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Corona and No End in Sight - What if Staff Reductions Become Unavoidable?

Corona keeps the whole world in suspense. The repercussions of the pandemic and the measures adopted to manage the crisis are clearly felt by everyone every day. Many companies are keeping themselves afloat and survive with short-time working and shielding measures under the government's protection scheme. Other companies already see no alternative to staff cuts. Others will follow and will have to think about and initiate downsizing measures during or after the crisis. Because of the relevance of this topic, some important questions regarding an upcoming staff reduction will be presented in the following.

One of the most frequently asked questions first: Is it even possible to terminate a contract despite short-time work?

The answer is: YES. Dismissals are also possible during short-time work, not only for personal and behavioural reasons, but also for operational reasons. Special principles apply here. If short-time work is performed in a company, this is an argument against a permanent reduction in the need for employment. However, a merely temporary lack of work cannot justify a dismissal for operational reasons. If, however, the need for employment is permanently reduced because other circumstances are later added, the requirements for a dismissal for operational reasons may be met despite short-time work.

Practical advice:

It is absolutely crucial to take a look at the collective bargaining regulations applicable in the company. Collective agreements and works agreements may provide not only for general restrictions on dismissal, but also for the exclusion of dismissals for operational reasons during short-time work.

Prerequisites for dismissal for operational reasons

A dismissal for operational reasons presupposes that the need for the continued employment of an employee due to urgent operational requirements in the company has permanently ceased to exist or will cease to exist by the end of the notice period at the latest. The following requirements must be met:

  • A business decision leads to an expected permanent loss of a job/the need for further employment.
  • There is no possibility of continued employment in the company for the employee affected by the loss of the job.
  • A social selection among comparable employees was carried out properly.

The business decision can be based on external and internal factors. Examples of external factors are:

  • Difficulties/decline in sales volumes
  • Loss of orders/reduced order backlog/lack of follow-up orders
  • Loss of turnover.

External factors are circumstances independent of the company's organisation and management which have a direct impact on certain jobs. The employer actually has no room for manoeuvre when dismissing employees for external reasons.

Examples of internal factors where the employer has room for manoeuvre are:

  • Closure or partial closure of business operations
  • Modification or introduction of new working methods/restriction of production
  • Change in workflows
  • Outsourcing of work to external companies.

Practical advice:

It is usually easier to prove that the job is lost for internal factors. Hence, it should always be examined whether a business decision can be based on internal factors, even if restructuring measures are triggered by external factors.

There must be no possibility of continued employment for the employee threatened by the loss of his or her job. Before a dismissal for operational reasons is announced, it must therefore be examined whether

  • the employee who is to be dismissed could continue to be employed in another vacant comparable job in the same establishment or in another establishment of the same company;
  • the employee could be continued to be employed after a reasonable amount of retraining or further training,or
  • it is possible to continue the employee's employment under modified, and possibly also worse, contractual conditions.

The possibility of continued employment should be examined on a company-wide basis (not only in relation to the specific business operation!). Only vacant jobs are eligible, whereas jobs are considered vacant if they are unoccupied at the time of receipt of the notice of termination, or if it is foreseeable that they will become vacant until the end of the notice period.

Practical advice:

If it is possible to continue employment under modified working conditions, it must be enforced by means of a so-called dismissal with the option of altered conditions (Änderungskündigung). The dismissal with the option of altered conditions has priority over the dismissal terminating the employment (Beendigungskündigung). A mere offer to change the contractual conditions by mutual consent is not sufficient.

The social selection leads to a situation in which it is not mandatory to terminate the employment of the employee whose job is lost, but rather that of the employee who is least in need of social protection among comparable employees. If the decision to terminate the contract violates the principles of social selection, the termination is invalid despite the existence of urgent operational requirements. The following principles apply:

  • the social selection must be carried out in relation to the specific business operation
  • all comparable, i.e. interchangeable employees of the company (also of a joint establishment (Gemeinschaftsbetrieb)!) according to their activity and the contractual agreements are to be included
  • the four legal social criteria are to be weighted: Length of service, age, existing maintenance obligations, existence of a recognised severe disability.

Practical advice:

Individual employees whose continued employment is in the legitimate interest of the company, especially because of their knowledge, skills and performance, may be excluded from the social selection. The same is possible if the removal of employees is necessary to ensure a balanced personnel structure of the company.

Particularities in case of an established works council

If there is a works council in place, the co-determination and participation rights under works constitution law must be respected. They include in particular

  • Reconciliation of interests and social plan negotiations if there is a so-called change in operations in companies with more than 20

    employees which may result in significant disadvantages for the workforce or significant parts of the workforce (sections 111 et seq. German Works Constitution Act, BetrVG)
  • Consultation procedures for the preparation of a mass dismissal notice (Massenentlassungsanzeige) (section 17 German Dismissal Protection Act, KSchG)
  • Consultation of the works council on the specific termination (section 102 BetrVG).

The obligation to negotiate a reconciliation of interests and a social plan is triggered by measures which carry a certain weight and either affect the entire company or at least "substantial parts of the company" or are "fundamental". The figures and percentages in section 17 (1) KSchG on the mass dismissal notices serve as a guideline.

While the reconciliation of interests procedure must be carried out in full but a reconciliation of interests itself cannot be enforced before the conciliation body, the social plan is enforceable. Only with a mere reduction of staff do special, increased threshold values apply. If these thresholds are not reached, the social plan is as an exception not enforceable (section 112a BetrVG). The social plan privilege (no enforceability) also applies to operations of a newly founded company in the first four years after its foundation.

Practical advice:

Careful consideration must be given to which body is responsible for the impending negotiations. Works council, central works council or group works council? Negotiating with the wrong body means not properly respecting co-determination rights.

The improper participation of the works council does not lead to the ineffectiveness of the measure taken. If a change in operations is carried out without having attempted to reconcile interests, this leads to individual claims of the employees concerned to a compensation of disadvantages (Nachteilsausgleich) (section 113 BetrVG) which is awarded by the labour courts in the form of a severance payment. Depending on the court district, the works council is also granted a right to injunctive relief to secure the right to negotiations which the works council can also enforce against the company by way of interim legal protection.

Practical advice:

Careful preparation of a staff reduction and realistic time planning help to guide and structure negotiations with the works council. This is also important because there are many ways for works councils to delay negotiations with the employer.

Related discussion:

A representative body for severely disabled employees (Schwerbehindertenvertretung) must be involved before a severely disabled employee is given notice of dismissal. Otherwise a dismissal would be ineffective. The same principles apply to the hearing of the representative body for severely disabled employees as to the hearing of the works council pursuant to section 102 BetrVG.

Mass dismissal notice

If the number of employees affected by the staff reduction exceeds the thresholds of section 17 (1) KSchG, a notifiable mass dismissal is at hand. This is the case if

  • in companies with generally more than 20 and less than 60 employees more than five employees,
  • in companies with generally at least 60 and less than 500 employees, 10 percent of the employees regularly employed in the business or more than 25 employees, or
  • in companies with generally at least 500 employees, at least 30 employees

are dismissed within 30 calendar days. Dismissal in this context means any form of termination of employment relationships initiated by the employer, i.e. also the termination agreement concluded in the course of a change in operations.

The mass dismissal notice must be submitted before the notice of termination is issued. Incorrect information in the so-called mandatory notices cannot be remedied and will lead to the invalidity of the notice. The same applies if the mass dismissal notice is submitted to the non-competent employment agency, or if the internal consultation procedure with the works council has not been carried out properly.

Important:

The internal consultation procedure must actually have been carried out. It is not sufficient to merely include a confirmation in the reconciliation of interests stating that the consultation procedure is considered to have been completed.

Conclusion

Staff reduction measures must be carefully prepared. There are many legal questions that need to be addressed in advance in order to set the right course for implementation. Otherwise, any notices of termination that have been issued may be invalid. Far too often, disregard and non-compliance with formal requirements play a role which is usually expensive, but in most cases avoidable.

Doreen Methfessel



Contact us

Doreen Methfessel T   +49 211 518989-0 E   Doreen.Methfessel@bblaw.com