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29 Sep 2026, 9:21 am
The labour markets in Spain and Germany have similar traits that serve to disincentivise foreign investment. German policymakers have taken steps to address this, but their proposed solutions would not work if they were also taken forward in Spain.
Below, we look at the reforms the German government is pursuing and explain why the changes required in Spain should take a different form.
The German government recently agreed to adjust employees' rights, with the overarching aims of making Germany a more attractive country to set up and operate a business and promoting economic growth. The labour law reform is designed, among other things, to reduce bureaucracy and make the labour market more flexible. For employers, some of the main changes proposed concern the way employment relationships are established and terminated, as well as the handling of sickness-related absences.
If implemented, these changes should give the German economy a boost, considering the protective labour laws in favour of employees, which are unfavourable in an international environment for companies in Germany. Companies operating in Spain face strikingly similar hurdles. Termination protection, in particular, is widely regarded as a drag on investment, and a growing chorus of voices in Spain is asking whether scaling back employees’ rights might sharpen the country's competitive edge. This poses the question of whether Germany's playbook could work in Spain.
For employers in Germany, the planned changes to the law on fixed-term contracts could give them more flexibility.
Under the package agreed, fixed-term employment without objective grounds is to be permitted for up to 48 months in future, with the possibility of extending it up to six times within that period. This would be a substantial expansion compared with the current legal position in Germany, under which fixed-term employment without objective grounds is generally permitted only for up to two years, with scope to extend no more than three times within that period.
In addition, re-hiring under the same fixed-term employment contract without objective grounds would also become possible, different to the current legal requirements in Germany. The proposed new rules would be time-limited, applicable only to recruitment undertaken before the end of 2030. A further change proposed is the abolition of the requirement for fixed-term agreements to be in written form. These measures would give employers noticeably more room for manoeuvre in workforce planning and recruitment in Germany.
Spain, however, has been marching in exactly the opposite direction. Following the labour reform enacted at the end of 2021, permanent employment contracts became the default, and fixed-term hiring was pushed firmly to the margins. Under the Spanish Workers' Statute, fixed-term contracts can only be used in narrowly defined circumstances: essentially, cases involving production-related needs or the replacement of employees. Even then, the underlying justification must be clearly and specifically described in the employment contract itself.
Fixed-term contracts based on production-related circumstances are generally capped at six months, extendable to 12 months only where a sector-wide collective bargaining agreement allows it. More significantly, Spanish legislation targets the successive use of temporary contracts to fill what are, in reality, permanent roles: once certain statutory thresholds of temporary employment are crossed, workers automatically become permanent staff.
This means companies in Spain have far less room to manoeuvre on fixed-term hiring than their German counterparts would enjoy under the proposed reform.
In Germany, restrictions on terminating the contracts of high earners would be eased, under the coalition's plans.
In future, employees with incomes totalling more than 1.75 times the contribution assessment ceiling for the statutory pension insurance scheme could have their employment contracts terminated more easily in return for payment of severance. Precise details of how this change would work have not yet been published. Currently, the dismissal of employees requires, in all cases, an objective reason as stipulated in the Termination Protection Act. This is difficult for employers to meet and often results in a court decision in favour of the employees. In practice, employers are also often forced to retain personnel in cases where they are unsatisfied with their performance, particularly in the case of employees who are managers.
A further change proposed in Germany concerns the tax treatment of severance payments: severance payments would receive preferential tax treatment if employees take up new employment soon after the employment relationship ends. The tax relief is intended to be greater the faster the individual gets a new job. It is also aimed at encouraging an amicable settlement agreement over dismissal, as opposed to litigating the matter with the employer. The coalition's aim with this change is to promote employment transitions and avoid longer periods of unemployment. How the preferential treatment would be structured in detail is currently still unclear.
While Berlin looks to loosen dismissal rules, Madrid has moved firmly in the opposite direction in recent years, reinforcing both substantive protections and procedural safeguards.
In Spain, termination requires a legally recognised ground and compliance with formal requirements that vary by type of dismissal. Severance for economic, technical, organisational or production-related dismissals stands at 20 days' salary per year of service, capped at 12 months' salary. Where a dismissal or redundancy is declared unfair, the severance bill climbs to 33 days per year, capped at 24 months' salary. A more complex dual calculation is applicable in the case of employees hired before 12 February 2012, combining a 45-day rate for prior service with the standard 33-day rate thereafter, subject to an overall cap of 720 days' salary unless the pre-reform portion alone already exceeds that threshold.
Employers in Spain also face the risk of dismissals being deemed null and void. This risk arises where the termination is discriminatory, infringes a fundamental right or affects an employee shielded by a specially protected status such as pregnancy, reduction of working hours or the legitimate exercise of statutory rights. The consequence in such cases is mandatory reinstatement with full back pay and no buy-out option, though in practice these cases tend to end at the negotiating table, where both sides are ultimately looking to put a price on the exit.
While more flexible arrangements do exist for certain special employment relationships, such as senior management, recent case law in Spain has further tightened the general framework by requiring a prior hearing in disciplinary dismissals, giving the employee the opportunity to exercise their right of defence before the dismissal is carried out.
In short, while Germany is looking to hand employers more tools, Spain continues to build higher walls around employment protection and shows no sign of changing course.
Further changes in Germany concern sickness-related absences of employees.
Under the current legal position, a certificate of incapacity for work generally only has to be submitted if the incapacity lasts for more than three calendar days. In practice, this has led to high sick leave rates in Germany, as employees simply do not turn up for work for the first days before the need to undergo a medical check kicks in.
Under the coalition's plans, employees would be required to provide certification for their incapacity from the first day of sickness. At the same time, the scope for employees to provide telephone sick notes – something that was introduced during the Covid-19 pandemic and increased the sick leave rate in Germany – is to be removed again. The aim is to strengthen the evidential basis for incapacity for work and restrict opportunities for misuse.
Spain is already ahead of the curve on this front. Spanish legislation requires the involvement of medical services from the very first day of a period of temporary incapacity for work, precisely the standard Germany is now proposing to introduce. A fully operational electronic communication system already links healthcare services, the social security authorities and employers. In other words, the problems that the German reform seeks to fix through tighter controls on short-term sickness absences simply do not have a direct equivalent in Spain.
Despite this, absenteeism remains a growing headache in Spain. During 2025, roughly 7% of agreed working hours were lost to absences, equivalent to more than 1.4 million workers every single day.
For companies operating in Spain, the primary concern is therefore not whether a sick note arrives on time, but rather the sheer organisational and economic toll of an ever-rising tide of employee absences. Making matters worse, the employer's legitimate interest in managing and planning around these absences runs headlong into the employee's right to privacy: under Spanish law, workers are under no obligation to disclose to their employer the medical reasons underlying a period of temporary incapacity, nor the expected date of their return to work, leaving companies to absorb the operational impact largely in the dark.
So, while Germany is tightening requirements relating to short-term sick leave, Spain is grappling with the bigger question of how to stem the broader wave of absenteeism and its mounting cost to productivity, workforce planning and the bottom line.
For employers in Germany, the coalition's reform proposals reveal a clear labour market policy direction: more flexibility, fewer formal hurdles and a stronger alignment of employment law with what businesses want to see in the geographic markets they operate in. In particular, the planned changes to fixed-term employment law and the new severance option for high earners could give employers additional room for manoeuvre and noticeably change employment law practice. While it remains to be seen, however, which of these proposals will ultimately pass through the legislative process, it is clear that employment law is one of the central areas of reform in the new coalition agenda.
Spain's labour market tells a different story. It has traditionally been defined by high levels of temporary employment and a sharp divide between temporary and permanent workers – structural problems that drove the landmark 2021 reform, which set out to entrench employment stability and dramatically curtail fixed-term hiring. Importing the German proposals wholesale could, paradoxically, reintroduce the very patterns that Spanish lawmakers have spent years trying to dismantle.
Several of the German measures also aim at problems that simply do not exist in the same form under Spanish law. Fixed-term contracts without an objective justification are already a non-starter. Procedural requirements for dismissals have recently been toughened by the courts. The management and monitoring of sickness absences also already operate within a comprehensive, largely digitalised framework.
This means that while Germany's plans for reform offer food for thought, Spain needs solutions tailored to the distinct realities of its labour market.
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