear to be on the agenda of this coalition either. However, the announced possibility of a weekly instead of a daily maximum working time is an important step towards greater flexibility. This is to be implemented in line with the European Working Time Directive, which does indeed allow for a maximum weekly working time. However, a dialogue with the social partners will be held to determine the specific details.

The Working Time Directive provides for a maximum weekly working time of 48 hours per seven-day period (with exceptions for senior executives, among others). The reference period for calculating the average is a period of up to four months, although a longer period may be agreed in collective agreements. A maximum daily working time is only indirectly derived from the European Working Time Directive through the daily rest period of 11 hours. This will remain the case even after the planned flexibilisation.

The coalition agreement does not say whether flexible maximum working time will only be possible through, or at least on the basis of, a collective agreement. In any case, an SPD demand to this effect was not included in the coalition agreement. There is therefore reason to hope that this necessary step towards more flexible working time legislation will actually be open to all employers in future. It is also positive that the introduction of electronic working time recording, which was initially demanded in the negotiations as an additional condition for abandoning a maximum weekly working time, was not included in the coalition agreement. Linking the two issues would have been irrelevant.

2. Working time recording

The legal regulation of working time recording, which the Federal Labour Court (Bundesarbeitsgericht - BAG) aggressively demanded in its ruling of 13 September 2022 (Az. 1 ABR 22/21), is still pending. Apart from a draft bill that was leaked in 2022 and subsequently largely rejected and fortunately buried, the governing coalition has not made any significant efforts to regulate this area. The future coalition between the CDU/CSU and SPD has now agreed in its coalition agreement to regulate the obligation to record working times electronically in an "unbureaucratic" manner. It will continue to be possible to work on a trust basis without time recording. Adequate transition periods are to be provided for small and medium-sized enterprises. It can therefore be assumed that there will be no such transitional periods for large companies. The fact that the legislator - certainly in line with its commitment to greater digitalisation - is primarily thinking in terms of electronic time recording suggests that the works council should have a say in the introduction of new time recording tools in accordance with section 87 (1) no. 6 of the Works Constitution Act (BetrVG).

Commitments to a free choice of recording system or the possibility of delegating working time recording obligations to third parties, as demanded by the trade union in the working group negotiations, did not make it into the final text. However, the clear commitment to working time on a trust basis without time recording is an important and welcome step and can preserve flexibility where this benefits both parties to the employment contract. It remains unclear, however, where the line will be drawn between permissible trust-based working time and mandatory time recording. It will be difficult to implement the coalition agreement without a definition of trust-based working time.

3. Sunday and public holiday work 

An extension of the list of exemptions in Section 10 of the Working Hours Act (ArbZG) for work on Sundays and public holidays was also discussed during the coalition negotiations. In the end, agreement was reached only on extending the list to include the bakery trade. The provisions on rest periods are to be retained.

The announced reform of the status determination procedure is likely to be of great practical relevance. It has been announced that, in view of the effects of the Herrenberg judgement of the Federal Social Court of 28 June 2022 (B 12 R 3/20 R), this procedure is to be made "faster, more legally secure and more transparent" as a matter of priority. In the above-mentioned decision, the Federal Social Court stated with regard to music school teachers that the distinction between dependent employment and self-employment cannot be made in the abstract for specific job profiles and job descriptions, as the Federal Labour Court has done for decades, but that the characteristics of self-employment can only be determined on a case-by-case basis. As a result of the ruling, the social security institutions revised the criteria for determining dependent employment in relation to teachers and lecturers on 4 May 2023. However, the uncertainty surrounding this development extended far beyond the sectors concerned, as the potential legal consequences of back payments of social security contributions are considerable.

Against this background, the provision of a rapid procedure for determining status with legally certain results - as well as the fiction of approval announced to speed up the process - would be a very welcome step. The Federal Pension Insurance Fund's increasingly robust approach in carrying out audits pursuant to § 28p SGB IV often causes considerable uncertainty among companies, as these audits tie up considerable resources, are accompanied by raids in extreme cases, and entail financial and criminal risks. Until now, the status determination procedure was often only a theoretical option for dealing with self-employed persons, if only because of the very long duration of the procedure. According to the Federal Government's answer to a small interpellation (BT-Drs. 20/12811), the average duration of the optional status enquiries will be around 104 days in 2023 and 84 days in the first half of 2024. Furthermore, due to the lack of cross-jurisdictional binding effect, the determinations have so far been of little practical use, as the same activity can be classified as an employment relationship by the social security institutions/social courts and as freelance work by the labour and finance courts. Furthermore, since the group determination under § 7a IV b SGB IV is not an administrative act but an expert opinion, neither the German Pension Insurance nor other insurance institutions are bound by it.

The path taken last year with the Bureaucracy Relief Act IV to relax strict formal requirements, for example in the Proof Act or in relation to fixed-term contracts until the standard retirement age, is to be continued. The coalition has agreed to remove further statutory written form requirements in labour law. One example cited is fixed-term contracts, so that Section 14 (4) of the Part-Time and Fixed-Term Employment Act (TzBfG) will be reformed in future and fixed-term contracts for objective reasons and fixed-term contracts without objective reasons will then probably be able to be concluded in text form, for example by email. This would significantly simplify processes for companies, especially those with central functions abroad or those that have already largely digitised their processes (faster than the legislator). The previous requirement for a handwritten signature to conclude a contract is understandably causing consternation in the wake of the increasing digitalisation of HR processes. It remains to be seen which other formal requirements (regarding written form) could be abolished. However, the abolition of the written form for terminations (and, analogously, for termination agreements) or for post-contractual non-competition clauses is not to be expected. It would be desirable for the legislator to go one step further, at least in the Proof Act, and, for example, also exempt the proof of essential contractual terms vis-à-vis interns from the written form requirement. If the legislator decides to move towards a ‘digital employment contract,’ this should be done as consistently as possible. 

In addition, the coalition agreement announces that the underlying formal requirements of Sections 126 et seq. of the German Civil Code (BGB) are to be reformed and simplified and, where necessary, adapted to the new technical possibilities. 

This could also help to simplify labour law processes and make them more legally certain. The handling of European directives, such as those on sustainability reporting (CSRD) and supply chain due diligence (CSDDD), which was often discussed with some fanfare during the election campaign, will be interesting, as such ‘unnecessary burdens from the European level’ are also to be avoided as part of the reduction of bureaucracy. At the moment, however, the EU is still working on a package of measures to simplify sustainability regulations as part of the Omnibus Initiative. In principle, the coalition partners are pursuing a ‘1:1’ implementation approach and no excessive regulations, as has often been the case in the past. The coalition agreement already announces the abolition of the national supply chain due diligence law. This is to be replaced by a law on international corporate responsibility that implements the European Supply Chain Directive in a ‘bureaucracy-free and enforcement-friendly’ manner. The reporting obligation under the LkSG is thus to be abolished immediately and completely. However, in view of the European directive, this could merely be a snapshot. Given the EU's ongoing Omnibus Initiative, it is not yet possible to predict with certainty what obligations companies can expect in future on the basis of the CSDDD.

The plans for a statutory minimum wage are also of practical importance. This also applies to companies that are bound by collective agreements and pay wages above the minimum wage. Any significant increase in the statutory minimum wage automatically pushes up wage levels in collective agreements. This is not only the case if collective agreements provide for wage groups below the new minimum wage level. Trade unions will use a significantly higher minimum wage as an argument for wage increases (in all wage groups) to ensure a sufficient gap between their own collective agreements and the higher wage groups covered by collective agreements.

In future, the Minimum Wage Commission will base its future minimum wage developments on both the development of collective wages and 60 per cent of the gross median wage of full-time employees, taking all factors into account. In this way, the new coalition considers a minimum wage of €15 per hour (i.e. a significant increase from the current €12.82 per hour) to be achievable by 2026. Fortunately, the wording proposed by SPD that this should be 'clarified' in future legislation has been dropped. This wording suggested that this was already the status quo. So far, however, the only legally binding provision is that the Minimum Wage Commission must be guided by the development of collective wages. Since 2025, the rules of procedure of the Minimum Wage Commission have also provided for a (loosely worded) orientation towards 60% of the gross median wage. However, the inclusion of this value in the rules of procedure is primarily a consequence of the EU Minimum Wage Directive, which has been declared invalid by the Advocate General of the European Court of Justice. A commitment to this value has not yet been enshrined in the Minimum Wage Act itself.

With real legal feedback on the gross median wage, the legislator would in future have much greater indirect influence on what it considers to be fair wages, both in the area of the minimum wage and in the context of collective bargaining. It is to be hoped that the legislature will exercise the utmost restraint in this respect. The wording now included in the coalition agreement leaves it open whether the development of the minimum wage will initially be monitored further or whether it will be influenced in the near future by changes to the legal framework of the Minimum Wage Commission.

The obligation to appoint company representatives is to be abolished by the end of 2025, "in particular" for small and medium-sized enterprises. The examples still mentioned in the negotiations (including waste management officers, immission control officers and company data protection officers) have been dropped. The example of the company data protection officer shows that the abolition of national provisions on the mandatory appointment of certain officers does not necessarily mean that these officers will disappear completely.

The abolition of Section 38 of the BDSG would not make the position of data protection officer or the special protection granted to them a thing of the past. This is because the function of the data protection officer is based on the directly applicable Article 37(1) GDPR, which provides for the obligation to appoint a data protection officer in the cases specified therein, primarily based on the core activities of the data controllers and the risk-relevant processing circumstances. However, the additional scope provided by the German legislator in Section 38 BDSG is questionable. If Section 38 BDSG were to be repealed, the special protection against dismissal under Section 38(2) in conjunction with Section 6(4) sentence 2 BDSG (dismissal only for good cause) would also cease to apply. However, the prohibition of dismissal and discrimination based on the performance of duties pursuant to Art. 38 para. 3 sentence 2 GDPR would remain. Dismissal would therefore continue to be possible only for specific reasons (e.g. lack of necessary skills, improper performance of duties, conflict of interest). However, the level of protection would be lower than under the status quo. It will therefore be interesting to see whether DPOs whose function ceases to exist following a change in the law, or who only enjoy protection against dismissal and discrimination, will still be able to invoke special protection against dismissal on the basis of legitimate expectations.

The considerations in the negotiations on closing 'gaps in the system of co-determination' and 'gaps in the application of the Act on the Participation of Third Parties' were deleted without replacement, as was the idea of a 'framework directive on employee participation at European level'. The wording that emerged from the working papers was very vague anyway. Its complete deletion suggests that the previous coalition's plans to bring the Act into line with the provisions of the Co-Determination Act are now a thing of the past.

1. Co-determination

The coalition partners' statements on co-determination remain very vague. There is talk of "developing" co-determination. It remains to be seen whether the demands in SPD's election manifesto for the extension of co-determination in strategic personnel planning and evaluation, in the introduction of artificial intelligence and in health protection and further training at the workplace will be pursued as genuine co-determination rights with a requirement for agreement.

2. Digitalisation 

In future, online works council meetings and online works meetings are to be made possible as equivalent alternatives to face-to-face formats. The option of online works council elections is also to be enshrined in the Works Constitution Act. 

Online works council meetings are already possible under the conditions specified in Section 30 (2) of the Works Constitution Act (BetrVG), so it can be assumed that the relevant hurdles will be lowered. It is incomprehensible why the option of online works meetings, which has already been successfully practised during the Covid-19 pandemic and lockdowns, was only made temporary and will not be extended in 2023. Permanent approval makes perfect sense, especially for large companies and companies with a high degree of mobile working. Digital works council elections would also be a welcome innovation.

In addition, trade unions' right of access to companies is to be supplemented by digital access corresponding to their analogue rights. This plan is likely to be a direct response to the decision of the Federal Labour Court (BAG) of 28 January 2025 (1 AZR 33/24), the outcome of which is currently only available as a press release and in which the court ruled that a digital right of access in the form of a claim to the disclosure of employees' work email addresses for the purpose of recruiting members cannot be based on a interpretation of the freedom of association guaranteed by Article 9(3) of the German Basic Law (GG) to be made by the courts in the course of developing the law. 

The long-overdue adaptation of co-determination rights in relation to technical equipment in accordance with Section 87(1)(6) of the Works Constitution Act (BetrVG) to take account of digitalisation is unlikely to happen under the new coalition government. The not uncommon three-digit number of IT works agreements per year in large companies, the increasing number of legally ambitious framework agreements and the occasional overload of the parties to the works agreements with the functioning of individual IT tools will therefore remain unchanged in the coming years.

The coalition government had already planned to introduce a federal law on compliance with collective agreements, but this did not progress beyond the status of a governmental draft during the last legislative period. Now a second attempt is to be made, although the relevant contract value has been reduced from the ‘over 250,000 euros’ sought by the CDU in the negotiations to 50,000 euros in the coalition agreement (for start-ups with ‘innovative services’ in the first four years after their establishment, starting at 100,000 euros). The CDU's original demand that the settlement should refer exclusively to the basic hourly wage set out in a relevant and representative collective agreement did not make it into the final version. Bureaucracy, documentation requirements and controls are to be kept to an absolute minimum. 

No agreement was reached on the SPD's demand for a right of collective action for trade unions, which would have given them the opportunity to enforce workers' rights.

Overtime pay for work exceeding the full-time hours agreed in collective agreements or based on collective agreements will be tax-free in future. Full-time work is defined as a weekly working time of at least 34 hours for collective agreements and 40 hours for working hours not specified or agreed in collective agreements. 

The wording is surprising in view of the ruling of the Federal Labour Court of 5 December 2024 (8 AZR 370/20), in which the court held that a collective agreement provision which, regardless of individual working hours, requires overtime bonuses to be paid when the regular working hours of a full-time employee are exceeded constitutes a violation of the prohibition of discrimination against part-time employees if this is not justified by objective reasons. It remains to be seen whether the legislature will, for its part, cite objective differentiation when designing the tax relief. 

The main application of this new provision will be in the area of overtime that is already paid, for example under collective agreements. It is even intended as an incentive. Another interesting question for practice is whether tax-free overtime bonuses also offer scope for future remuneration systems in cases where, in accordance with the Federal Labour Court's case law on remuneration expectations, overtime was not paid at all to so-called "high earners". This is often the case in the AT sector, for example. Based on the plans of the coalition partners, there could still be room for manoeuvre in the future, e.g. by putting together an attractive remuneration package for employees at lower cost to the employer through moderate increases in basic salaries and higher overtime allowances. However, such an incentive has an impact on time recording. Without time recording, it will be difficult to determine the extent to which employees are entitled to tax-free overtime bonuses. However, this is not a compelling reason to abandon trust-based working time in these areas. This is because the necessary proof for overtime bonuses can be provided without recording total working time by recording overtime. This is already provided for in Section 16 (2) of the Working Time Act (ArbZG).

The aim of promoting collective bargaining coverage is reflected in the announcement that trade union membership will be made more attractive through tax incentives. Although not directly relevant for tax purposes, it has also been announced that membership of employers' associations without collective bargaining coverage will be further restricted.

Other tax incentives are likely to be less controversial, such as the announced tax exemption on salaries of up to €2,000 for people who continue to work voluntarily after reaching the statutory retirement age, or tax relief on bonuses paid by employers to extend part-time work to permanent full-time work on the basis of collective agreements. It remains to be seen how often the latter instrument will be used by employers, but the idea is certainly understandable in times of skills shortages. However, other factors such as childcare facilities or support for caring for relatives often play a role in the extension of working hours.

It is still unclear what impact the planned amendments to civil procedure law will have on labour court proceedings. However, given the broad reference in section 46(2) of the ArbGG, it can be assumed that the plans – which are still quite general in nature – will also be relevant. These include, among other things, improved digitisation and the streamlining and acceleration of procedural processes. There are also plans to introduce online proceedings in civil courts. Judges are to be given the option of structuring proceedings independently, for example through early procedural conferences or guidelines on the structure of the parties' submissions. Access to the second instance of fact is to be restricted and preclusion periods extended. The recommendations of the “Civil Procedure of the Future” reform commission are to be taken up.

In addition, there are a number of general statements whose practical relevance cannot yet be assessed. These include the following announcements:

• Strengthening the prevention of mental illness and reviewing the effectiveness of all necessary occupational safety instruments
• Amending the Federal Personnel Representation Act 
• Improving working conditions in the courier, express and parcel delivery sector, noting that subcontractor liability for social security contributions has proven effective and should be introduced in a similar form for the courier sector 
• Strengthening occupational pension schemes and promoting their widespread use, particularly in small and medium-sized enterprises and among low-income earners. The instruments to be used remain largely unclear; only support for low-income earners is mentioned. In addition, the portability of occupational pension schemes is to be increased when employees change employers. As part of the general digitalisation efforts, occupational pension schemes are also to be digitalised and made less bureaucratic. 
• Employee capital participation is to be further strengthened through the practical design of tax and social security law.

The demand for the abolition of unfounded fixed-term contracts did not make it into the coalition agreement. Exceptions to the prohibition on subsequent employment under Section 14 (2) sentence 2 of the Part-Time and Fixed-Term Employment Act (TzBfG) were agreed for continued employment after reaching retirement age and for employment relationships during studies. Both are welcome plans, although in times of skilled labour shortages, simplifying work beyond retirement age is likely to be particularly relevant in practice.

Apart from the (cautious) softening of the 8-hour working day, the coalition agreement does not contain any 'change of direction' in labour law. The target of a €15 minimum wage and the collective bargaining law at federal level are likely to be SPD's biggest successes. In addition to the planned slight liberalisation of working time laws, the abolition of the Supply Chain Due Diligence Act and the simplification of fixed-term contracts after retirement are likely to be the visible points on the CDU/CSU agenda. However, the small rays of hope offered by the simplification of labour law (such as the reduction of written form requirements) cannot hide the fact that the 'big breakthrough' in labour law has once again failed to materialise.