Employment and Pensions

Employment law in Germany: an overview

Employment law in Germany is employee-friendly, highly codified and shaped by strong collective institutions. Individual employment relationships are governed by the Civil Code (BGB) and a series of specific statutes on dismissal protection, working time, holidays, part-time and fixed-term work, minimum wage and equal treatment. Collective labour law adds works councils at establishment level, collective agreements negotiated with trade unions, and employee representation on the supervisory boards of larger companies. Labour courts with lay judges from both sides of industry decide disputes quickly and often push the parties towards settlement.

For employers, three features matter most. First, terminating employment requires a statutory reason once the Protection Against Dismissal Act applies, and procedural mistakes invalidate dismissals. Second, works councils have co-determination rights over working time, pay structures, IT systems and restructurings, so many decisions require negotiation. Third, many employers are bound by collective agreements, directly or through reference clauses, which set pay and conditions for whole industries. International employers who plan their German operations with these features in mind avoid most of the friction that German employment law can otherwise create.

EU law shapes much of employment law in Germany. Directives on working time, fixed-term and part-time work, agency work, transfers of undertakings, collective redundancies, equal treatment, posted workers, whistleblowing and pay transparency have been transposed into German statutes, and the case law of the Court of Justice of the European Union frequently changes German practice. Holiday law is a prominent example: following CJEU rulings, holiday entitlements no longer lapse automatically at the end of the year unless the employer has informed the employee and asked them to take their leave. Employers therefore need to follow developments in Luxembourg as closely as those in Erfurt and Berlin.

This pillar page gives an overview of the main areas and links to our detailed pages on works councils and co-determination rights, board-level co-determination, dismissals and workforce restructuring, occupational pensions and immigration and global mobility.

Employment contracts and working conditions

German employment contracts are usually concluded for an indefinite period, often with a probationary period of up to six months. The employer must provide the essential terms in writing under the Act on Evidence of Essential Contract Terms (Nachweisgesetz), which was extended in 2022 to implement the EU Directive on transparent and predictable working conditions; breaches can lead to fines. Fixed-term contracts without an objective reason are permitted for up to two years, with up to three extensions within that period, and not if the employee was previously employed by the same employer.

Mandatory working conditions limit contractual freedom. The Working Time Act generally limits working time to eight hours per working day, extendable to ten hours if the average over six months or 24 weeks does not exceed eight hours; employees are entitled to rest periods and Sunday rest.

Following the Federal Labour Court's order of 13 September 2022 (1 ABR 22/21), employers must record working time. Employees are entitled to at least 24 working days of paid holiday per year based on a six-day week (equivalent to 20 days in a five-day week), continued pay during illness for up to six weeks, and parental leave. Pre-formulated contract terms are subject to review under the rules on standard business terms, which invalidate many clauses common in other jurisdictions, such as broad overtime inclusion clauses or unclear clawbacks.

Minimum wage, equal pay and pay transparency

The statutory minimum wage is EUR 13.90 gross per hour from 1 January 2026 and rises to EUR 14.60 from 1 January 2027 under the Fifth Minimum Wage Adjustment Ordinance (§ 1 MiLoV5). Sector-specific minimum wages under collective agreements declared generally binding may be higher.

Equal pay for women and men is required by the General Equal Treatment Act and the Pay Transparency Act, and the Federal Labour Court has strengthened employees' position in equal pay claims. The EU Pay Transparency Directive (EU) 2023/970 had to be transposed by 7 June 2026; it requires pay transparency in recruitment, pay reporting by larger employers and joint pay assessments where gaps cannot be justified. Employers should check the status of the German implementing legislation and prepare their pay structures accordingly. See our insight on the Pay Transparency Directive.

Temporary agency work and contractors

Temporary agency work is regulated by the Temporary Agency Work Act (Arbeitnehmerüberlassungsgesetz, AÜG). Agencies need a licence, and the same agency worker may not be assigned to the same user company for more than 18 consecutive months (§ 1(1b) AÜG), subject to deviations under collective agreements. Agency workers are entitled to equal pay with comparable employees of the user, with limited deviations under collective agreements during the first nine months.

Hiring workers through unlicensed agencies, or disguising agency work as service contracts, can create an employment relationship with the user by operation of law. Freelancers and contractors who are in fact integrated into the client's organisation and subject to its instructions may be treated as employees, with liability for social security contributions and, in serious cases, criminal exposure. A status review before engaging long-term freelancers is therefore advisable.

Managing directors and executives

Managing directors of a GmbH are generally not employees for the purposes of dismissal protection and many employment statutes, although they may be employees for social security purposes depending on their shareholding and influence. Their service agreements are separate from their corporate appointment, which can be revoked at any time by the shareholders unless the articles provide otherwise. Executive employees (leitende Angestellte) are employees but have a special status under the Works Constitution Act and in dismissal protection. Contracts for these groups should be drafted with the corporate and social security consequences in mind.

Holidays, sickness and family leave

Statutory holiday is at least 24 working days per year based on a six-day week (§ 3 BUrlG), and many contracts and collective agreements provide 28 to 30 days. Employees unable to work because of illness without fault are entitled to continued pay from the employer for up to six weeks (§ 3 of the Continued Remuneration Act), after which statutory health insurance pays sickness benefit. Parental leave of up to three years per child, maternity protection periods and care leave give employees extensive rights to time off, during which special protection against dismissal applies. HR planning, particularly in smaller teams, should take these rights into account.

Remote work and employee data

German law contains no general statutory right to work from home, but works councils have a co-determination right over the design of mobile work, and occupational health and safety rules apply to home offices. Employee data is protected by the GDPR, the Federal Data Protection Act and the works council's rights over monitoring technology. The Court of Justice of the European Union has limited the scope of the German provision on employee data processing in § 26 BDSG, so employers should base processing on the general GDPR legal bases or properly drafted works agreements.

Collective labour law and employee representation

Employment law in Germany operates on two collective levels. Collective agreements (Tarifverträge) are negotiated between trade unions and employers' associations or individual employers and set pay scales, working time and other conditions. They bind members of the parties and, if declared generally binding, all employers in their scope; many non-bound employers apply them through reference clauses in employment contracts. Strikes are lawful only in support of collective bargaining objectives and must be proportionate.

At establishment level, works councils represent the employees. They can be elected in establishments with at least five permanent employees (§ 1(1) BetrVG), and regular elections take place every four years between 1 March and 31 May, most recently in 2026 (§ 13(1) BetrVG). Works councils have co-determination rights over social matters such as working time, remuneration principles and technical devices capable of monitoring employees, participation rights in hiring and transfers, and consultation rights in operational changes. Our page on works councils explains these rights, including for IT systems and AI tools.

Board-level co-determination places employee representatives on the supervisory board: one third in companies with more than 500 employees under the DrittelbG and half in companies with more than 2,000 employees under the MitbestG. It affects governance, the appointment of management and transaction planning. See board-level co-determination.

Industrial action is part of the German system. Trade unions may strike only in support of objectives that can be regulated by collective agreement, and only after the peace obligation of an existing agreement has expired. Warning strikes during negotiations are common, particularly in transport, the public sector and the metal and electrical industries. Employers can respond with lockouts within narrow limits. For employers without a collective agreement, a union campaign for recognition can be a significant event that requires careful legal and communications planning.

Terminations and restructuring

Ending employment is the area where German employment law differs most from many other systems. Once the employee has worked for more than six months in an establishment with more than ten employees, a dismissal must be socially justified on grounds relating to the person, conduct or operational requirements (§ 1 KSchG). Notices require written form with a handwritten signature, the works council must be heard before each dismissal, and employees must sue within three weeks. Special protection applies to pregnant employees, severely disabled employees and works council members, among others.

Collective dismissals require consultation with the works council and notification to the Federal Employment Agency before notices are delivered (§ 17 KSchG). Operational changes in undertakings with more than 20 employees entitled to vote require an attempt to agree a reconciliation of interests and, in most cases, a social plan (§§ 111, 112 BetrVG). Business transfers trigger the automatic transfer of employees under § 613a BGB. Our page on dismissals and workforce restructuring explains the process and typical timelines.

Restructurings in groups with several German entities require coordination between the corporate structure and the employee representation structure. A merger of establishments, the transfer of functions to a shared service centre or the closure of a site can each trigger rights of different works councils, a central works council and the economic committee. Mapping these bodies and their competences at the start of a project avoids negotiating with the wrong body and having to repeat steps later.

Pensions, mobility and HR compliance

Occupational pensions are a significant feature of German employment. Employer pension promises are protected by the Company Pensions Act: entitlements vest, pensions in payment must be reviewed for adjustment every three years, and benefits are insured against insolvency by the PSVaG. Employees have a right to deferred compensation. Pension liabilities affect transactions, restructurings and the harmonisation of schemes after acquisitions; see occupational pensions.

Germany competes for skilled workers, and the Skilled Immigration Act has expanded the routes for non-EU staff, including the EU Blue Card, skilled worker permits, the ICT Card and the Opportunity Card. Employers have duties to check and record residence titles, and must notify the authorities if employment for which a title was issued ends early. Recruitment from abroad usually takes several months, so workforce planning should start early. Assignments to and from Germany also raise posting, social security and tax questions; see immigration and global mobility.

HR compliance covers further areas: employee data protection under the GDPR and the German Federal Data Protection Act, internal reporting channels for whistleblowers in companies with at least 50 employees under the Whistleblower Protection Act, occupational health and safety, anti-discrimination, and the protection of trade secrets. Post-contractual non-compete covenants are enforceable only if the employer pays compensation of at least half of the employee's last contractual remuneration for each year of the restriction (§ 74(2) HGB). See our pages on whistleblowing and GDPR and German data protection law.

• Use German-law employment contracts that reflect standard terms rules and the Nachweisgesetz.
• Implement working time recording and check minimum wage compliance.
• Map co-determination rights before rolling out IT tools or reorganisations.
• Keep an inventory of pension promises and residence titles.

Setting up an employer in Germany

International companies hiring their first employees in Germany must decide whether to set up a subsidiary, register a branch or use an employer of record. A German employer must register with the tax office for wage tax withholding, with the social security agencies and with the statutory accident insurance, and must operate payroll in line with German requirements. Hiring through a foreign entity without a German presence still triggers German social security and often wage tax obligations, and it can create a permanent establishment. Our GmbH formation checklist covers the corporate side of setting up in Germany.

Employment law disputes

Disputes are heard by the labour courts (Arbeitsgerichte), the regional labour courts and the Federal Labour Court in Erfurt. Proceedings start with a conciliation hearing before the presiding judge, usually within a few weeks of filing, at which many cases settle. In first-instance proceedings, each party bears its own lawyers' fees regardless of the outcome, which encourages settlements.

Disputes between employer and works council are decided in special resolution proceedings, and disputes on matters of co-determination by conciliation boards. Employment law in Germany also has a strong case law component: decisions of the Federal Labour Court and the Court of Justice of the European Union regularly change practice, for example on working time, holiday entitlements and equal pay.

How TRW & Co helps

We advise employers on all aspects of employment law in Germany. We draft employment contracts, policies and works agreements, negotiate with works councils and unions, and represent employers before labour courts and conciliation boards. We plan and implement restructurings, collective dismissals and social plans, advise on employee transfers in transactions, design and harmonise pension schemes, and support international employers with immigration, assignments and setting up German operations. We coordinate with our corporate, data protection and compliance teams so that HR questions are addressed as part of the wider business decision. To discuss an employment question, please contact us.