The current outbreak of COVID-19 – commonly known as Coronavirus – and its consequences are putting a major financial strain on employers. Many companies have had to close branches, are suffering from a decline in business activity or find themselves unable to operate. Matters of employment and payment are uncertain.
Therefore, this article is meant to answer important questions regarding the legal situation in Germany and to show ways in which employers can manage the situation. The most important instrument for companies is the possibility of short-time-work compensation (Kurzarbeitergeld).
Redundancy and Termination
Firstly, it is important for employers to note that employees generally cannot be made redundant simply because of the Corona crisis. Regardless of the current situation, employment is still legally protected in Germany for people who have worked for a minimum of six months in a company with at least 10 employees. This means that any form of termination of an employment contract requires a valid reason. To make employees redundant there have to be compelling operational requirements. A temporary decline in business activity or even a temporary shutdown is usually not considered a valid reason for redundancy in Germany. If the decline in business activity or closure lasts for a significant amount of time, this could justify redundancy – however, termination may be inefficient if the employer can direct short-time-work (see below). Each case requires close legal examination
German labour law has an option called “Kurzarbeit”, which translates to short-time-work. If a sudden, unforeseen event causes a lack of work of at least 10% for a minimum of 10% of employees in one operation, employers and employees can agree on reducing the working hours for up to 12 months. The working hours can be reduced by a minimum of 10% up to a maximum of 100% if needed. Employers are then obliged to pay employees only for the remaining working hours (i.e., if working hours are reduced by 20%, wages are also cut by 20%). The Federal Labour Agency will then pay employees a compensation of either 60% (for childless employees) or 67% (for employees with at least one child) between their regular net wage and their reduced net wage called “Kurzarbeitergeld”. This compensation is not taxed. In regards to social security, employers have to pay 100% of social security contributions on the compensation but are fully reimbursed by the Federal Labour Agency.
The meaning of this regulations is to help employers reduce their personnel costs during an economic crisis and ensure that people remain employed. Additionally, employers can choose to increase their employees’ short-time-compensation with a subsidy, so that the employees total net income is brought close or even reaches 100% of their regular net wage.
However, the disposition of short-time-work is only possible (i) if there is a suitable clause in the employment contracts allowing short-time-work, (ii) if the possibility of short-time-work has been agreed on in a collective labour agreement (Tarifvertrag), (iii) if it has been agreed on in a collective labour agreement with the Works Council or (iv) if the employee individually agrees to it by mutual addendum of the employment contract.
Compensation for short-time-work is only granted, if the short-time-work is unavoidable for the company. This means that reduction of overtime credit and vacation from earlier years or other measures could be necessary before applying.
If the requirements for short-time-work are fulfilled, the employer has to formally notify the Federal Labour Agency and apply for compensation (Kurzarbeitergeld). However, the eligibility of compensation needs to be examined for every individual company or operation.
How should employers generally react to the current situation?
Preventively, employers should try to make as many employees work remotely as possible. Meetings should be substituted by phone or video calls and virtual presentations. We recommend that companies, which are currently experiencing a decline in business, should contact us to review if short-time-work is possible for the company.
Under their duty of care, employers need to ask employees who show the common symptoms of the virus to go home immediately. Any colleagues who have been in personal contact with that person or with someone who has been quarantined by authorities should be informed of the suspected COVID-19 case and asked to work from home until further notice.
In general, we advise employers to be fully transparent regarding any suspected or confirmed COVID-19 cases within their teams. Employees should be informed of any cases or changes quickly to minimise the spread of the virus. We also suggest communicating all information and measures regarding COVID-19 via e-mail or written text with your employees to be able to prove that you took the necessary actions.