Coronavirus: Shift from short-time work to dismissals for operational reasons
The coronavirus and the shift from short-time working to redundancies for operational reasons, or the synchronisation of both instruments to overcome the crisis
Companies were able to respond adequately to the temporary slump in employment during the coronavirus crisis by introducing short-time working. However, reliable forecasts on how the economy will develop are difficult. At best, the old level of employment will be achieved. In many cases, however, the need for staff is likely to decline. Companies should therefore consider early on how they intend to position themselves after the crisis and, if necessary, take appropriate measures now.
Short-time work requires the forecast of only temporary reduction in work volume
Expecting a temporary reduction in the work volume, the prudent entrepreneur decided to introduce short-time work in the first phase of the crisis, although also for short-time working there are many obstacles to overcome. However, once the forecast for the company or part of the company shifts from temporary to permanent, the initial decision which was based on the original assessment of an only temporary reduction in work volume must be revised. As a part of the registration process, the Federal Employment Agency even had to be convinced that the reduction in work volume was only temporary.
Basic requirements for dismissal for operational reasons
In deviation from the requirements for the introduction of short-time working, a permanent loss of work volume is required for announcing dismissals for operational reasons. The underlying decision must in any case be to reduce the number of jobs. According to labour court rulings, the operational requirement for the effective termination of employment relationships is not fulfilled if external or internal operational reasons do not lead to a permanent reduction in the number of workers required. In the currently prevailing situation, both variants can (theoretically) be applied.
Requirement: Change in entrepreneurial decision
If, in the circumstances of the individual case, it is no longer foreseeable that a return to full-time work will occur within a certain period of time, a reduction in work volume can no longer be classified as temporary. Conversely, a dismissal for operational reasons cannot be justified by an only temporary reduction of work. Short-time working and dismissals for operational reasons thus prove at least at first glance to be contradictory and mutually exclusive.
- Internal and external operational events
Additional internal circumstances or external events are required. The so-called self-binding entrepreneurial decision which the employer makes depending upon the number of the necessary employees in the enterprise in direct correlation to the work volume, and which is based thereby on external reasons, must be distinguished from the formative entrepreneurial decision. The important point here is that short-time work was introduced on the occasion of COVID-19 due to external reasons. This is keeping in mind the conditions for the introduction of short-time work also not surprising, since an inevitable event in the sense of Section 96 (1) of the German Social Code III (SGB III) is already defined as coming from the outside. Thus, in this case, the requirement is only fulfilled if an external event has occurred. If, however, now the entrepreneurial decision is made to introduce short-time work, the employer hereby makes a commitment - self-bindingly - as a reaction to external events. In this case, the entrepreneur must state which external circumstances have changed to what extent, making a new corporate decision necessary. In practice, the complexity often increases even more, since a prudent entrepreneur takes exogenous factors into account, i.e. the reason for a reduced work volume comes from outside, but the employer reacts with a formative decision.
- Review of the entrepreneurial decision
According to the established case law of the German Federal Labour Court (BAG), an entrepreneurial decision is not to be examined for its objective justification or its appropriateness, but only for whether it is obviously not objective, unreasonable or arbitrary. Nevertheless, based on the original decision the introduction of short-time work it must be presented in a comprehensible manner which changes have occurred that made a correction necessary or caused it. However, the general rules must apply, and a review may only be carried out on the basis of the aforementioned principle. The Federal Labour Court generally does not rule out the possibility of dismissals for operational reasons during the period of short-time work, but considers the implementation of short-time work to be an indication of the assumption that the reduction of work volume is only temporary. At the same time, however, the Federal Labour Court states that the employer himself can refute the indicative effect by giving concrete evidence. In that case, the employer must explain why the he or she, on the basis of order and personnel planning, no longer (only) assumes a short-term fluctuation in orders but a permanent decline.
Notice of dismissals for operational reasons during ongoing short-time work in the company/business
If jobs are cut and thus a change occurs in operations in terms of Section 111 of the German Works Constitution Act (Betriebsverfassungsgesetz), the effects on the already ongoing, applied for and subsidized short-time work must be clarified. This is easy to answer with respect to the employee who is affected by the job cuts. At the latest at the moment the employee has received a notice of termination, the personal requirements for receiving short-time work compensation according to Section 98 (1) no. 2 SGB III, the temporary reduction in work volume, cease to exist. Consequently, for the employee concerned short-time work and dismissal for operational reasons exclude one another.
The Employment Agency stipulates in their instructions that this is to be the case at the latest from the time when the decision to terminate the employment relationship has become concrete in this respect. However, what happens to employees who are supposed to continue working short-time and are not affected by the staff reduction measure?
- Current pinion and approach of the Federal Employment Agency
In this context, it is sometimes argued that it should not be possible to synchronize short-time work and dismissal for operational reasons for different groups of employees, since from that moment on, the goal of preserving jobs could no longer be achieved. It follows from the technical instructions of the Federal Employment Agency that after an entrepreneurial decision to implement a change in operations that exceeds the thresholds of Section 17 of the German Dismissal Protection Act (Kündigungsschutzgesetz), the conditions for short-time work are no longer met for the entire company. The argument is that, although entrepreneurial considerations and planning are not yet of any particular importance, as soon as implementation measures are taken, the entire company no longer meets the requirements for short-time work.
- Criticism and evaluation
The aforementioned argumentation must be expressly contradicted. If the operational conditions can still be affirmed even after the execution of a staff reduction, it is not evident why enterprises should not be entitled to perform short-time work also in addition to a staff reduction. The consideration of the operational situation alone, after the notice of termination has been given, must show that the requirements in terms of labour and social security law for applying for short-time work and the associated short-time work allowance are still fulfilled. If this is no longer the case, for example because the quota of employees according to Section 96 (1) SGB III is no longer met, the question does not arise. However, if the requirements are still met, the rejection of a further use of short-time work already contradicts its sense and purpose - the preservation of jobs. Just because a part of the jobs is or will be lost without replacement, this does not necessarily mean that the rest of the jobs are secure.
To the extent that only a permanent reduction in the work volume is taken into account by means of restructuring, the element of temporary reduced work volume must nevertheless be affirmed. The restriction of the company's ability to function, more specifically the requirement that a predominant number of jobs must be retained, also appears to be clearly too narrow. Whether or not a remaining business is operationally functioning is not subject to the examination of the Federal Employment Agency. It is also not a requirement for applying for short-time work, at least, it is not reflected in the law and is also not mentioned in the application form. Therefore, if the application for short-time work is maintained or corrected in the line of argumentation, it is neither to be examined nor objected to beyond the normal requirements. An additional requirement that a necessary staff reduction now also must result in maintaining substantial jobs on top of the conditions specified under Section 96 et seq. SGB III would introduce a requirement not provided for by the law. If the requirements to apply short-time work are met, an enterprise may in fact do both: reduce staff and apply for short-time work.
Short-time work and dismissals for operational reasons appear to exclude one another, but they don't.
A partial change in the forecast from "temporary" to "permanent" is not only possible but in many industries a reality. If a company feels compelled to announce dismissals for operational reasons, the change in forecast must be well documented and justified, as the employer may be faced with an increased burden of proof and presentation in subsequent court proceedings.
Note: The article was published in a more detailed version in the magazine DER BETRIEB (DB 2020, p. 271 et seq.).
Dr Kathrin Bürger
Rechtsanwältin, Licensed Specialist for Labour Law, LL.M.