The coronavirus has now reached Germany. In some cases production has come to a standstill due to a lack of necessary supplies, trade fairs and congresses have been cancelled and authorities are ordering the closure of plants. It is often no longer possible to (fully) employ the complete workforce. Despite the lack of employment opportunities, employers remain still obliged to pay the remuneration; they bear the so-called operational risk. In order to alleviate the economic burden arising from this, employers can introduce short-time work (»Kurzarbeit«) and apply for short-time work compensation (»Kurzarbeitergeld«). The Federal Employment Agency has already signalled its willingness to support employers and employees in this difficult situation.

Short-time Work

Short-time work is the temporary reduction of regular working hours with a corresponding reduction of remuneration due to a considerable but temporary shortage of work. The working hours can be reduced partially or completely (so-called zero short-time work). Similarly, all employees of a company or only part of the workforce may be affected by short-time working. Short-time work is intended to overcome temporary crisis and avoid dismissals for operational reasons. When introducing short-time work, a distinction must be made between the respective regulations in labor law and those in social insurance law, which are, however, closely linked.

Short-time Work and Labor Law

Short-time work changes the main obligations of employer (remuneration) and employee (work performance) under the employment contract. The introduction of short-time work therefore requires a basis in labor law. The employer is not entitled to introduce short-time work unilaterally by virtue of its right of direction. A legal norm (§ 19 German Employment Protection Act »KSchG«), a collective bargaining agreement, a works agreement or a specific provision in an employment contract can be considered as the necessary legal basis.

In practice, short-time work is typically introduced by works agreements concluded with the works council. In this respect, the works council has a mandatory right of co-determination according to § 87, Subsection 1, No. 3 German Works Constitution Act (»BetrVG«). However, the works council cannot make its consent dependent on the granting of short-time work compensation by the employment agency. When drafting a corresponding works agreement, special care must be taken with its content. According to case law, the works agreement must at least regulate the start and duration of short-time work, the location and distribution of working hours, and the selection of the employees affected. In the absence of sufficiently specific provisions, the works agreement is invalid. This has serious consequences, since in this case the employees retain their full remuneration entitlement while not being obliged to make up for the reduced working hours.

Difficulties arise in practice if short-time work is to be introduced by means of a contractual provision with the employees in the absence of any other legal basis (e.g. if no works council is established). If the employment contracts do not contain corresponding (effective) contractual clauses, the employees must be appealed to their common sense in order to be able to conclude a corresponding agreement. It is true that the employer could still consider an amended notice of termination in case of a lack of consent. However, this is not promising in practice.

Short-time Work and Social Insurance Law

A distinction must be made between the regulations of labor law for the introduction of short-time work and the social insurance law conditions for the granting of short-time work compensation. Short-time work compensation is intended to cushion the disadvantages suffered by employees as a result of the reduction in remuneration.

Short-time work compensation is granted by the Federal Employment Agency in the event of a significant loss of work. According to § 96, Subsection 1 Social Security Code III (»SGB III«), the loss of work is substantial if it is due to economic reasons or an inevitable event. It needs to be temporary only and unavoidable. In addition, at least one third of the employees must be affected by a loss of earnings of more than 10 percent.

On a positive note, the employment agencies have positioned themselves in such a way that absences from work caused by the coronavirus can entitle employees to short-time work compensation. For example, the Baden-Württemberg regional directorate already announced on 06.02.2020 in connection with order shortage that

»a loss of working hours due to or as a result of the coronavirus and/or the associated safety measures is based as a rule on an inevitable event or on economic reasons within the meaning of § 96 Subsection 1 No. SGB III«.

This was confirmed by the Federal Employment Agency on 28.02.2020. According to that, affected employees can receive short-time work compensation,

»when companies order short-time work due to the worldwide cases of illness caused by the coronavirus and this results in loss of earnings (...).

A precondition for receiving short-time working compensation is that the usual working hours are temporarily reduced substantially.

This may be the case, for example, if deliveries are not made due to the coronavirus and working hours have to be reduced as a result, or if state protection measures cause that the company is temporarily closed down«.

The notifications must not be misunderstood as a free pass for the granting of short-time work compensation in connection with the coronavirus. If short-time work compensation is considered, the employer must, pursuant to § 99, Subsection 1 Social Security Code III (»SGB III«), provide the competent employment agency with credible evidence that there is a substantial loss of work and that the operational requirements for the short-time work compensation are met. If the Federal Employment Agency confirms that these requirements are met, the employer must in a second step apply for short-time work compensation within three months. The notification of the loss of working hours is not sufficient to meet the deadline.

The short-time work compensation is 67% of the net pay difference for employees with at least one child and 60% of the net pay difference for employees without a child. Further increases by the employer are possible to mitigate the disadvantages. If there is no legal basis (in the collective agreement), these benefits are voluntary. The works council cannot enforce them. According to the current situation, short-time work compensation is granted for a maximum period of twelve months.

Conclusion

Short-time work and short-time work compensation are suitable means to mitigate the economic damage caused by the coronavirus. In this respect, the Federal Employment Agency has already signalled its willingness to support employers and employees in this difficult situation. However, this requires a correlation between the spread of the virus and loss of working hours. This is particularly the case in the event of order and delivery shortage. But also »state protection measures« justify a corresponding claim.

Update

The German Coalition Committee (a committee with representatives of the governing parties from the Federal Government, the Bundestag and the Bundesrat) has decided on March 08, 2020 to impower the Federal Government - limited until the end of 2021 - to lower the requirements for receiving short-time work compensation and to extend the benefits by means of ordinances. The federal government's ordinances do not have to go through a formal legislative procedure, i.e. they can be issued at short notice. The ordinances - limited until the end of 2020 – will have the following content:

  • Only 10% of the employees in the company must be affected by the loss of working hours (quorum)
  • There is no longer any need for employees to build up a negative balance in their respective working accounts.
  • Temporary agency workers should also be able to draw short-time work compensation.
  • The Federal Employment Agency will fully refund employer´s social security contributions.

It is not yet possible to exactly predict when the new measures will enter into force. In view of the effects of the spread of the coronavirus we expect the Coalition Committee's decision to be implemented within the next weeks.

In addition, a draft law of the Federal Ministry of Labor and Social Affairs (»Labor of Tomorrow Act«) is to come into force in the first half of April 2020. This draft law also contains an authorization of the Federal Government - limited until 31.07.2023 - according to which the Federal Government can increase the period of entitlement to the short-time work compensation to 24 months.

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