Entry into force of the act on the modernization and digitization of the fight against unlawful employment – platform economy comes further into focus

The fight against undeclared work is entering a new phase. On November 13, 2025, the Lower House of German Parliament (Bundestag) passed the Act on the Modernization and Digitization of the Combat against Undeclared Work and Unlawful Employment (Gesetz zur Modernisierung und Digitalisierung der Schwarzarbeitsbekämpfung – SchwarzArbMoDiG), which came into force on January 1, 2026. We have already reported on the draft bill.

The law is intended to further develop the Financial Control of Undeclared Work Unit (Finanzkontrolle Schwarzarbeit – FKS) into a central audit and investigation authority. With the help of expanded control powers and employer cooperation obligations, investigations are to be accelerated and made more effective and future-proof through the use of artificial intelligence on the part of the customs authorities.

Introduction of a risk-based and intelligent control system

The purpose of the regulation is now not only to combat but also to prevent undeclared work and unlawful employment. In future, audits are to be carried out on the basis of a risk-oriented approach.

To this end, the General Customs Directorate (Generalzolldirektion) will become the main office responsible for central risk management. Its objective is to systematically identify risks for the occurrence of undeclared work and unlawful employment and to apply all measures necessary to limit risk. Risk indicators and risk parameters will be developed for this purpose. The use of an operational information and data analysis system is planned for this purpose. For the planning and implementation of audits, data stored in the operational information and data analysis system will be automatically analyzed and evaluated on the basis of risk indicators and risk parameters with regard to possible risks of undeclared work and unlawful employment. The risk cases can be compared with the data in the existing central information system for the FKS in a subsequent automated data comparison.

The FKS becomes a "mini public prosecutor's office"

The FKS is granted the right to independently conduct criminal investigations in cases of allegations of contribution withholding under Section 266a of the German Criminal Code (Strafgesetzbuch – StGB) or in cases of so-called social security fraud. This means that the public prosecutor's office is no longer required to refer such cases.

The conduct of these preliminary investigations by the customs administration authorities is now the norm, and only in special circumstances will the public prosecutor's office conduct the preliminary investigation. This means that the FKS can also independently apply for a penalty order to be issued. The public prosecutor's office now only has exclusive jurisdiction in certain serious cases. The customs administration can refer the investigation to the public prosecutor's office at any time, and the public prosecutor's office can take over the investigation at any time.

Extended investigation and control powers

The FKS is now independently authorized to request further information from persons under investigation, to verify the authenticity of identity documents presented, and to establish the identity of the holder of the identity documents. The FKS is also authorized to take photographs and fingerprints and to compare the data. To this end, it has access to data from the police information network. Previously, data exchange with the police was only possible in individual cases.

However, the fact that the act also allows FKS for the inspection of companies' electronic data is likely to have a more practical impact. The right of FKS to visit and inspect business and operating premises, properties, and other relevant locations of the company without prior notice remains in place and is extended to include electronic data and cloud storage in addition to physical documents.

For companies, this means that they must also provide digital information on request and set up the necessary access to the IT infrastructure for the FKS free of charge. This includes, for example, specific time recording systems and accounting programs. Companies must also enable the authority to perform automated analysis of the data. The aim of the amendment is to adapt to the processes that have already been digitized in many cases in practice and to enable faster inspection and (automated) analysis of the data.

Employers' obligation to cooperate

The obligation of employers to cooperate is extended beyond the administrative audit procedure to include administrative offense and criminal investigations. For the first time, employers must therefore actively cooperate in criminal and administrative offense investigations and, under certain circumstances, submit the evidence necessary for a subsequent conviction themselves.

In particular, the FKS's right to request the provision of digitized and machine-readable data is likely to have practical relevance and, in many cases, pose challenges for employers simply due to the existing system environments.

Adjustment of the industry catalog: New risks, especially for the platform economy

Furthermore, the industry catalog in Section 2a of the Combat against Undeclared Work and Unlawful Employment Act (Schwarzarbeitsbekämpfungsgesetz – SchwarzArbG) has been adapted. In the new version, neither the forestry nor the butchery sector will be included. However, hairdressing and cosmetics, as well as platform-based delivery services, i.e., platform operators and their subcontractors, such as food delivery or courier services, have been added. For companies operating in these newly added sectors, this means a tightening of the requirements they are subject to.

We recently reported here on efforts to expand control in the platform economy and strengthen regulation of delivery services (Platform Economy: Subcontractor Ban for Food Delivery Services). The SchwarzArbMoDiG, which has now been passed, takes up the idea of tighter control in the industry and brings it into the focus of the FKS. The risk of official controls is now growing, particularly for the widespread food delivery services.

The inclusion of an industry in the catalog of Section 2a SchwarzArbG also has further tangible consequences in practice under labor law aspects: the simplification contained in the Act on Proof of the Essential Working Conditions (Nachweisgesetz – NachwG), which enables employers to fulfill their obligations to provide evidence of essential working conditions in text form – e.g., by sending an electronically signed employment contract – no longer applies. According to Section 2 para. 1 sent. 6 NachwG, these simplifications do not apply to employees working in sectors listed in the industry catalog provided by the SchwarzArbG. As a result, employers in the aforementioned sectors are once again subject to the stricter written form requirement (wet ink) with regard to their documentation obligations (Section 2 para. 1 sent. 1 NachwG). The notification of the essential working conditions therefore requires the handwritten signature of the employer or a representative – in practice, this is likely to lead to a requirement to sign employment contracts in wet ink in these industries.

Tightening of information requirements

In addition, the information requirements for employers whose employees work in one of the industries listed in the industry catalog will take effect earlier in the future. Employers are still required to inform their employees that they must carry their ID cards or other identification documents with them and present them upon request. What is new is that this information must now be provided explicitly before the employee starts work. The corresponding written proof of this information must still be kept and presented to the customs authorities during an inspection.

Penalties

The catalog of fines has been expanded to include the new obligations. In particular, failure to transmit digitized and machine-readable data, or transmission that is incorrect or not timely, now constitutes an offense punishable by a fine.

The newly introduced Section 9 SchwarzArbG also establishes a separate criminal offense. Anyone who facilitates unlawful employment commercially or as a member of an organized group of people by issuing or circulating false documents faces imprisonment or a fine of up to five years.

Practical implications and conclusion

Even though it remains to be seen when the risk-based audit system will have a noticeable impact in practice, it is already clear that the new law will significantly strengthen the powers of the FKS, especially in the digital domain. The digitization of the fight against unlawful employment will not only make internal processes at the authorities more efficient, which should lead to increased control density, but also expand and "digitize" the control powers of the authority itself.

For employers, this will not only result in extended obligations to tolerate and cooperate. In addition to access to physical documents, they must now also provide the FKS with access to digital information and IT systems. The resulting significant expansion of the information that can be checked during an audit is also likely to lead to a significant increase in complaints and the issuance of penalty orders. This is particularly true when one considers that the transfer of public prosecutor's powers to the FKS means that the FKS is both an investigating and prosecuting authority and must ultimately assess its own investigative activities. This means that regulating factor of decision-making control by the largely independent public prosecutor's office will probably cease in the future.

The expansion of the industry catalog will also place a further burden on companies in the platform economy in particular. Their explicit inclusion in the industry catalog of Section 2a SchwarzArbG is a clear sign of this. The current federal government is not losing sight of the platform economy, which is hardly surprising given its increased economic importance and potential for abuse.

This is why companies would be well advised to review their existing compliance management systems and adapt them if necessary. The same applies to labor law procedures when it comes to compliance with the written form requirement. Ultimately, companies and investors should keep an eye on developments in this context, as further regulation cannot be ruled out – we will do so in any case and keep you informed.

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