Focus On Labour Law – 4th Quarter 2025

Article Insights

As the year draws to a close, we are issuing our last Focus on Labour Law for 2025 with its usual overview of important labour court decisions of the last few months and updates on new legislation. In particular focus are two ECJ rulings on the requirements for mass redundancy notifications and the case law of the Federal Labour Court (Bundesarbeitsgericht, BAG) specifying the length of the probationary period in fixed-term employment relationships. In addition, there are important insights into the employment of international skilled workers and the legally compliant drafting of target agreements for the new year.

Furthermore, the expert commission has presented its final report on the implementation of the Pay Transparency Directive.

Read this issue to find out what is of particular practical importance for you right now!

1. New  case law

1.1  ECJ adjusts requirements for mass redundancy notifications

No "lifeline" for mass redundancies: The ECJ (judgements of 30 October 2025 – C-134/24 (Tomann) and C-402/24 (Sewel)) confirms the strict 30-day blocking period and puts a stop to the possibility of subsequently submitting the notification at a later date. For restructuring measures – including during insolvency – this means that, without due and proper notification according to Section 17 of the German Unfair Dismissals Act (Kündigungsschutzgesetz, KSchG), there is a risk of invalidity as well as considerable litigation risks.

In connection with two unfair dismissal proceedings in which a mass redundancy notification had either not been submitted at all or had been submitted incorrectly, the second and sixth senates of the Federal Labour Court had referred several questions to the ECJ concerning the legal consequences of omitted or incorrect mass redundancy notifications, including questions on the 30-day blocking period under Article 4 (1) of Directive 98/59/EC, the requirement of due and proper notification under Article 3 of Directive 98/59/EC, its remedy by way of subsequent notification at a later date, and the authority's binding determination of the expiry of the deadline. By doing so, both senates have incited practical interest, as the Federal Labour Court's approach suggested that not every faux pas in the notification process necessarily leads to the invalidity of the dismissal, as was previously the case. Instead, it brought into play the possibility of “remedying” an initially incorrect notification of mass redundancies, which would at most delay the effective date of termination but not render the dismissal itself invalid.

However, the ECJ clarified that dismissals in the context of mass redundancies subject to a notification obligation do not take effect until after 30 days – and that this blocking period only begins with the due and proper notification to the employment agency. Only in this way can the purpose of the underlying directive be achieved, namely to create a binding time window for official measures to mitigate the consequences for the labour market. The notification therefore has to be made effectively before  the dismissals are announced; it is not possible to subsequently submit or correct the notification after  their announcement. Further questions that were referred to the ECJ for preliminary ruling - on the "remedy" of incorrect notifications and on the binding effect of official decisions – were rejected by it as inadmissible.

The judgements are not as sensational as the ECJ's "Junk" judgement (ECJ, 27 January 2005 – C-188/03 (Junk)) 20 years ago. Nevertheless, the vehemence with which the ECJ has now rejected the considerations of the Federal Labour Court to soften the consequences of invalidity in the event of flaws in the mass redundancy notification process is surprising. Equally disappointing for practitioners is the fact that confirmations from the employment agency still do not constitute a protection of legitimate expectations with regard to mass redundancy notifications.

In practice, this means that the simplifications envisaged by the Federal Labour Court will not materialise. Without a proper consultation and notification procedure, any wave of redundancies in Germany carries a considerable risk. Therefore, also in future, the following continues to apply: companies should carefully check thresholds, ensure a timely and complete consultation with the works council, and submit the complete notification with all mandatory information and attachments. This is the only way to manage the risks associated with mass redundancies!

Dr. Alexander Willemsen

1.2 Fixed-term employment contracts: No fixed requirements for the length of the probationary period, protection against dismissal only after the waiting period

The proportionality of an agreed probationary period in a fixed-term employment relationship within the meaning of Section 15 (3) of the German Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz, TzBfG) must always be assessed on a case-by-case basis and take into consideration both the expected duration of the fixed term and the nature of the work. However, even in the case of short-term fixed-term employment contracts, there is no legal reason to shorten the six-month waiting period for protection against dismissal under Section 1 (1) KSchG. The Federal Labour Court has taken a position on these two key points in its ruling of 30 October 2025 – 2 AZR 160/24.

The employment relationship between the employee and the company was for a fixed term of one year. The parties agreed that the first four months of the employment relationship would be a probationary period with a notice period of two weeks. The company terminated the employment relationship with due notice in compliance with the notice period during the probationary period approximately one and a half weeks prior to the end of the agreed probationary period.

The employee took legal action against the termination, arguing that the agreed probationary period was disproportionately long. For this reason, the employment relationship could only be terminated at the earliest in compliance with the statutory notice period. Due to the invalidity of the probationary period clause, the agreement on the terminability of the employment relationship pursuant to Section 15 (4) TzBfG could be deemed invalid in its entirety. In addition, the employee argued that the dismissal required social justification, as the waiting period under Section 1 (1) KSchG could only be as long as a permissible, proportionate probationary period.

The lower court had initially ruled that a reasonable probationary period could generally be set at 25% of the total duration of the fixed-term employment relationship, which in the present case corresponded to a probationary period of three months. The termination was valid, however, and merely terminated the employment relationship at a later date.

However, as can be seen from the decision, which is currently only available as a press release, the Federal Labour Court has made it clear that there is no generally applicable standard value for the ratio between the fixed term and the permissible probationary period. Rather, each case has to be considered individually, taking into account both the expected duration of the fixed term and the nature of the work. In the present case, the Federal Labour Court considered the probationary period of four months to be proportionate, as there was a detailed induction plan with three different phases totalling 16 weeks, and the completion of the induction process coincided with the agreed probationary period. The employee could only be productively employed after completion of these induction phases. Furthermore, the Federal Labour Court clarified that, also in the case of short-term fixed-term employment relationships, the statutory waiting period of six months for protection against dismissal under Section 1 (1) KSchG is not reduced. There is no "legal reason" for any such reduction.

Although the Federal Labour Court has not drafted any binding guidelines on the length of probationary periods in fixed-term employment relationships and emphasises the freedom of contract of the contracting parties, companies would nevertheless be well advised to comprehensibly justify the length of the probationary period in each individual case. This is especially the case if the probationary period exceeds 25% of the total contract period. Ideally, this should be based on a structured plan that plausibly outlines the individual training phases for the term of the probationary period. This is because an excessively long probationary period carries the risk of being invalid – and thus also the risk of loss of the reduced notice period.

Dora Udovičić

1.3 Just because you book it doesn't mean you're the one who pays for it – training courses for works councils

Training courses for works councils regularly give rise to conflicts over costs, format and timing. A recent ruling by the Hesse Regional Labour Court (Landesarbeitsgericht, LAG) shows the limits of companies' influence.

A works council based in Frankfurt am Main wanted to send two members and one substitute member to a five-day on-site training course in Cologne. The company refused to grant leave and cover the costs, referring the works council to an earlier (and therefore more convenient) seminar, an online alternative and cheaper hotels. The works council pursued its demands in summary proceedings. The Hesse Regional Labour Court ruled in the works council's favour and issued a preliminary injunction obliging the company to comply with the works council's demands (LAG Hesse, 25 August 2025 – 16 TaBVGa 83/25).

In the opinion of the Hesse Regional Labour Court, urgent action was required because the training was already scheduled to begin on 1 September 2025 and, without judicial protection, the works council members would have had to bear salary and cost risks. This was inadmissible for an unpaid honorary position (cf. Section 37 (1) of the German Shop Constitution Act (Betriebsverfassungsgesetz, BetrVG). Since the training was intended to impart basic knowledge about works council work, it was also necessary within the meaning of Section 37 (6) BetrVG. Furthermore, the company could not refuse on-site training on the grounds that an online format was "cheaper". The works council was entitled to insist on communication and interaction, as was already decided by the Federal Labour Court (see BAG ruling of 7 February 2024 – 7 ABR 8/23). The works council also did not have to accept earlier dates for the training.

References by the company to hotels that were cheaper than the conference hotel were irrelevant, as participants who did not stay overnight at the conference hotel were charged considerable daily flat rates for the use of the seminar rooms, meaning that the conference hotel might actually be cheaper on the whole. Finally, the works council could demand reimbursement of seminar fees, hotel and meal costs, as well as the provision of train tickets in advance. It would be incompatible with the voluntary nature of works council activities for works council members to have to advance these costs.

The decision of the Hesse Regional Labour Court shows once again how much discretion works councils have when choosing training events, the costs of which are ultimately borne by the company. Unfortunately, case law sets few limits here. In particular, the courts do not accept the argument that the desired knowledge can also be acquired through (more cost-effective) online courses. What is new is the view of the Hesse Regional Labour Court that the company not only must reimburse the costs incurred but must also advance these costs, and that works council members do not have to pay these costs upfront. This naturally shifts the risk to the company even more.

When deciding on the next training request from the works council, companies should bear in mind how high the costs of a possible legal dispute could be – the chances of success of which have doubtlessly also not increased following this decision by the Hesse Regional Labour Court. Unless the training topics and locations are totally exotic, there remains a considerable risk for the company.

Kathrin Vossen

1.4 Support rather than disadvantage: Legal obligation to adapt working conditions for employees with disabled children

Parents of children with disabilities often reach their limits when they are unable to flexibly arrange their place and hours of work. The ECJ recognised this problem and ruled on 11 September 2025 – C-38/24 that companies are fundamentally obliged to take reasonable measures to avoid indirect discrimination against employees who are carers. Companies who reject this outright risk claims under the German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG) and damage to their reputation.

An employee of a transport company in Italy repeatedly requested the adjustment of her working hours. Due to her shift work, she was unable to accompany her severely disabled underage son to fixed therapy appointments. She wanted a permanent job with fixed working hours. The company only made temporary concessions and ultimately rejected her request. The employee then took legal action for indirect discrimination, taking her case all the way to the Italian Court of Cassation. The latter referred the question to the ECJ, asking whether the equal treatment provisions also indirectly protect employees who care for a disabled child and whether companies are obliged to make reasonable accommodations.

The ECJ affirmed this and clarified that protection against discrimination on grounds of disability under the European Equal Treatment Framework Directive (Directive 2000/78/EC) also applies indirectly. The decisive factor here is not whether the disadvantaged person is disabled themselves. The purpose of the Directive is to combat all forms of discrimination on grounds of disability in respect of employment and occupation. Protection against discrimination therefore extends to a carer who is subject to indirect discrimination. The ECJ also justifies this broad interpretation with the rights of the child under Articles 24 and 26 of the EU Charter of Fundamental Rights, which recognise the right of persons with disabilities to participate in communal life.

At the same time, with Article 5 of the above Directive the ECJ specifies the obligation for companies to take appropriate measures to ensure compliance with the principle of equal treatment. Flexible working models, transfers, home office arrangements or the consideration of preferences in shift work are possible options. The obligation ends, however, if the company is disproportionately burdened. This means, for example, that costs and organisational implications must remain within reasonable limits. Whether this is the case is examined by the national courts on a case-by-case basis.

Protection against discrimination is regulated in German law by the General Equal Treatment Act (AGG). There is much to suggest that the AGG's prohibitions on discrimination will have to be interpreted in accordance with EU law in future. For companies, the decision already means that requests for adjustments from employees who are carers cannot just generally be rejected. A general refusal to make reasonable accommodations may be an indication of indirect discrimination and may give rise to a claim to damages or compensation by the person concerned under Section 15 (2) AGG.

Linda Neu

1.5 EUR 15,000 in compensation for permanent video surveillance

Video surveillance mistakes can be costly for companies. The Hamm Regional Labour Court ruled that failure to comply with data protection regulations in a case of particularly intrusive video surveillance can have significant consequences for companies. Whereas in the past, only small compensation payments were usually awarded, in this case the court ordered a company to pay EUR 15,000 in compensation.

The Hamm Regional Labour Court (judgement of 28 May 2025 - 18 SLa 959/24) addressed claims by a production worker who was being permanently monitored by a total of 34 cameras in the production hall, warehouse and offices of a steel company. Parts of the facilities recorded in HD quality around the clock, stored the recordings for at least 48 hours and enabled live evaluation. Although break rooms, changing rooms and sanitary facilities were not filmed, the employee's movements to these areas could be traced. The video surveillance was indicated by signs, and the employment contract contained a general data protection clause.

A legal dispute over the video surveillance brought before the Dortmund Labour Court (Arbeitsgericht, ArbG) initially ended with a settlement in which the company undertook to disclose information about operating times, the number of cameras, recordings and storage periods. Dissatisfied with the information provided, the employee subsequently sued the company for injunctive relief, further information and compensation for pain and suffering. The Dortmund Labour Court dismissed the action for disclosure of information and awarded the employee, who had since been dismissed without notice, compensation in the amount ofEUR 15,000.

The Regional Labour Court rejected the claim for injunctive relief, as there was no risk of repetition once the employment relationship had ended, and confirmed the compensation of EUR 15,000. The video surveillance constituted an unlawful and particularly serious violation of personal rights, as it was carried out without a sound legal basis and without consent. Neither Section 4 (no publicly accessible spaces) nor Section 26 of the German Federal Data Protection Act (Bundesdatenschutzgesetz, BDSG) nor Art. 6 (1) (f) GDPR justified the measure; there were no concrete grounds for suspicion. The consent contained in the employment contract was invalid due to a lack of voluntariness, a lack of clear separation from the agreements in the employment contract and no reference to the right of revocation. The purposes cited by the company (including theft/vandalism prevention, protection of tools/machinery) were unsuitable, not sufficiently specific or could be achieved through less intrusive measures (e.g. monitoring of entrances and exits). Due to the comprehensive permanent surveillance, the extensive access rights of several persons, the continuation of surveillance despite explicit objections, and the resulting "extremely high pressure to conform," the court assessed the intrusion as serious. The compensation awarded was deemed appropriate in light of the duration, intensity and fault, as well as in comparison to previous case law.

Companies should carefully review existing video surveillance systems as to their purpose limitation, necessity and proportionality. Milder means should be considered; comprehensive surveillance should be avoided, and video surveillance should be limited to specifically identified risk or danger areas. In addition, storage periods should be as short as possible, and live monitoring should only take place in justified exceptional cases. Access to the recordings must be restricted to a narrowly defined group of people. Finally, the purpose for which video surveillance is used and the specific grounds for suspicion should be documented in a comprehensible and reliable manner.

Fjolla Sulejmani

1.6 Works council elections – restriction of the possibility to contest them

According to the case law of the Federal Labour Court, it is no longer possible to contest works council elections solely on the grounds of an insufficient number of candidates. In a recent ruling, the court once again clarified that the mere fact that there are fewer candidates than there are seats to be filled on the works council does not constitute an independent ground for contesting the election, and that the election fundamentally retains its validity.

According to Section 9 of the German Shop Constitution Act (BetrVG), the size of the works council is determined by the number of employees eligible to vote. In practice, however, what often happens is that not enough employees are willing to stand as candidates for the works council, with the result that the number of candidates falls short of the number of works council seats provided for by law. The Federal Labour Court has ruled that, in such cases, the size of the works council must be reduced to the next lower level specified in Section 9 BetrVG until the number of candidates is sufficient to establish a committee with an odd number of members (BAG, decision of 24 April 2024 – 7 ABR 26/23). The election must then be held with the available candidates.

The election committee is not required to set a grace period for submitting further nominations, insofar as nominations have been submitted at all. The grace period pursuant to Section 9 (1) of the Electoral Regulations (Wahlordnung, WO) is only mandatory if no list of nominations has been submitted. The Federal Labour Court expressly rejects the analogous application of this provision to cases with too few candidates, as there is no unintended regulatory gap in this regard. The aim of the legal provision is to enable a works council to be established in every company eligible for a works council, even if the number of members is below the legal requirement. According to the Federal Labour Court, the functionality and democratic legitimacy of the works council remain fundamentally intact even with a smaller number of members.

The Federal Labour Court emphasises that a violation of the election procedure, such as in a case that was recently decided (BAG, decision of 22 May 2025 - 7 ABR 10/24) by setting an inadmissible grace period, only leads to the invalidity of the election if this violation actually affected the election result. If, for example, a grace period is set but no further nominations are submitted within this period, the election result remains unchanged and the election is valid. The mere fact that there are fewer candidates than works council seats does not justify the nullity or contestability of the election. An election can only be contested in the event of significant violations of election regulations that influence the election result.

The Federal Labour Court does not see the situation of too few candidates as an unintended regulatory gap that would justify the judicial development of the law or an analogous application of the grace period rule. Rather, the election must be held with the available candidates and the size of the works council adjusted accordingly. The election therefore remains valid as long as there are no serious violations of essential election regulations that influence the election result.

The decisions of the Federal Labour Court lead to cases that trigger questions as to the legitimacy of a committee. Clear criticism is warranted here. For example, can a works council consisting of only one person represent a company with 500 employees? There can be no two opinions on this. In practice, alternatives to the statutory works council are therefore playing an increasingly important role: voluntary employee representation. Companies and employees are breaking new ground, seeking simple, transparent approaches that are detached from the outdated structures of the German Shop Constitution Act.

Jörn Kuhn

1.7 Riding as a passenger in a company car at the employer's instruction: classified as working time under working time law

Journeys to work locations that are made at the instructions of the company and with its vehicles are to be classified as working time for passengers within the meaning of the Working Time Directive (ECJ, judgement of 9 October 2025 – C-110/24). Instead of the question of the intensity or workload of an employee, the decisive issue is the employee's availability to the employer.

In the case from Spain assessed by the ECJ, the employees drove independently in the morning to a base specified by the company, where they were given a company vehicle and materials and subsequently drove together to their respective workplaces. At the end of the working day, they returned to the base with the vehicle and drove home from there. The referring Spanish court asked the ECJ to clarify whether the travel time between the base and the place of work should be considered as working time within the meaning of the EU Working Time Directive.

According to Article 2 of Working Time Directive 2003/88/EC, working time is any period during which employees work, are at the employer's disposal and carry out their duties. In the present case, the company stipulated all the conditions concerning the journeys, meaning that the employees were neither free to use their time as they wished nor able to pursue their own interests. They were at the employer's disposal throughout the entire journey. The ECJ refers in this regard to its judgement of 10 September 2015, C-266/14, and clarifies once again: For employees without a fixed place of work, travel to perform tasks under their employment contract constitutes working time, as it is an integral part of their work. This also applies if tasks are performed during the journey or if the journey itself is necessary for the work.

Journeys to changing places of work, which are carried out according to the company's specifications and with its vehicles, are therefore to be regarded as working time. This marks yet another departure from the Federal Labour Court's previous "theory of utilisation of the employee's services" (“Belastungs-/Beanspruchungstheorie”), according to which only activities that actually utilise the employee's services and are stipulated externally are considered working time. Periods of less utilisation, such as simply riding along as a passenger or sleeping, have previously been assessed by the Federal Labour Court as rest periods and not as working time. In view of the ECJ's ruling, the Federal Labour Court can be expected to adjust its assessment in future. However, the Federal Labour Court has not yet had the opportunity to do so.

Against the drop of the existing risks of penalties and fines for violations of the German Working Time Act (Arbeitszeitgesetz, ArbZG), the ECJ's decision is also highly controversial for German companies. It once again highlights the discrepancy between the definition of working time under European law and that of the Federal Labour Court.

It is difficult to imagine that, in the light of the ECJ ruling, the Federal Labour Court will continue to adhere to the so-called "theory of utilisation of the employee's work services" in its assessment of travel times under occupational health and safety law. Against this ground, German companies would already be well advised to include the travel times of employees without a fixed place of work in their calculation of maximum working hours and rest periods. It should therefore be possible for company-organised travel times to be recorded in the working time account. Employment contracts and shop agreements should also be reviewed and, if necessary, revised to establish differentiated rules for the remuneration of travel times. The remuneration of travel times does not necessarily have to be the same as that for active working time, as long as the minimum wage requirements are met for the entire working time.

However, it continues to be the case that not all travel time is automatically considered working time – it always depends on the specific context and the organisation of the trip. On the whole, however, the treatment of business trips in terms of working time law is becoming increasingly complex for companies.

Alexandra Groth

1.8 Extraordinary termination: Hamm Regional Labour Court affirms validity in connection with a certificate of incapacity for work purchased on the internet

The immediate dismissal of an employee without notice is valid if the employee submits a certificate of incapacity for work (“AU-Bescheinigung”) that they purchased on the internet without consulting a doctor, thereby deliberately deceiving the company about a medical consultation. This was the ruling of the Hamm Regional Labour Court in its judgement of 5 September 2025 (14 SLa 145/25), which emphasised the requirements of the AU Guideline (AU-Richtlinie, AUR). If these are not complied with, the evidential value of a certificate of incapacity for work is undermined.

The employee reported sick and unable to work from 19 August to 23 August 2024. He purchased a certificate of incapacity for work on a website, for which he filled out a questionnaire about his symptoms and his job, among other things. There was no consultation with a doctor in this connection. The certificate of incapacity for work was visually very similar to the form that was intended for submission to the company in paper form prior to the introduction of electronic sick notes. The employee submitted this certificate to the company as proof of his incapacity to work. The employee filed an unfair dismissal action against the company's subsequent extraordinary termination of his employment.

The Hamm Regional Labour Court considered the extraordinary termination to be valid, as the plaintiff's conduct was "in itself" sufficient to constitute good cause (“wichtiger Grund”) within the meaning of Section 626 (1) of the German Civil Code (Bürgerliches Gesetzbuch, BGB). By submitting the certificate as proof of his incapacity to work, the employee had deliberately misled the company – especially by using the term "remote examination" – into believing that he had been in contact with a doctor to determine his incapacity to work. This constituted a breach of his duty of consideration under his employment contract pursuant to Section 241 (2) BGB. Whether the employee was actually unable to work or had assumed that he was actually unable to work was irrelevant in this respect. The employee had fraudulently obtained a certificate of incapacity for work. This constituted good cause within the meaning of Section 626 (1) BGB, particularly if the employee – as in this case – had continued to receive remuneration for the period of his feigned incapacity for work. A warning was not necessary due to the seriousness of the breach of duty. The breach of trust was particularly serious, as the procedures for determining incapacity to work are an area in which companies generally have no insight.

The decision of the Hamm Regional Labour Court clearly emphasises that the fraudulent acquisition of certificates of incapacity to work via online portals without any contact with a doctor constitutes a serious breach of duty and can justify termination without notice – even if the employee was actually ill. The decisive factor is the deceptive nature of the "certificate" submitted and the associated breach of trust. For companies, this means a noticeable strengthening of their position: as soon as there are concrete indications that a certificate of incapacity for work has been obtained unlawfully, extraordinary termination without prior warning can be effective. In particular, the court considers the use of terms such as "remote examination", which objectively give the impression of the involvement of a doctor even though no contact with a doctor has actually taken place, to be deliberate misrepresentation.

Lisa Striegler

1.9 No right of co-determination in the event of operational changes that have already been initiated – even if a works council is already in the process of being established

According to established case law, there is no enforceable right of co-determination in the event of operational changes if a works council is only elected in a company without one after the implementation of the operational change has begun. Furthermore, companies are also not obliged to wait until a works council has been formed before implementing an operational change that has already been decided upon. According to the Baden-Württemberg Regional Labour Court in its ruling of 30 September 2025 – 2 TaBV 2/25, this is the case even if the company has previously provided partially inaccurate information about the status of its plans.

In the case at hand, the company and the works council were in dispute over the establishment of a conciliation board to draw up a social plan. At the beginning of April 2025, the company had announced several terminations for operational reasons due to a planned relocation of essential parts of its business. The works council considered this to be subject to a social plan. Although the works council was not elected until the end of April – i.e. after the terminations had been announced – the works council claimed that the company had deliberately provided false information about the status of the relocation plans at a works meeting in early March, thereby thwarting the timely initiation of the works council election. Without this deception, the election would have been initiated that same week.

The Regional Labour Court dismissed the application for the establishment of a conciliation board as unfounded on the grounds of its obvious lack of jurisdiction.

The Federal Labour Court had previously ruled on several occasions (including BAG, decision of 8 February 2022 – 1 ABR 2/21) that a right of co-determination cannot arise if a works council is only elected after the implementation of the operational change has already begun. However, until then it had remained unclear whether, in exceptional cases, this was not the case if the company had prevented the works council from being elected in a timely manner. According to the Regional Labour Court, therefore, one could not proceed on the assumption of established supreme court case law. However, such prevention had not been conclusively demonstrated in the specific case. This is only the case if the company's actions prevent or impede the timely holding of an election. This is not the case if the company makes untrue statements about planning projects. Such deception therefore does not justify a "pre-constitutional" right of co-determination, albeit that it may give rise to damage claims.

A right of co-determination also did not arise from the fact that the company had accelerated the implementation of its operational plans due to the imminent establishment of a works council. Even if a works council is in the process of being established, the company does not have to wait to implement a measure that will be subject to co-determination in the future.

The decision makes it clear that a newly established works council can no longer influence the implementation of an operational change that has already begun, let alone demand a social plan. However, boundaries apply in cases where the works council election is made more difficult, obstructed or thwarted. For companies, this means documenting measures that have already been decided upon at an early stage and in sufficient detail and passing the relevant resolutions. In a next step, a decision can then be made as to whether voluntary negotiations will be conducted with the newly established works council so as to strengthen trust-based cooperation.

Katharina Schäffer

1.10 Exclusive remuneration in kind can lead to double social security contributions

Providing a company car for private use does not satisfy the minimum wage requirement. Companies therefore also have to pay contributions for the statutory minimum wage entitlement if they have duly paid social security contributions for the company car (BSG, judgement of 13 November 2025, B 12 BA 8/24 R and B 12 BA 6/23 R).

The decisions of the Federal Social Court (Bundessozialgericht, BSG)  were based on cases in which companies provided marginal part-time employees with the agreed remuneration in the form of a company car, which could also be used privately. The companies paid social security contributions for these benefits in kind. During a tax audit, the German Federal Pension Insurance Fund (Deutsche Rentenversicherung, DRV) objected to this remuneration model. The DRV demanded additional contributions in the amount of the statutory minimum wage entitlement, as it was not possible to fulfil the minimum wage entitlement by granting a benefit in kind (in this case, the private use of the car).

The Regional Social Court (Landessozialgericht, LSG) of Baden-Württemberg (judgement of 19 April 2023 – L 5 BA 1846/22) and the Regional Social Court of North-Rhine Westphalia (19 June 2025 – L 8 BA 111/20) had still based their decisions on the fact that it was not relevant for assessing the contribution for the remuneration whether the remuneration claim in the amount of the minimum wage was effectively fulfilled, and therefore rejected a further contribution obligation.

The Federal Social Court did not follow this line of reasoning. For the assessment of contributions, all regular or one-off income (cf. Section 14 (1) of the German Social Code Book IV [Sozialgesetzbuch IV, SGB IV]) is relevant in the statutory social insurance, regardless of whether and to what extent the remuneration was actually paid. Since the minimum wage entitlement under Section 1 (1) of the German Minimum Wage Act (Mindestlohngesetz, MiLoG) cannot be effectively fulfilled by granting benefits in kind (BAG, judgement of 25 May 2016 – 5 AZR 135/16), the employee is in all events entitled to a cash payment in this amount; which also cannot be circumvented by a mutually agreed contractual arrangement. As a result, contributions must also be paid on the minimum wage entitlement.

This assessment does not lead to a different evaluation in terms of contribution law, because the employer can, in principle, reclaim the value of the private vehicle use under civil law. This is due to the fact that social security law applies the so-called principle of origin, according to which contribution claims become due at the time when the claim to remuneration arises. In the case of the minimum wage claim, this is generally no later than the last banking day of the following month (cf. Section 2 (1) sentence 1 no. 2 MiLoG).

As a result of this decision, companies must ensure in future that, in remuneration agreements, the remuneration component amounting to the minimum wage is paid in cash. Any remuneration in excess of this may, however, also be granted in the form of benefits in kind (e.g. a company car). To this end, employment contracts should clearly distinguish between cash and non-cash benefits, and employers should comprehensibly document the payment of the minimum wage.

If, in individual cases, the total value of the remuneration exceeds the agreed remuneration, the employer may demand repayment of the excess amount on the basis of the principles of unjust enrichment. However, exclusion periods stipulated in collective agreements must be observed in this regard.

Marko Vraetz

2. Gesetzgebung/Sonstiges

2.1 Employment of international skilled workers: Employer-of-record model is permitted again

With effect from 1 October 2025, the Federal Employment Agency (Bundesagentur für Arbeit, BA) has once again revised its interpretation of the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG). The previously tightened employer-of-record regulation, which since 2024 also required a permit for so-called employer-of-record models (EoR), has been withdrawn again. This gives German companies significantly greater leeway when employing international skilled workers, provided they work exclusively abroad.

In the EoR model, an external service provider abroad hires the skilled worker and complies with the local labour, tax and social security regulations. The German company retains the right to issue instructions, while the actual work is performed exclusively outside of Germany. This constitutes a form of temporary employment that, prior to 2024, was not subject to a permit requirement under the AÜG due to the principle of territoriality.

Surprisingly, however, the Federal Employment Agency reinterpreted the EoR model with effect from 15 October 2024 and decided that a mere domestic connection was sufficient for the permit requirement to apply. According to the Federal Employment Agency, this was already the case if the skilled worker worked virtually for a company in Germany from abroad, with the result that the employing service provider abroad required a temporary employment permit under the AÜG.

This legal opinion of the Federal Employment Agency caused great surprise and criticism in practice. Fortunately, however, this prompted the Federal Employment Agency to reassess the EoR constellation, and it has now amended its technical guidelines on the AÜG again with effect from 1 October 2025. In future, a permit under the AÜG will only be required for EoR models if the skilled worker employed abroad via a service provider actually (also) works in Germany. As long as the work is carried out "exclusively" remotely from abroad and there are no stays in Germany, a temporary employment permit is no longer necessary.

This change removes a key hurdle for many companies when it comes to recruiting skilled workers internationally. Nevertheless, caution is advised: it is essential that the foreign skilled worker actually works exclusively from abroad and that any presence whatsoever in Germany is avoided. Even short stays in Germany – for meetings, business trips or training courses, for example – can establish a domestic connection and trigger the permit requirement under the AÜG. Without a permit, the German hirer also faces immense compliance risks. Furthermore, the Federal Employment Agency's instructions are not binding on the courts, and a supreme court ruling on the EoR model is still pending. Companies should therefore keep a close eye on further legal developments in this area.

Isabel Hexel

2.2 Facilitating employment after reaching the standard retirement age – introduction of the “active pension” and relaxation of the prohibition on fixed-term contracts

The German Legislator has decided to introduce the so-called active pension (BT-Drs. 21/2673). The active pension allows for tax-free additional income of up to EUR 2,000 per month in addition to the standard occupational old-age pension. In addition, the pension legislation (BT-Drs. 21/1929) implemented the possibility of fixed-term employment contracts with the same employer without objective reason if the employee has already reached the standard retirement age. Below are some of the most important features:

Tax-free additional income after reaching the standard retirement age

With the active pension, pensioners will in future be able to earn up to EUR 2,000 per month tax-free in addition to their standard old-age pension. Any additional income exceeding the monthly allowance will continue to be subject to regular income tax and will be taxable in accordance with general tax regulations. The active pension incentives pensioners to continue participating actively in working life even after retirement and to secure important know-how for companies. However, this leads to irreconcilable systematic contradictions with the equally favorable options for early retirement (e.g., “retirement at 63” without deductions). The legislature is thus creating a system that, on the one hand, enables early retirement, but on the other hand, provides tax incentives for continuing to work in old age.

Eligible persons and exclusions

The active pension applies exclusively to employees subject to social insurance contributions who have reached the statutory retirement age. Self-employed individuals and civil servants are excluded from the scheme. Early retirees, for example under the “pension at 63” scheme, can solely claim the tax advantage once they have reached the statutory retirement age. These restrictions must be viewed critically under German law, particularly in light of the general principle of equality based in the German Constitution.

The tax incentives for overtime or for extending the working hours of part-time employees (known as the part-time top-up bonus) that were originally discussed are not included in the latest statues.

Labor and social security implications of the active pension

The tax-free additional income of EUR 2,000 is still subject to health and long-term care insurance contributions. In addition, there are employer contributions to pension and unemployment insurance.

The active pension has no effect on the existence of the employment relationship. This remains in place after retirement, unless an explicit termination clause has been agreed upon in the employment contract. In the absence of such a clause, the employment relationship continues indefinitely and inter alia ends via termination or mutual agreement. An extension of the employment relationship beyond the standard retirement age is also possible with a corresponding fixed-term clause by means of a written postponement agreement.

Exceptional circumstances regarding the prohibition of continued employment after reaching the standard retirement age

With the pension legislation, the German Legislator envisaged to ease it for employers to conclude fixed-term employment relationships with pensioners. Employees inter alia will be able to conclude a new fixed-term employment contract with the same employer without objective reason from 1 January 2026. However, the following requirements must be met:

• The individual fixed-term employment contract may not exceed a total duration of two years with a maximum of three extensions;
• A maximum total duration of eight years for all fixed-term employment contracts without objective grounds may not be exceeded;
•  The number of all fixed-term employment contracts may not exceed twelve.

The legislature's approach that employment relationships with pensioners do not enjoy fully fletched protection under German employment law is appropriate. The security provided by the old-age pension sets a different tone here. However, the specific design of the latest German Legislation creates further documentational and administrative tasks for employers resulting from the chosen option concluding new employment contracts in each case.

Conclusion

The active pension and the temporary restrictions are an appropriate approach: envisaging full use of the labor force among “older” employees. However, the implementation raises several questions that need to be clarified in practice.

Marko Vraetz

2.3  Company pension schemes: Bundestag passes Second Act Strengthening Company Pensions

On 5 December 2025, the Bundestag (finally) passed the Second Act Strengthening Company Pensions (Betriebsrentenstärkungsgesetz II, BRSG II). The aim of the BRSG II is the necessary expansion of company pension schemes in Germany and contains important new regulations. BRSG II will come into force in several stages from 1 January 2026.

In particular, the BRSG II includes new options for introducing opting-out systems for company pension, higher settlement caps for vested pension entitlements with and without the employee's consent, an easier participation of "third parties in social partner models" and more flexible coverage requirements for pension funds. In the course of the BRSG II, the temporal scope of application for using up credit balances has also been further expanded. Click  here for our article.

2.4  Final report on the implementation of the Pay Transparency Directive

The coalition agreement between the CDU, CSU and SPD provides for the EU Pay Transparency Directive (EUPTD) to be transposed into German law with "minimal bureaucracy" by 7 June 2026. The expert commission set up for this purpose submitted its proposals to Federal Minister for Gender Equality Katrin Prien on 7 November 2025. Based on this recommendation, the responsible department of the Federal Ministry of Education, Family, Seniors, Women and Youth (Bundesministerium für Bildung, Familie, Senioren, Frauen und Jugend,BMFSFJ) is now responsible for drafting a bill for the "Pay Transparency Act 2.0". The legislative process is scheduled to start in early 2026. Click  here for our article.

3. Rethinking HR!

3.1Target agreements/target stipulations for the new calendar year: what do you need to do now?

As the year draws to a close, a new bonus year approaches and with it the necessary target agreements. Just recently, the Federal Labour Court awarded an employee damages for late target stipulation (judgement of 19 February 2025 – 10 AZR 57/24). Companies should therefore consider both personal and company performance-related targets at the beginning of the year and then set and agree on them as quickly as possible. Stipulating and agreeing on targets in good time minimises the risk of costly damage claims. Careful documentation also makes it easier to resolve disputes.

Companies should pay particular attention to the following points:

• Review of target achievements for 2025
  • Have employees achieved their goals? Where were there deviations?
  • Conducting feed discussions: Joint reflection on successes, challenges and development potential to motivate employees.
• Preparation of new target agreements
  • Analysing company goals: What are the strategic goals for the new year?
  • Deriving departmental/team goals: How do the teams contribute to the company strategy?
  • Formulating individual goals.

• Target agreement meetings
  • Scheduling (target: completion Q1/2026)
  • Creating transparency: clearly communicating goals and expectations.
• Documentation and follow-up
  • Documenting targets in writing: in a target-stipulation form or HR system.
  • Setting milestones and checkpoints: scheduling regular reviews of target achievement.

Annabelle Marceau und Moritz Coché

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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