Germany
EU Pay Transparency Directive
Impact date: (Transposition deadline – 7 June 2026; National implementation - outstanding)
The implementation of the EU Pay Transparency Directive ((EU) 2023/970) into German law remains pending. The transposition deadline of 7 June 2026 was missed and no concrete draft legislation has been presented to date. Germany is therefore expected to be in breach of its EU obligations under Art. 34 of the Directive. This creates a period of legal uncertainty, during which individual provisions of the Directive that are sufficiently clear and unconditional may have direct effect against emanations of the State (i.e. public sector employers) based on established CJEU case law. The Directive will significantly reshape remuneration systems and HR processes and goes well beyond the current German Pay Transparency Act (“Entgelttransparenzgesetz” – EntgTranspG). It requires structured, transparent and gender neutral pay systems, based on the concept of “work of equal value”, assessed using objective criteria (in particular skills, effort, responsibility and working conditions) and enabling comparisons across different roles. It also introduces enhanced employee information rights, salary transparency in recruitment (incl. disclosure obligations and a ban on pay history questions) and, depending on employer size, gender pay gap reporting obligations. The Directive is also accompanied by significantly strengthened enforcement mechanisms.
Employer implications/action needed
- review and adjust remuneration structures to ensure transparency and gender‑neutral criteria – even in the absence of national legislation, employers should align their pay systems with the Directive’s requirements to avoid retrospective compliance gaps
- implement processes for assessing work of equal value
- adapt recruitment processes (in particular salary disclosure and removal of pay history questions)
- prepare for enhanced information and reporting obligations
- involve the works council as required
- public sector employers should assess which provisions of the Directive may already have direct effect and take corresponding compliance measures
- private sector employers should monitor legislative developments closely and prepare for potentially short implementation timelines once the national law is enacted
Employer risk
Significant legal and operational risks, particularly in connection with remuneration structures, transparency requirements and strengthened enforcement mechanisms. These risks are heightened by the delayed national implementation, which creates legal uncertainty and the prospect of compressed compliance timelines.
In particular:
- increased risk of equal pay and discrimination claims – employees may invoke directly effective provisions of the Directive before national courts (public sector) or rely on the Directive as an interpretive reference (private sector)
- damages and compensation claims in case of non‑compliance
- shift of the burden of proof to the employer
- higher documentation and justification requirements
- reputational risks linked to pay disparities
- risk of retroactive or short-notice compliance obligations once national legislation is enacted, potentially with limited transitional periods
- infringement proceedings by the European Commission against Germany, which may accelerate legislative action and reduce implementation timelines for employers
Planned reform of “the German Working Time Act” – (“Arbeitszeitgesetz” – ArbZG)
Impact date: 18 June 2026 (publication of the BMAS draft Bill); the legislative process is ongoing Following our previous update on the planned reform of “the German Working Time Act” and the expected draft Bill, the Federal Ministry of Labor and Social Affairs (BMAS) released a draft Bill to amend the Working Hours Act on 18 June 2026. In particular, the draft Bill introduces mandatory electronic working time recording. Employers would generally be required to electronically record the start, end and duration of employees’ daily working time on the day the work is performed, with only limited exemptions and transitional arrangements for smaller employers. In addition, employees are entitled to receive information and copies of their time records, while violations of record-keeping, disclosure, and retention requirements will be subject to fines of up to €30,000 in the future. Key elements of the reform include:
- introduction of a general obligation for employers to record the start, end and duration of employees’ daily working time: employers must also maintain records of employees who have agreed to extended working hours
- mandatory electronic recording of working time on the day the work is performed: only employers with up to ten employees and domestic workers in private households are exempt, with transitional periods provided for the implementation of electronic systems
- collective bargaining agreement-based opt-out mechanisms regarding the form and timing of working time recording, provided that working time is recorded no later than seven calendar days after performance of the work
- possibility to delegate working time recording to employees or third parties, while responsibility for compliance remains with the employer
- continuation of trust-based working time models ("Vertrauensarbeitszeit"), subject to appropriate monitoring mechanisms to identify breaches of working time and rest period requirements
- employees’ right to access information about their recorded working time
- obligation to retain working time records for the duration of the employment relationship, up to a maximum of two years
- possibility of introducing a weekly rather than daily maximum working time, but only where provided for in a collective bargaining agreement and subject to additional health and safety safeguards
- increased flexibility in connection with statutory rest period requirements, particularly for hospitals, care facilities, hospitality businesses, transport operators and the agricultural sector
- expanded powers of supervisory authorities, including the right to request and obtain working time records, evidence of time recording systems, collective bargaining agreements and works agreements
- extension of the administrative fines regime, including fines of up to €30,000 for failures to record working time correctly, completely or on time, to retain records properly, or to provide employees with the required information and copies of their working time records
Employer implications/action needed
Employers should review existing working time arrangements, trust-based working time models, time recording systems and internal processes for documenting working time. In particular, employers should assess how mandatory electronic working time recording could be implemented and whether future collective bargaining flexibility options may be available. Businesses without electronic recording systems, as well as those operating trust-based working time models, should monitor legislative developments closely and evaluate the impact of the proposed changes.
Employer risk The draft Bill introduces significant compliance, documentation and monitoring obligations. Breaches of the proposed recording, information and retention requirements could result in substantial fines, increased liability exposure and non-compliance with working time regulations. Existing working time arrangements and trust-based working time models may also require considerable adjustment.
Reform package “Economic Recovery and Employment”
Impact date: 2 July 2026 (presentation of the reform package by the coalition committee). Most measures are intended to take effect from 2027 but require legislative implementation. On 2 July 2026, the coalition committee of CDU/CSU and SPD presented the reform package “Economic Recovery and Employment” (“Ein Programm für Aufschwung und Beschäftigung”). The package contains a broad range of proposed employment law reforms aimed at increasing labour market flexibility and strengthening the competitiveness of German businesses. Key proposals include a significant expansion of fixed-term employment opportunities, changes to dismissal protection rules, stricter requirements regarding sickness certification, and measures to facilitate the deployment of software and AI systems in the workplace.
In particular:
- employees hired on or before 31 December 2030 could be engaged on fixed-term contracts without objective justification for up to 48 months, with a maximum of six extensions, compared with the current limits of two years and three extensions
- abolition of the prohibition on previous employment for such fixed-term contracts, allowing employees to be re-employed on a fixed-term basis by the same employer without objective justification
- elimination of the written form requirement for fixed-term employment agreements effective January 1, 2027; in the future, a text-based agreement will suffice
- introduction of a new severance payment regime for high earners with annual remuneration exceeding 1.75 times the contribution assessment ceiling of the statutory pension insurance scheme (€177,450 gross per year as at August 2026)
- tax benefits for severance payments if the employee quickly takes up subsequent employment
- abolition of telephone-based sickness certification and introduction of a statutory obligation to provide a medical certificate from the first day of illness
- development of proposals to simplify the introduction of software and AI systems while preserving works council co-determination rights
- review of options for collective bargaining agreement-based deviations from employment law requirements in sectors particularly affected by economic transformation, including the automotive, chemicals, steel and mechanical engineering industries
- reduction of administrative burdens through a review of existing reporting and documentation obligations and the possible abolition of certain statutory workplace officer functions where not required by EU law
- increase of the tax-privileged thresholds for Sunday, public holiday and night work premiums, with collectively agreed premiums to become fully exempt from social security contributions
Employer implications/action needed Employers should closely monitor the proposed reforms, particularly in relation to fixed-term employment, termination management, sickness absence procedures, AI governance and employee co-determination. If implemented, the proposals could have a significant impact on recruitment strategies, workforce planning, restructuring projects and the deployment of AI-driven HR and IT systems.
Employer risk The reform package does not yet create any immediate legal obligations. However, given the potentially far-reaching nature of the proposed changes, employers should assess at an early stage how the reforms could affect existing employment models, fixed-term employment practices, works agreements and termination processes.
National Action Plan to Promote Collective Bargaining
Impact date: 22 July 2026 (adoption of the National Action Plan by the Federal Cabinet) On 22 July 2026, the German Federal Cabinet adopted the National Action Plan to Promote Collective Bargaining proposed by Federal Minister of Labour Bärbel Bas. Germany thereby fulfils its obligation under the EU Minimum Wage Directive ((EU) 2022/2041) to establish and submit a national action plan aimed at promoting collective bargaining. The plan seeks to increase collective bargaining coverage in Germany over the long term and to strengthen collective agreements as a key instrument for regulating pay and working conditions.
In particular:
- promoting collective bargaining coverage in public procurement, particularly through collective bargaining compliance requirements in the award of public contracts
- facilitating and increasing the use of declarations extending collective agreements to non-signatory employers, thereby expanding the reach of collectively agreed employment standards
- improving the statistical monitoring and regular evaluation of collective bargaining coverage in Germany
- expanding information and advisory services for employers and employees regarding collective bargaining agreements
- supporting the social partners in collective bargaining negotiations and sector-specific transformation processes
- providing regular reports to the European Commission on developments in collective bargaining coverage
Employer implications/action needed Employers should take into account the increasing political focus on strengthening collective bargaining when reviewing their employment, remuneration and workforce strategies. In particular, companies participating in public procurement procedures or receiving public funding should closely monitor future collective bargaining compliance requirements and related regulatory developments.
Employer risk The Action Plan does not introduce any immediate legal obligations for employers. However, it signals a clear policy direction towards strengthening collective bargaining coverage and extending the practical relevance of collectively agreed standards beyond traditionally collective bargaining-bound employers. This may have implications for public procurement, funding programs and future employment law reforms.
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