Member Article

In the course of the Corona crisis, a large number of companies have introduced short-time work. Funded by statutory unemployment insurance, short-time work is an instrument of labour market policy and pursues the aim of preserving jobs. This does not mean, however, that dismissals during a period of short-time work are legally excluded. In particular, dismissals based on personal grounds and conduct that are not related to short-time work remain possible. Dismissals based on these reasons remain unaffected by short-time work. Different standards apply to dismissals for operational reasons. The employer will not be prevented from dismissing employees for operational reasons in case it becomes clear during the period of short-time work that – contrary to previous assumptions – a situation has occurred that causes a permanent work loss. However, dismissals during the period of short-time work will be socially unjustified and thus legally invalid if they are based on the same reasons as short-time work. For in this case there will be no "compelling" operational requirement for dismissal within the meaning of Section 1, Subsection 2, Sentence 1, Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz – KSchG).

TEMPORARY NATURE OF THE LOSS OF WORK AS ELIGIBILITY CRITERION FOR THE CYCLICAL SHORT-TIME WORK ALLOWANCE

According to Section 95 sentence 1 no. 1 of the Third Book of the Code of Social Law (Sozialgesetzbuch III – SGB III), the entitlement of employees to cyclical short-time work allowance requires inter alia a substantial loss of work causing a loss of income. Section 96, Subsection1, Sentence 1 no. 2 of the Third Book of the Code of Social Law stipulates that the loss of work will only be substantial in case it is “temporary”. The “temporary” criterion clarifies that the purpose of cyclical short-time work allowance consists of preserving employment. Therefore, in the context of the legal provisions governing cyclical short-time work allowance, a “loss of work” is to be understood differently than the loss of employment opportunities that justifies dismissals for operational reasons in the context of employment protection legislation. A “loss of work” within the meaning of the legal provisions governing cyclical short-time work allowance assumes that the loss can be remedied in the foreseeable future, so that full-time work will certainly or almost certainly be reestablished.

Against this backdrop, it is of paramount importance to ascertain what legal consequences short-time work has on notices of dismissals for operational reasons that are subsequently given despite short-time work.

SHORT-TIME WORK CONTINUED AT THE DATE OF TERMINATION AS AN INDICATION OF ONLY TEMPORARILY REDUCED EMPLOYMENT NEEDS

In its ruling of 23 February 2012, the Federal Labour Court emphasised that only a permanent, but not a temporary shortage of work is a suitable justification of dismissals for operational reasons. According to the Federal Labour Court, the implementation of short-time work in an establishment is an indication against permanently reduced employment needs. Permanently reduced employment needs and the resulting surplus of employees are a prerequisite for the social justification of dismissals for operational reasons. The Federal Labour Court concedes that the employer can refute the indication against the permanence of the reduced employment needs induced by short-time work by presenting concrete facts. However, the requirements for the submission of such concrete facts are likely to be high. In particular, problems will most likely arise for the employer if the employees that are bound to be dismissed have directly been affected by short-time work or are employed in the section in which short-time work is or was implemented.

The problem is aggravated by the fact that the Federal Labor Court has so far only recognised the possible existence of compelling operational requirements within the meaning of Section 1, Subsection 2, Sentence 1 KSchG despite short-time work in cases in which individual employees have been affected by a permanent loss of employment opportunities due to subsequently occurring circumstances or changed economic and/or organizational conditions. It is yet to be decided if the existence of compelling operational requirements can be assumed at all in cases in which mass dismissals are announced despite short-time work. At any rate, demands on the employer’s written submissions will have to be deemed particularly high in cases in which short-time work is continued at the date of termination.

RELEVANCE OF WORKS AGREEMENTS ON SHORT-TIME WORK FOR THE SOCIAL JUSTIFICATION OF DISMISSALS FOR OPERATIONAL REASONS

When examining the social justification of notices of dismissals for operational reasons that are subsequently given despite short-time work, the Federal Labour Court attaches particular importance to existing works agreements concluded by the employer and the works council on short-time work. In its ruling of 23 February 2012, the Federal Labour Court expresses the view that the works agreement on short-time work concluded by the the employer and the works council hints towards the parties’ expectation that employment needs will only temporarily be reduced. The works agreement is regarded as an indication of the parties’ expectation that the earlier or at least a significantly higher work volume than during the period of short-time work will be reached again in the foreseeable future.

Works agreements on short-time work can thus prove to be an obstacle for any employer who wishes to give notices of dismissals for operational reasons. If dismissals are intended to cut the same jobs that have previously been affected by short-time work, the employer will quickly find himself exposed to the accusation of contradictory conduct. Against this backdrop, existing works agreements on short-time work ought to be terminated in good time prior to any dismissals for operational reasons. By doing so, the employer is able to eliminate the expectation inextricably linked with the works agreement that the reduction of employment needs will only be temporary and to visibly manifest his altered assessment. In contrast, it has to be avoided at all costs that - as in the case decided by the Federal Labor Court in its judgment of 23 February 2012 - the works agreement on short-time work is still in force at the time the notices of dismissal are given.

CONSEQUENCES OF DISMISSAL DURING SHORT-TIME WORK

If employees affected by short-time work are given notice of dismissal, they will generally no longer be entitled to short-time work allowance as of the day after receipt of the written notice of dismissal. In consequence, employees will be entitled to full remuneration until expiry of the notice period, even if they cannot be (fully) employed. In practice, however, the Federal Employment Agency will continue to treat the affected employees as entitled to receive short-time work allowance if they file a complaint against unfair dismissal since there is a possibility of job retention until a final decision on the complaint against unfair dismissal has been made.