Key legal and
business trends  

2024 Update

From the digitalisation of employment contracts to the strategic overhaul of the energy sector towards hydrogen, companies navigating the German market must stay informed and agile. Below, we delve into the specifics of these trends, offering an overview to guide businesses through changes.

The Transactional Landscape of Germany

In 2023, Germany's market for business transactions, including mergers and acquisitions, saw a decline for the second year in a row. While the number of deals stayed the same or even increased slightly, the total value of these deals fell significantly, by between 5 and 25%, depending on the source. This drop in deal value was largely due to tougher financing conditions, higher interest rates, and ongoing geopolitical tensions. Germany's economy also faced challenges, being the only G7 country to see a decrease in GDP. As a result, financial investors played a smaller role in German transactions, focusing instead on smaller buy-and-build deals that required less borrowing than platform acquisitions.

Despite these challenges, the German market remains active, with strategic investors adapting by focusing on smaller deals in sectors like energy, technology, and healthcare. This approach takes advantage of their ability to handle temporary issues in a target company's performance without relying heavily on debt. Interest from foreign investors remains strong in certain areas, particularly in energy, driven by Germany's focus on transitioning to renewable sources. The market's resilience is also evident in the continued interest in various sectors and the return to more traditional deal structures. This evolving landscape highlights the importance of strategic planning and the ability to adapt to changing market conditions for success.

Employment Law: Digitalisation and Compliance Challenges

The digitalisation of labour law marks a pivotal shift, with the German government moving towards relaxing the written form requirement for employment contracts. Historically, the obligation for employers to provide essential contractual terms in writing has posed a challenge in the digital work environment. Although simplifications are on the horizon, the exact details remain under discussion, signalling a potential move towards digital agreements with specific exceptions.

Additionally, the mandate for comprehensive recording of working hours, spurred by European Court of Justice decisions, introduces new compliance requirements. Employers must now document not just overtime but all working hours, with legislative amendments expected to clarify the scope and method of recording. This change underscores the need for businesses to proactively implement adaptable time recording systems.

The legal landscape around freelancing is also tightening, with increased scrutiny on the classification of employees versus freelancers. Misclassification carries significant legal and financial risks, including the possibility of reclassification of freelancers as employees. Companies must ensure operational independence for freelancers to avoid these pitfalls, highlighting the importance of clear contractual arrangements and operational practices.

Data Protection and IP: Navigating a Dynamic Regulatory Environment

Data remains a critical asset, with Germany's data protection authorities enforcing strict compliance measures. Various sets of EU regulation as part of the Digital Agenda reflect the dynamic nature of data regulation, but also the draft amendment to the German Data Protection Act, which introduces a nuanced approach to balancing data subject rights with the protection of trade secrets.

In the realm of IP and marketing, the integration of generative AI technologies presents both opportunities and challenges. The potential for infringements of IP or rights of publicity, the reliability of AI-generated content, questions related to ownership of the out, and confidentiality issues necessitate a cautious approach and internal governance regarding use of generative AI. Forward thinking, business need to think about proactive strategies, such as beefing up their IP portfolios where necessary.

As an evergreen, businesses must ensure that marketing materials, terms and conditions, and claims as well as privacy policies are clearly vetted and localised to comply with German standards.

Energy Sector: Embracing Hydrogen and Sustainable Practices

The transformation of the German energy sector, especially the gas sector, is underscored by strategic initiatives like the Green Paper on gas/hydrogen distribution networks and the National Hydrogen Strategy. These efforts aim to decommission traditional gas distribution networks in favour of hydrogen, supporting Germany's goal of climate neutrality by 2045.

The Hydrogen Acceleration Act and the development of a hydrogen core network are instrumental in building the necessary infrastructure for hydrogen production, storage, and import. Additionally, the Power Plant Strategy (PPS) outlines the framework for new hydrogen-capable gas-fired power plants, ensuring energy security and sustainability in the post-nuclear and coal era.

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