5 minute read | July.08.2026
On July 2, 2026, the German Federal Government presented a reform package aimed at supporting economic growth and employment. The package includes 34 measures. Its overall goal is to make Germany a more competitive business location and to encourage investment.
Several of the planned measures would make German employment law more flexible. If implemented, they could make life easier for employers, especially start-ups and international companies. This applies in particular to fixed-term hiring and separations from senior employees and key employees.
In our three-part series, we look at the most important planned changes from an employer’s perspective:
Part I – More Flexibility for Employers: Planned Changes to Fixed-Term Employment and Terminations
Part II – Sick Leave and Pension Reform: What This Means for Workforce Planning and Restructurings
Part III – Co-Determination, Digitalization and Less Red Tape: The Planned Changes at a Glance
The Government’s reform package of July 2, 2026 is not limited to individual employment law. Several planned changes also concern works constitution law and tariff autonomy.
The key proposals and their possible impact are set out below:
The introduction of software, updates and technical systems is expected to become easier and faster. The aim is to make it easier for companies to implement digitalization and AI projects without fundamentally calling works council co-determination rights into question. Concrete reform proposals are expected to be developed first together with the social partners.
Under current law, the introduction of technical systems that are intended to monitor employees’ behavior or performance is subject to works council co-determination under Section 87(1) No. 6 of the German Works Constitution Act (Betriebsverfassungsgesetz). In practice, this often creates significant administrative work and can delay digitalization projects.
For companies with major digitalization or AI projects, a reform of IT co-determination could bring meaningful practical relief. It remains to be seen whether the announced discussions with the social partners will lead to substantial reforms.
Collective bargaining parties are expected to receive more room to shape employment conditions. In industries particularly affected by economic transformation, such as the automotive, chemical, steel and mechanical engineering industries, the social partners are expected to develop concrete proposals by mid-October 2026 to strengthen competitiveness and resilience.
The social partners are also expected to identify further areas in which collective bargaining agreements could deviate from statutory rules in the future. The areas mentioned include fixed-term employment with an objective reason, occupational health and safety rules, and reporting and documentation duties.
If such opening clauses are introduced, companies bound by collective bargaining agreements could have significantly more flexibility in the future. It is currently still unclear whether joint reform proposals will be made and how far they might go.
The Government has announced that it wants to regulate the use of so-called shelf SE structures more strictly. It also wants to limit ways of organizing companies without co-determination on board level. Germany is expected to push for this in particular at European level.
Under current law, companies can, under certain conditions, use a European Company, or SE, to avoid or freeze German co-determination on board level. In practice, so-called shelf SE structures are used in particular to achieve structures without co-determination on board level.
If implemented, this change would have a significant impact on corporate structuring models and future transactions. However, because this depends largely on developments under European law, legal changes are not expected in the short term. Companies considering such structuring measures should nevertheless keep a close eye on further developments.
Existing reporting obligations toward public authorities are expected to be reviewed comprehensively and, where possible, reduced. A so-called reporting duties brake is planned for future legislation. Existing documentation duties are also expected to be reviewed to determine whether they are really necessary.
Under current law, companies are subject to many reporting and documentation duties, which are often seen as a bureaucratic burden. In addition, there are several operational officer functions whose practical benefit is partly questioned.
If implemented, these measures are likely to reduce administrative work for employers in the medium to long term. A positive point is that the Government expressly plans to examine whether certain operational officer functions can be abolished, provided they are not required by European law. The exact scope of possible relief is not yet clear.
Companies with limited administrative resources would benefit in particular from a reduction in reporting and documentation duties.
The planned changes to co-determination and tariff autonomy involve a clear tension. On the one hand, the Government wants to make digitalization and the introduction of AI easier. On the other hand, it wants to prevent companies from using shelf SE structures to avoid co-determination on board level. Concrete legislative proposals are still pending, and implementation is likely to happen only in the medium term.
The possible simplification of rules on software and AI systems may be especially relevant for employers. Companies that use or are considering SE structures should closely follow developments at European level.