Key Developments in German Labor and Employment Law for 2025

Quick Hits

• The Fourth Bureaucracy Reduction Act, effective January 1, 2025, simplifies requirements for giving written evidence of employment contracts, allowing now digital agreements for open-ended contracts while maintaining written form for fixed-term contracts.
• The EU’s AI Act, effective from August 2024, introduces regulations on AI systems, with initial provisions on unauthorized AI use starting February 2, 2025, and further regulations on general-purpose AI models and sanctions taking effect on August 2, 2025.
• The Self-Determination Act, effective late 2024, mandates that employers update relevant documents for transgender, intersex, and nonbinary employees upon request, with fines up to EU 10,000 for noncompliance.

Bureaucracy Reduction Act IV

The Fourth Bureaucracy Reduction Act (BEG IV) took effect on January 1, 2025. The aim is to reduce bureaucratic hurdles and relieve the burden on employers. Here is an overview of the most important points:

Simplification of the Formal Requirement of the Evidence Act

The formal requirements of the Evidence Act introduced in 2022 will be partially simplified by the BEG IV. Significant terms and conditions of employment and changes to them will no longer have to be made in writing (i.e., signed by hand) but can be drawn up and transmitted in text form. This means that permanent employment contracts can be concluded completely digitally if the employment contract is agreed in text form. In the future, an email with a scanned signature may be sufficient for an open-ended employment contract. Therefore, it is necessary that the essential terms and conditions of employment can be stored, accessed, and printed by the employee. In addition, the employer must request the employee to confirm receipt of the transmission. However, these changes do not apply to certain sectors—listed in § 2a of the Act to Combat Clandestine Employment (“SchwarzArbG”)—for which a handwritten signature is still required.

Fixed-Term Contracts Remain Strictly Regulated

While there are simplifications for open-ended contracts, the written form is still required for fixed-term contracts. Such agreements must still be set out in writing to ensure legal certainty. A purely electronic fixed-term contract will still be inadmissible and open to challenge in 2025. The exception here is the fixed term for reaching retirement age, for which the text form will also be sufficient. In this respect, the legislator has taken on board the criticisms of the draft law. If the written form had also been maintained for the contractual clause on termination of the contract upon reaching retirement age, no employer would be able to use the bureaucratic relief without concern. As a precautionary measure, almost all open-ended contracts contain a termination clause for reaching retirement age, as the employment relationship does not automatically end when employees (can) draw a pension.

Job References in Electronic Form Permitted

A new development is that employers may now issue employment references electronically, provided that a qualified electronic signature is used and the employees agree. To check the validity of the e-signature of a PDF, the EU Commission has created a general tool. In what regard the option of issuing employment references electronically will be accepted in practice remains to be seen, not only because of the more extensive procedure. If employment references are signed electronically, the time of the electronic signature is unalterably recognizable and the usual backdating to the leaving date is not possible. Any discrepancy between the date of issue and the date of signature and thus conclusions about a supposedly nonconsensual separation would then be impossible to conceal. Employees can, however, continue to request the traditional paper form if they prefer it.

No Changes to Termination Notices and Termination Agreements

The written form (wet ink signature) continues to apply to notices of termination and termination agreements. These must be signed by hand—electronic formats are expressly excluded here.

First Provisions of EU AI Act Take Effect

The European Union’s AI Act came into force at the beginning of August 2024 as the world’s first comprehensive law on the regulation of artificial intelligence. The regulation classifies AI systems according to their risk and sets standards and requirements for them accordingly. Most of the regulations are aimed at the developers of the systems, although users are also subject to obligations. The EU regulation does not need to be transposed into national law, and the individual regulations will come into force in stages over the next few years.

Initially, the applicability of the provisions on the unauthorized use of artificial intelligence will begin on February 2, 2025. Art. 5 of the AI Act lists various types of AI-based practices whose use is generally prohibited. Examples include systems for social scoring or monitoring emotions in the workplace. In the opinion of the EU legislator, these violate central European values, above all fundamental rights, and are unacceptable as a broad risk.

One year after the directive comes into force, the regulations on AI models with a general purpose come into force on August 2, 2025. Such models are not limited to one application purpose but are generally valid and capable of competently performing a wide range of different tasks. The providers of such models must ensure that copyrights are observed, keep detailed technical records of the development and testing of their AI and make these available to other companies that wish to use their model. For providers of AI models that are open source and freely available to the public but do not pose a systemic risk, a reduced obligation applies to the extent that they must comply with copyright law and publish a summary of the training data.

In addition, as of August 2, 2025, the sanctions provisions of the AI Act will apply, apart from fines for providers of AI models with a general purpose.

Self-Determination Act

Shortly before the turn of the year, the Self-Determination Act (SBGG) came into force. It makes it easier for transgender, intersex, and nonbinary people to change their gender entry and their first names in the civil status register. This also has implications for the employment relationship. Employers are obliged to amend all relevant documents at the request of the employees concerned. This includes, for example, employment contracts, certificates, performance records and payment cards.

If the gender entry or first name has been changed, previous details may not be disclosed or researched without the consent of the employees concerned. A violation of this prohibition of disclosure can result in a fine of up to EUR 10,000.

New Attempt to Amend the Pay Transparency Act

The EU Directive on pay transparency (Directive (EU) 2023/970) aims to reduce gender pay gaps and promote equal pay. It has been in force since May 17, 2023, and must be transposed into national law by June 7, 2026. A draft bill had been announced for summer 2024 but not been published by the end of the year. In view of the necessary lead time for a legislative procedure and the preparation time to be granted to companies for far-reaching changes, it is to be expected that a new federal government will address the matter promptly. Germany will probably closely follow the directive when implementing it.

The directive will require employers to provide applicants with information on starting salaries or salary ranges—either directly in job advertisements or at the latest before an interview. However, questions about the previous salary development are no longer permitted for employers. Employees are also entitled to comprehensive information on pay criteria, individual remuneration and average salaries, broken down by gender and employee group. This information must be provided in writing within two months, regardless of the size of the company.

The reporting obligations will also be expanded: Companies with at least one hundred employees will have to prepare regular reports on pay-related indicators such as the gender pay gap. If such reports identify an unjustifiable gender pay gap of more than 5 percent, a pay assessment is required, usually carried out together with the works council or an alternative body.

The directive stipulates serious consequences for violations: Those affected can claim damages or compensation, and employers bear the burden of proof that there has been no discrimination. In addition, fines may be imposed. Trade unions and anti-discrimination bodies are given the right to sue to actively support those affected or to sue on their behalf.

Employers may want to start preparing early to comply with these upcoming requirements.

Professional Validation: New Opportunities for Experienced Employees Without a Degree

The Vocational Training Validation and Digitization Act (BVaDiG), which took effect on August 1, 2024, creates the possibility of officially recognizing the professional skills of people without a formal qualification as of January 2025. The aim is to assess skills based on the training regulations for a referenced occupation and to certify in a Chamber of Industry and Commerce (IHK) certificate, to the extent that these are comparable with completed vocational training. Important: Professional validation is not possible for advanced training qualifications such as the master craftsman.

The procedure is aimed at adults who:

• have several years of professional experience;
• do not have a formal vocational qualification in their profession;
• are seeking proof of their professional competencies; and
• for whom an external examination is currently not an option.

The BVaDiG offers employers a valuable opportunity to better utilize the potential of their workforce. The validation process gives long-serving employees who do not have a formal qualification the chance to have their skills officially recognized. This not only boosts employees’ motivation, but also increases their opportunities for deployment in the company.

In addition, employers can use professional validation to secure existing know-how within the company and close potential gaps in the supply of skilled workers.

Additional Employment Law–Related Developments

As has become customary in recent years, the minimum wage will be raised on January 1, 2025. It will rise from EUR 12.41 per hour to EUR 12.82 gross. At the same time, the mini-job threshold will increase from EUR 538 to EUR 556 gross. The proposals for the further development of the statutory minimum wage from the independent Minimum Wage Commission are expected in June 2025.

The Growth Opportunities Act amends Section 34 of the Income Tax Act, making it easier for employers to account for severance payments. Previously, the tax benefit of severance pay as a large one-off payment was only partially considered by the employer in payroll accounting. As of the beginning of the new year, employers no longer have to observe the so-called fifth rule for severance payments but can account for them without any special features. However, employees can still claim the privileged treatment of severance pay in their income tax assessment.

For births from April 1, 2025, the income limit above which parents are no longer entitled to parental allowance will fall from EUR 200,000 to EUR 175,000. This limit applies equally to couples and single parents. Furthermore, it is only possible to simultaneously receive basic parental allowance for a maximum of one month at a time and only within the first twelve months of the child’s life.

The new version of the Postal Act gives the postal service more time to deliver letters. Previously, 95 percent of letters had to arrive two working days after posting and 80 percent on the following working day. Section 18 I PostG now stipulates that only 95 percent of all letters must be delivered on the third working day after posting and 99 percent on the fourth. According to Deutsche Post AG, the standard for ordinary letters will shift so that they will generally be delivered on the working day after next. At the same time, Deutsche Post AG increased postage prices on January 1.

The rates for the minimum training allowance will also be increased at the turn of the year. In the first year of training, apprentices will receive EUR 682 per month (2024: EUR 649), and in the second year EUR 805 instead of the previous EUR 766. In the third year of training, this will be at least EUR 921 (2024: EUR 876), and in the fourth year, the prospective skilled workers can expect to receive at least EUR 955 (2024: EUR 909).

For various products placed on the market after June 28, 2025, as well as for various services provided to consumers after June 28, 2025, the provisions of the Accessibility Act (“BFSG”) will then apply. Among other things, online commerce, e-commerce services, and electronic communication services must be more accessible. Small companies are exempt from the obligations.

The German government has decided to double the maximum period of entitlement to short-time working allowance to twenty-four months. This regulation came into force on January 1 and is limited until December 31, 2025. From 2026, the regular maximum entitlement period of twelve months will apply again. Entitlements that extend beyond this period will expire at the end of December 31, 2025. With this measure, the German government is responding to the increase in short time working in Germany.

Ogletree Deakins’ Berlin office and Munich office will continue to monitor developments and will post updates on the Cross-Border blog as additional information becomes available.

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