Reform: These are the upcoming changes to labor law

Germany is facing a profound turning point in its labor market. The federal government has launched a comprehensive reform package intended to fundamentally change daily operations in companies and the legal framework for employees. For international academics , expats, and young professionals from the USA , Great Britain , or Canada living in Germany with a visa or EU Blue Card , however, changes in labor law always have a dual relevance: every modification to labor law potentially affects their painstakingly obtained residency status. As a specialized law firm for visa law, we see daily how a lack of awareness of legal changes can lead to existential risks for residency. The planned "Program for Economic Recovery and Employment" therefore raises pressing questions at the intersection of labor and immigration law.

Why does the new sick leave policy increase the risk to visa status from day one?

Perhaps the most hotly debated change in the reform package concerns the notification and documentation requirements in case of illness. Currently, Section 5, Paragraph 1, Sentence 2 of the Continued Payment of Wages Act (EFZG) stipulates that employees must submit a medical certificate of incapacity for work if the illness lasts longer than three calendar days. In the future, the principle will be that the certificate of incapacity for work must be submitted from the first day of illness . At the same time, sick leave certificates issued over the phone will be completely abolished. This apparent formality poses considerable risks for foreign skilled workers and students. Anyone unfamiliar with the German system who stays home on the first day of the flu without a doctor's certificate risks a warning for breach of contract. This is also dangerous for their residence permit: repeated breaches of duty can lead to dismissal for misconduct. In terms of visa law, job loss means the automatic expiration of the job search period and jeopardizes residency under Section 18b of the Residence Act. We strongly recommend that HR departments of international companies inform foreign employees about this new obligation at an early stage in order to prevent undeserved reprimands.

How does the relaxation of the law on fixed-term residence permits affect the extension of residence permits?

The coalition plans to significantly ease the formal requirements and maximum durations of fixed-term contracts without objective justification. Currently, Section 14 Paragraph 4 of the Part-Time and Fixed-Term Employment Act (TzBfG) requires strict written form with a handwritten signature for every fixed-term contract – digital text form is not sufficient. A violation leads to an open-ended employment relationship according to Section 16 TzBfG. The written form requirement is now to be dropped. However, the planned extension of the fixed-term duration is far more significant: fixed-term contracts without objective justification will in future be permissible for up to 48 months with a maximum of six extensions . Previously, according to Section 14 Paragraph 2 TzBfG, this was only allowed for two years and three extensions. For highly qualified expats and young professionals, this is a double-edged sword. While the barrier to entry into the German labor market is lowered, immigration authorities always examine the sustainability of employment when granting or extending a residence permit . When an employment contract is extended for the fifth or sixth time, authorities often also grant residence permits restrictively, only for the exact duration of the contract. This can significantly complicate and prolong the path to a permanent residence permit under Section 18g of the German Residence Act for those affected.

What does the relaxed dismissal protection mean for high earners and holders of the EU Blue Card?

Of particular relevance to executives and top specialists from overseas is the planned weakening of dismissal protection for so-called high earners, effective January 1, 2027. High earners are defined as those with a gross annual salary exceeding 1.75 times the contribution assessment ceiling for statutory pension insurance – currently equivalent to €177,500 per year . For this group, the employer's obligation to provide reasons for a dismissal application under Section 9 Paragraph 1 Sentence 2 of the German Dismissal Protection Act (KSchG) will be eliminated in dismissal protection proceedings. This means that if the labor court finds a dismissal invalid, the employer will be able to terminate the employment relationship much more easily in the future by paying severance in accordance with Section 10 KSchG. The risk of permanently losing one's job despite an unlawful dismissal increases dramatically for top earners. This triggers a chain reaction in visa law. Holders of an EU Blue Card must immediately report the loss of their job to the immigration authorities . The subsequent legal battle before the labor court no longer guarantees job security, but if successful, primarily results in a financial settlement. Foreign managers then face enormous time pressure to find a suitable new job within the statutory deadlines, one that meets the strict salary thresholds of the Blue Card , in order to avoid deportation.

Conclusion

The German government's planned reform package offers flexibility for employers but also presents significant pitfalls for international professionals . Being able to take sick leave from day one requires absolute discipline to avoid jeopardizing one's job through formal errors. Extending fixed-term contracts without objective justification to up to four years prolongs the period of uncertainty regarding residency status for many expats. At the same time, the relaxation of dismissal protection for top earners increases the risk of sudden job loss. In a time when labor law is becoming more flexible, securing residency status must be planned all the more precisely. As a law firm, we support both HR departments in drafting legally sound employment contracts under the new legislation and foreign academics in proactively securing their residency status in Germany.