Employment Law Newsletter 2-2025

Employment Law Newsletter

Labour law requirements are evolving rapidly: new laws, court rulings and discussions constantly present companies with challenges. With our labour law newsletter, we want to help you stay on top of things and act in a legally compliant manner. You will receive concise assessments, practical ideas and specific recommendations for action – well-founded, understandable and to the point.

You can expect the following topics:

• Between work and retirement: the active pension as a bridge
• Important changes for companies: What the new EU Pay Transparency Directive means for you from 2026 onwards
• How long can a probationary period be in a fixed-term employment relationship?

We hope you enjoy reading it!

Between work and retirement: the active pension as a bridge

In mid-October, the Federal Cabinet approved an amendment to the Income Tax Act. The so-called active pension is to be introduced on 1 January 2026. From January 2026, this will enable pensioners to earn up to €2,000 per month tax-free from employment subject to social insurance contributions.

What is the active pension?

• Under the active pension scheme, employees of retirement age receive a monthly tax allowance of €2,000. The benefit applies regardless of whether a pension is being drawn or deferred.
• This new approach is intended to make the transition from working life to retirement more attractive and to reward experienced employees who decide to continue working. At the same time, it is intended to relieve the burden on social security funds and combat the increasing shortage of skilled workers and labour. This should also strengthen Germany as a business location.
• The active pension pays off: a 68-year-old employee with a gross salary of €4,000 only has to pay tax on €2,000 of this. Instead of €48,000 per year, only €24,000 is subject to tax, which brings a noticeable financial advantage.

What earning opportunities do pensioners currently have?

The amount of additional income permitted varies depending on the type of pension received:

• There is no additional income limit for the regular old-age pension, which is paid from the standard retirement age (between 65 and 67, depending on the year of birth). This means that pensioners can earn as much additional income as they wish without their pension being reduced. However, their total income, i.e. both their pension and any earnings from work, is subject to taxation.
• Since 2023, there has been no additional income limit for early retirees. This means that people who take early retirement at the age of 63 or later and have at least 35 years of contributions are allowed to earn additional income without their pension being reduced.

 Who benefits from the active pension?

• Pensioners who want to continue working, whether for financial, social or other reasons.
• Companies that do not want to lose long-term employees with many years of professional experience and expertise
• Society and the economy, as the active pension is intended to help alleviate the shortage of skilled workers and labour.

What else needs to be considered?

• Although the active pension provides tax relief, social security contributions are still payable, which in turn can have a positive effect on the subsequent pension amount.
• The active pension is to be exempt from the so-called progression clause. This prevents the tax-free additional income from increasing the tax rate on the remaining income and thus indirectly increasing the tax burden.
• The tax exemption is to be taken into account directly in the wage tax deduction, so that employees benefit from the tax relief immediately when their wages are paid and not only when they file their tax returns.

What is the significance of the active pension in terms of labour law?

• The law introducing an active pension alone will not achieve the desired goal of attracting additional workers from the ranks of pensioners. This law does not change the labour law restrictions that exist when employing people beyond the statutory retirement age.
• According to Section 41 (1) sentence 3 of the German Social Security Code VI (SGB VI), it is currently possible to postpone the termination date with an employee who is still in employment and whose employment contract provides for the termination of the employment relationship upon reaching the standard retirement age. However, this “postponement agreement” is only possible during the current employment relationship and not if the employment relationship has already ended.
• In addition, Section 14 (1) of the Temporary Employment Act (TzBfG) provides for the possibility of fixed-term employment for objective reasons, but this is rarely flexible enough for employers.
• The most interesting option for employers wishing to employ pensioners is the fixed-term contract without objective reason regulated in Section 14 (2) TzBfG. However, this currently fails due to the prohibition of previous employment.
• The significance of the proposed legislation on active pensions will therefore only become clear to employers when the Federal Government’s draft bill on stabilising pension levels and fully equalising child-rearing periods from 1 October 2025 is taken into account. It is also due to come into force on 1 January 2026:

According to this, Section 41 (2) of Book VI of the Social Code (SGB VI) is to be revised and fixed-term contracts without objective grounds for pensioners will be possible under certain conditions.

Important changes for businesses: What the new EU Pay Transparency Directive means for you from 2026 onwards

Gender pay equality has been a key goal of our society for decades, but despite the principle of “equal pay for equal work”, this goal is often still not fully achieved. In order to meet this goal, the Pay Transparency Directive adopted by the European Union in 2023 must be transposed into national law by 7 June 2026. In Germany, this also means amending the Pay Transparency Act, which has been in force since 2017.

What does the EU Pay Transparency Directive regulate?

The EU Pay Transparency Directive 2023/970/EU was adopted by the European Parliament and the Council on 13 June 2023. It builds on the previous Equal Pay Directive (2006/54/EC) and aims to increase wage transparency and reduce the gender pay gap for equal or equivalent work. The directive is an essential part of the European Commission’s Gender Equality Strategy. Despite long-standing efforts to achieve equal pay between the sexes, a pay gap continues to exist. The unadjusted gender pay gap, which is determined on the basis of the gross hourly wages of all working men and women, will be 16% in Germany in 2025. The adjusted gender pay gap, which compares men and women with the same occupation, qualifications and scope of employment, will be 6% in 2025. The aim of this set of rules is to ensure objective, gender-neutral remuneration for all employees across the EU.

Who is affected?

The new rules apply to all public and private employers, including those bound by collective agreements. They establish comprehensive obligations for employers in relation to recruitment and employment, as well as corresponding rights to information for employees. In addition, sanctions are provided for in the event of a breach of employer obligations.

Companies with more than 100 employees in particular are obliged to provide pay reports and pay analyses. Companies with more than 250 employees must carry out the pay analysis in even greater detail and on a regular basis. Companies with fewer than 100 employees are not directly obliged to produce pay reports, but should regularly review their pay structure to avoid discrimination.

The most important regulations at a glance:

•  Transparency obligation:
  Companies with more than 50 employees are obliged to be transparent about their remuneration policy and to disclose it to their employees. The transparency obligation includes information on how the level of remuneration and individual remuneration development are determined, or on which criteria they are based. Whether employers with fewer than 50 employees will be exempt from this obligation depends on the forthcoming implementation into German law. However, it is also advisable for companies with fewer than 50 employees to create remuneration structures based on objective, gender-neutral criteria.
• Mandatory pay analyses:
  Companies must establish instruments or methods to analyse gender differences in pay and take measures to prevent them.
• Transparency in job advertisements:
  Employers must provide job applicants with information about the starting salary or salary range in a job advertisement to be published before the interview, but at the latest before the contract is signed, in order to promote transparent and fair salary negotiations. In addition, it will be prohibited in future to ask applicants about their current or previous salary.
• Right to information:
  Employees have the right to receive information about their company’s pay structure and to question pay differences between the same or equivalent jobs. Their individual and average pay levels in the comparison group, broken down by gender, must be disclosed.
• Extended reporting obligation
  Finally, employers must publicly report on the pay gap between male and female employees. The frequency of reporting is graded according to the size of the company. By 7 June 2027, employers with more than 150 employees must publish data on the gender pay gap in their company for the first time. By June 2031, this reporting obligation will also apply to companies with at least 100 employees. Employers with more than 250 employees must report annually, while all other companies are required to report every three years. Whether companies with fewer than 100 employees will be required to report depends on the implementation of the directive into German law.

• Penalties for non-compliance
  Failure to comply with the directive can have serious consequences. Companies that do not meet the requirements face severe penalties. These can range from “deterrent” fines to reputational damage, which can negatively affect employee trust and customer relationships.

• Shift in the burden of proof
  Another important aspect of the Pay Transparency Directive is the shift in the burden of proof. In cases of discrimination, it is no longer the employee who is required to prove discrimination. Instead, companies must now prove that their remuneration systems are fair and transparent. This requires thorough documentation and careful planning when dealing with remuneration systems.

What do companies need to do? Here are a few important to-dos:

•  Systematically analyse existing remuneration structures for gender-specific pay discrimination;
• Make pay adjustments and take/implement concrete measures to eliminate identified inequalities;
• Develop a reporting procedure;
• Adapt job advertisements;
• Train managers with the aim of raising awareness of pay transparency and equal pay and the consequences of non-compliance.

Therefore, the following applies:

The statement “We have other issues to deal with – there’s still time until June 2026” is a fallacy. The German legislature has (once again) fallen for this. No draft legislation has been presented yet. Now that the commission appointed to implement the directive into German law has submitted its report, a draft bill is to be drawn up by early 2026.

However, this does not mean that companies should wait and see, but rather that they should take action now, as the implementation effort is considerable. The implementation of the EU directive often requires fundamental system changes and frequently a change in mentality within the organisation. In addition, remuneration structures must be solidly documented and managers and employees must be prepared.

Companies that fail to act risk high additional payments for salary adjustments: If wage inequality is established, employees can claim the salary difference for up to the past three years. In the event of a dispute, this can lead to damage to the company’s image and employer branding, legal uncertainties and waves of lawsuits, as well as competitive disadvantages in the battle for talent.

Every company should be aware of the obligations applicable to its size and take timely precautions to implement them!

How long can a probationary period be in a fixed-term employment contract?

Federal Labour Court, judgement of 30 October 2025 – 2 AZR 160/24:

There is no standard value. Each case must be considered individually, taking into account the expected duration of the fixed term and the nature of the work.

The decision was based on the following facts:

The claimant had been working for the respondent since 22 August 2022. The employment relationship was limited to one year, whereby it could be terminated in accordance with the statutory notice periods. For the first four months of employment, the parties agreed on a probationary period with a two-week notice period.

In a letter received on 10 December 2022, the defendant gave notice of termination of the employment relationship with effect from 28 December 2022. The plaintiff contested this in her action, arguing that the agreed probationary period was disproportionately long, so that the employment relationship could end at the earliest on 15 January 2023, in accordance with the statutory notice period under Section 622(1) of the German Civil Code (BGB). However, it could be assumed that, due to the invalidity of the probationary period clause, the agreement on the terminability of the employment relationship pursuant to Section 15 (4) of the German Part-Time and Fixed-Term Employment Act (TzBfG) was invalid in its entirety. In any case, the termination requires social justification because the waiting period under section 1 (1) of the German Employment Protection Act (KSchG) can only be as long as a permissible agreed proportionate probationary period, which in this case would be three months.

The Regional Labour Court considered the probationary period to be disproportionate. It assumed a standard value of 25% of the duration of the fixed-term contract, i.e. three months in this case. There were no reasons to deviate from this. The termination was nevertheless effective, but did not terminate the employment relationship until 15 January 2023.

Contrary to the assumption of the Regional Labour Court, the Federal Labour Court (BAG) found that there is no standard value of 25% of the duration of the fixed-term contract for a proportionate probationary period. Rather, each individual case must always be weighed up, taking into account the expected duration of the fixed-term contract and the nature of the work.

In view of the detailed induction plan drawn up by the defendant, with three different phases lasting a total of 16 weeks, after which the employees should be able to work productively, the BAG therefore considered a probationary period of four months to be proportionate. Even if a disproportionately long and therefore inadmissible probationary period had been agreed, the BAG would have had no legal reason to assume a reduction in the statutory waiting period under Section 1 (1) of the KSchG, according to which termination requires social justification if the employment relationship has existed in the same business or company without interruption for more than six months. The possibility of termination continues to exist if the employment contract provides for ordinary termination during the fixed term.

Conclusion

There is still no (legal) certainty regarding the length of a probationary period in a fixed-term employment relationship, but it is all the more important to weigh up the specifics of each individual case and not to assume a rigid three or six months.