BLOG -


Corona: Transition from short-time work to redundancies on operational grounds

COVID-19 and the transition from short-time work to redundancies on operational grounds, or the parallel application of both instruments to handle the crisis

Short-time work enables companies to respond adequately to temporary slumps in activity during the Corona crisis. However, it is still difficult to predict economic development with any accuracy. Ideally, it will be possible to return to previous levels of activities. Yet often, personnel requirements will be reduced. Companies should therefore consider in good time, how they want their business to be positioned after the crisis and, where appropriate, take appropriate measures now.

Short-time work requires a predicted temporary loss of working hours

In the initial phases of the crisis, many reasonable employers decided to introduce short-time work, despite the many hurdles that had to be overcome, as they assumed that the drop in activity would only be temporary. If the prognosis changes from temporary to more permanent for all or part of a business, the initial decision has to be revised as the initial assumption of the temporary loss of activity has changed. When applying for short-time work, applicants even have to sufficiently assure the Federal Employment Agency (Bundesagentur für Arbeit) that the loss of working hours is only temporary.

Principal requirements for redundancies on operational grounds

In contrast to the requirements for the introduction of short-time work, for the issue of notices of termination for staff redundancies on operational grounds requires a permanent loss in the volume of work. The underlying decision must be the reduction in the number of jobs. According to the jurisprudence of the labour courts, the termination of employment will not be an operational necessity and thus will not be valid unless external or internal operational grounds necessitate the permanent reduction of labour requirements. Currently, the predominant view is that both alternatives can (theoretically) be used.

Requirement: Amended business decision

If, under the circumstances, it is no longer foreseeable that there will be a return to full working hours within a certain time frame, the loss of working hours can no longer be considered temporary. Conversely, redundancies on operational grounds cannot be justified by a temporary loss in working hours. Short-time work and redundancies on operational grounds therefore seem contradictory and mutually exclusive – at least at first glance.

  • Internal and external events
    There must be additional internal circumstances or external events. A distinction must be made between the so-called self-binding entrepreneurial decision on the one hand, which the employer takes and which depends on the number of employees necessary for the business in direct correlation to the workload and is therefore based on external factors, and the organisational entrepreneurial decision on the other.

    The sticking point is that short-time work was introduced due to external events: COVID-19. If we return to the prerequisites for the introduction of short-time work, this is not surprising as an inevitable event within the meaning of § 96 (1) of the Third Volume of the Social Insurance Code (Drittes Buch des Socialgesetzbuchs, SGB III) has already been classified as an external event. To this extent, the prerequisite in this alternative will only be fulfilled where an external event can be confirmed. If the company therefore decides to introduce short-time work, the employer stipulates – and binds itself to the position – that this is a reaction to external events. In this case, the employer must therefore provide information on what external events have changed and to what extent they have changed and how this necessitates a new entrepreneurial decision. This is often more complex in practice as a reasonable businessperson will take exogenous factors into account, i.e. the cause of the drop in the volume of work is external, but the employer reacts with a decision to change the internal organisation.
  • Review of the entrepreneurial decision
    According to the case law of the Federal Labour Court (Bundesarbeitsgericht, BAG), an entrepreneurial decision should not be reviewed for its factual justification or appropriateness, but only to see whether the decision is obviously subjective, unreasonable or arbitrary. At the same time, in light of the initial decision – the introduction of short-time work – the changes necessitating a change of approach must be plausibly shown. Here the general rules continue to apply and a review may only be based on the above principles. The BAG does not rule out redundancies on operational grounds while short-time working conditions apply, but views the introduction of short-time work as an indication of an assumption that the loss of volume of work will be only temporary. At the same time, the BAG notes that employers can provide facts to specifically show the effects on the business and refute the assumption. The employer must now show, based on the volume of orders and personnel planning, why it no longer assumes that there will be a short-term fluctuation in orders, but that there will instead be a long-term reduction in orders.

Issue of notices of termination on operational grounds during ongoing short-time work within the work/company

If there is to be a reduction in the size of the workforce and thus a change of operations within the meaning of § 111 Works Constitution Act (Betriebsverfassungsgesetz), the effect on the short-time work that already exists, has been applied for and has been subsidised must be clarified. Employees, who are affected by the reduction in workforce, will be able to easily answer this question. As soon as the employee receives notice of termination, the individual requirements for the receipt of short-time work allowance umder § 98 (1) No. 2 SGB III will no longer be fulfilled – the temporary loss of working hours. For the affected employee, logically, short-term work and termination of employment on operational grounds rule each other out.

It is evident from the directive of the Employment Agency that this will occur at the latest when the decision to terminate the employment is sufficiently specific. But what happens to employees, who are still supposed to continue working with reduced hours but who are not affected by the redundancy measures?

  • Current position and approach of the Federal Employment Agency (Bundesagentur für Arbeit)
    Some have argued that it should not be possible to simultaneously have short-time work for one group of workers and to terminate the employment of another group of workers on operational grounds because at that moment it would not be possible to achieve the goal of retaining jobs. According to the directives of the Federal Employment Agency, an entrepreneurial decision to change operations that would exceed the thresholds of § 17 of the Act against Unfair Dismissal (Kündigungsschutzgesetz) would no longer fulfil the requirements for short-time work for the whole site. This does not give any special meaning to entrepreneurial considerations and planning. However, as soon as measures are taken to implement the decision, the requirements for short-time work will no longer be fulfilled for the whole site.


  • Criticism and evaluation
    This argument must be refuted. If the operational requirements are still present after redundancies have been carried out, it is not clear why a company should not be justified in implementing short-time work in addition to the redundancies. The consideration of operational circumstances following the issue of notices of termination alone must lead to the conclusion that the requirements under employment law and social security law and thus for the accompanying short-time work allowances must still be present. If this is no longer the case, such as because the quota of workers under § 96 (1) SGB III is no longer fulfilled, this issue will not arise. However, if the requirements are still fulfilled, refusing to allow a company to utilise short-time work would be contrary to the sense and purpose of the short-time work measures, namely to retain jobs. Simply because some of the jobs cease to exist or will cease to exist does not necessarily mean that the remaining jobs are thus secure.

To the extent that restructuring measures only take account of a permanent loss of volume of work, the criterion for the temporary loss of working hours must still be affirmed. The requirement that the site must still be able to function, or more specifically the stipulation that the vast majority of jobs must be retained seems much too strict. Whether the remaining business will still be operational is not subject to review by the Federal Employment Agency. It is also not a requirement for an application for short-time work subsidies, at least the principle is not embodied in the law and it is not mentioned in the application form.

If one therefore adheres to the application or corrects the argumentation used, the assessment should not go beyond the normal requirements nor should there be objections on these grounds.

If one was to require that a feature of necessary redundancy measures must be the retention of the majority of jobs, in addition to the requirements of § 96 et seq SGB III, this would be the introduction of a requirement that is not in the law. Where the requirements for an application for short-time work are fulfilled, a company can definitely take a two-pronged approach.

Summary

While short-time work and redundancies on operation grounds seem congruent, they are not. It is not only a possibility that the predictions will change from “temporary” to “permanent”, in many sectors it is already a reality. If a company feels forced to issue notices of termination of employment on operational grounds, any change in prognosis should be clearly documented, with reasoning, as the employer may face a higher burden of proof in any later court proceedings.

Dr Kathrin Bürger

Sonja Müller



Please note:

A longer version of this article appeared in the journal DER BETRIEB (DB) (DB 2020, page 271 et seq.).

TAGS

Labour Law Covid Short-Time Work