Trying to cut salaries is proving just as tricky as shedding headcount for German companies, even as a new survey shows roughly 60% of businesses plan to reduce personnel by the end of 2026. The study from consultancy Horváth warns that up to 100,000 industrial jobs could vanish, with automakers, machinery firms, and construction companies bearing the brunt of the downturn.
Any attempt to unilaterally trim a contractually agreed wage is illegal. Under Paragraph 611a of the German Civil Code (BGB), altering compensation requires the employee’s explicit consent. If no agreement can be reached, the only legal path is a change dismissal (Änderungskündigung) under Paragraph 2 of the Protection Against Unfair Dismissal Act (KSchG). That process terminates the existing employment relationship while simultaneously offering to continue it under new terms. Workers have three weeks to challenge the move in court, and the works council must be consulted. Crucially, the statutory minimum wage must never be undercut. Labour lawyers caution that employees who silently accept amended payslips for an extended period risk being deemed to have tacitly agreed to the new conditions.
The auto sector is at the epicentre of the cost-cutting push. Volkswagen, already grappling with overcapacity, reportedly considers the job cuts agreed so far insufficient. Sources indicate a potential reduction of up to 100,000 positions and the closure of four plants. Both the works council and IG Metall have pledged resistance, with a possible preliminary decision at the supervisory board meeting on 9 July. Mercedes is caught in its own crisis: net profit slumped 57% in 2025 to €5.82 billion. Management is demanding unpaid extra work, specifically an increase in weekly hours to 35. BMW has slashed its margin forecast to between 1% and 3% and plans to eliminate roughly 7,700 jobs. Weakening sales in China, US tariffs, and soaring energy costs are the main culprits.
The pain is not confined to the automotive industry. British American Tobacco (BAT) has announced deep cuts: by the end of 2026, the company plans to shed 5,500 jobs worldwide and outsource another 3,500. It aims to save around €695 million annually by 2028. In Germany, its sites in Hamburg and Bamberg will be affected. High domestic labour costs are the prime reason for shifting operations abroad; new jobs are mainly being created in India, China, and North America.
Germany’s broader economic backdrop remains subdued. The Federal Ministry for Economic Affairs and Climate Action described the situation in June 2026 as “muted.” Industrial production is stagnating, and new orders are declining. Energy prices and geopolitical tensions continue to weigh on activity. Inflation stood at 2.6% in May, down from 2.9% in April. Although unemployment dipped slightly in spring, overall employment is still falling. Corporate insolvencies rose to 2,048 in February, a 6.7% increase from the previous month.
One more legal obstacle awaits employers trying to implement mass layoffs. The Federal Labour Court confirmed in March 2026 that dismissals are invalid if the mandatory mass-dismissal notification is faulty. A defective notification cannot be fixed retroactively, leaving companies with no second chance.
