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Germany has long been a "country of employees." Here, self-employment often conjures images of instability and failure rather than innovation and independence
It's been a tough year in Germany, and it's not going to get any easier in 2025. Europe's largest economy is grappling with an existential question (some would say, many existential questions...) - Can its rigid labor and regulatory systems keep pace with rising unemployment, dwindling entrepreneurialism, and the ever-expanding globalised gig economy? Recent events—like the raids on Engel & Völkers—highlight how the country’s risk-averse culture and its labyrinthine legal framework are choking the entrepreneurial spirit it badly needs.
The Engel & Völkers case is emblematic of this struggle. Germany’s biggest real estate broker is under fire for alleged pseudo self-employment (Scheinselbstsändigkeit), with freelance agents reportedly working as employees in disguise. Over 300 customs officers raided 18 Engel & Völkers offices across Germany, a clear show of force by authorities determined to enforce labor laws. At the heart of the issue are unpaid social security contributions and wage taxes—problems that plague industries dependent on flexible labor.
The company’s franchise model makes things even murkier. Freelancers—many of whom earned hefty commissions—are accused of being too tied to the company’s operations. The crux of the matter: were these agents truly free to work as they pleased, or were their schedules and methods dictated from above? Engel & Völkers maintains it operates within the law, but the broader message is unmistakable: Germany is clamping down, and it’s doing so hard.
This crackdown comes on the heels of the 2022 Herrenberg decision, a case where a music teacher’s freelance status was reclassified as dependent employment. The fallout was swift and widespread. Music and myriad other schools across the country severed ties with independent instructors, unable to risk the legal headaches. These decisions aren’t just affecting a handful of professionals—they’re undermining the whole idea of flexible work in Germany.
A country of employees
Germany has long been a "country of employees," as your REFIRE editor can personally attest to, having for years suffered the barely-disguised mistrust of landlords, bank managers, and anyone else confronted with a self-employed solopreneur looking for a break. Here, self-employment often conjures images of instability and failure rather than innovation and independence—despite freelancers proving, day in and day out, that their services are genuinely in demand.
This cultural bias—cemented by years of regulatory and bureaucratic hurdles—has left freelancers and entrepreneurs feeling undervalued and isolated. A recent German Economic Institute study shows that over half of self-employed people think the legal framework has worsened over the past decade. Small wonder Germany’s self-employment rate lags behind many of its OECD peers.
Take the status determination process (Statusfeststellungsverfahren), which is meant to decide if someone is genuinely self-employed. It’s become a bureaucratic nightmare. On average, cases take 84 days to resolve, but many drag on far longer, creating financial and emotional stress. We personally know individuals who have waited up to two years for a decision—a process that can literally destroy livelihoods. By the time such cases finally get resolved, the damage—both personal and professional—is already done.
Germany’s aggressive stance on pseudo self-employment is rooted in protecting vulnerable workers in precarious industries like delivery services or meatpacking, where exploitation is rife. But in its zeal to create watertight protections, the system ensnares freelancers and entrepreneurs who neither need nor want such safeguards. This rigidity is becoming a ticking time bomb.
The high stakes of rigidity
The stark reality now facing the German economy makes this even more alarming. Unemployment is set to rise as industries like automotive shed large numbers of jobs. Meanwhile, the housing crisis deepens, and inflation pressures linger. Flexibility in work practices should be a priority, not a casualty of overregulation. Yet Germany’s actions are driving skilled freelancers to consider emigration. More than a third of self-employed individuals are contemplating leaving the country, according to the German Economic Institute. Among them are IT specialists—a demographic Germany can ill afford to lose—many of whom are perfectly capable of working elsewhere.
Contrast Germany’s rigidity with the entrepreneurial cultures of countries like the United States. While the U.S. faces its own gig economy challenges, it champions risk-taking and offers clearer paths to self-employment. Even Britain, despite issues with IR35 tax reforms, shows signs of recognizing the value of flexibility in its workforce. Germany, by contrast, risks falling further behind in the global race for talent and innovation.
Technological advancements complicate matters further. AI tools, like those now deployed by the German Federal Pension Insurance Association, are speeding up the identification of potential pseudo self-employment cases. While such tools promise efficiency, they also raise the specter of overreach, flagging legitimate freelancers for audits. For a workforce already operating under a cloud of suspicion, this adds yet another layer of anxiety.
Germany’s approach to self-employment needs a serious rethink. First, its legal framework must be updated to reflect modern work realities. Clearer criteria for distinguishing self-employment from employment are essential. Second, the status determination process needs to be streamlined. Freelancers can’t afford to wait months—or years—for answers. Third, cultural attitudes must shift. It’s time to celebrate entrepreneurship as a cornerstone of innovation and resilience, not dismiss it as a fringe activity.
Policymakers would do well to remember that self-employment often sparks broader economic dynamism. Many small businesses start with one entrepreneur. Discouraging self-employment today stifles the growth engines of tomorrow.
The raids on Engel & Völkers and the broader crackdown on pseudo self-employment send a troubling signal: Germany is doubling down on control at the expense of creativity. At a time when economic flexibility is critical, this rigidity is a risky bet. If Germany can’t find a way to embrace entrepreneurship, it risks not just losing talent but jeopardizing its future as an economic leader. It’s time to stop punishing the people with the courage to take risks and start valuing the ones who keep the economy moving. The clock is ticking for change.
We wish all our readers a peaceful Christmas and a prosperous New Year.
