Covid-19 – Frequently asked questions about the introduction of short-time working

Can employers unilaterally impose short-time working?

No, the introduction of short-time working requires a legal basis in the form of a provision in a collective agreement, a works agreement or a provision in an individual employment contract.

In companies without a works council, the employer may only introduce short-time working via applicable collective agreements or employment contracts that include an authorisation for the employer to do so (short-time working clauses). If there are no collective agreement provisions and the employment contracts do not contain short-time working clauses, short-time working can only be introduced via a supplementary individual contractual agreement. If employees are not prepared to sign such supplementary agreements, theoretically the only option remaining is to issue notices of termination with a change in working conditions in order to enforce the reduction in working hours.

In companies with a works council, there is also the option of introducing short-time working on the basis of a general works agreement intended to apply to a wide range of cases. The works agreement has immediate and binding effect, i.e. it takes precedence over provisions in individual contracts and thereby enables the introduction of short-time working even without the consent of each individual employee. In the current situation, this would then need to be implemented – where appropriate, with the involvement of the works council. If no such works agreement exists, the works council’s right to co-determination must be upheld, meaning a works agreement must be concluded. This covers, amongst other things, the question of whether and to what extent – and, where applicable, for which departments – short-time working is to be introduced, and how the adjusted working hours are to be distributed across the individual days of the week, as well as the regulation of annual leave and similar matters.

In companies where fluctuations in working hours are permitted,
must these be utilised in full or in part before short-time working is introduced?

With regard to the use of permitted working time variations within the company, the use of working time credits takes precedence over short-time working with the payment of short-time working allowance (Kug). Short-time working allowance is therefore not paid if the loss of working hours can be avoided by utilising permitted fluctuations in working hours. This means that, provided employers can instruct employees to use positive working time balances, the loss of working hours can initially be avoided to that extent. If the employer cannot mandate this – for example, due to existing internal company regulations – the loss of working hours is unavoidable and the working time credit does not have to be used up. The relevant provisions are those set out in the applicable collective agreements, works constitution regulations or individual employment contracts.

In this context, the ‘Corona Ordinance’ now provides some relief by allowing employers to waive the requirement to accumulate negative working time balances. Prior to the legislative amendment, businesses that made use of agreements on working time fluctuations were also obliged to allow negative working time balances to accumulate. Following the amendment to the law, this requirement can now be waived, and only positive working time balances need to be utilised, where necessary, before short-time working allowance is paid.

Must and can employers first order staff to take holiday before introducing or to avoid short-time working?

Under social security law, the answer is clear: short-time working allowance is not paid if the loss of working hours can be avoided, in whole or in part, by granting paid annual leave. Reasonable measures to avoid a loss of working hours include, where possible, preventing such a loss by granting annual leave, provided this is not precluded by the annual leave requests of the employees concerned, which are expressly given priority. However, if the holiday had already been scheduled in advance for a period during which short-time working is in effect, and there is now a proposal to deviate from this – at the expense of the short-time working allowance scheme – an unavoidable loss of working hours is generally deemed not to exist.

According to the interpretation of the Federal Employment Agency, the same applies if short-time working is introduced towards the end of a holiday year, residual holiday entitlements from the previous year still exist, and the employer does not make any decision regarding the start of the holiday, even though the employees have no alternative holiday requests.

How does taking annual leave whilst on short-time working affect entitlement to short-time working allowance?

If short-time working is introduced on the basis of short-time working clauses in the employment contract and the employee takes annual leave falling within this period, the employee does not receive short-time working allowance for the duration of the leave but rather holiday pay, as this specific loss of working hours could have been avoided by the granting of paid annual leave. They then receive holiday pay as usual.

However,
this does not apply where ‘zero’ short-time working is introduced on the basis of a works agreement. In this case, the employee is exempt from their duty to work due to short-time working and not because of the granting of annual leave. The exemption from the obligation to work under the works agreement takes precedence over the individual exemption from the obligation to work resulting from the employer’s granting of annual leave. This should be borne in mind when drafting such works agreements, as otherwise the employer may have to grant annual leave retrospectively and may not, under certain circumstances, be reimbursed for holiday pay that has been paid in error.

Does the implementation of short-time working during the working year affect the employee’s holiday pay?

Under the Federal Leave Act (BUrlG),
holiday pay is calculated on the basis of the average earnings from work over the last thirteen weeks prior to the start of the holiday. 

Reductions in earnings during the calculation period resulting from short-time working, work stoppages or absence from work through no fault of the employee are, in principle, disregarded under the BUrlG. In this respect, the introduction of short-time working has no effect on holiday pay. 

How much is the short-time working allowance?

The amount of the short-time working allowance is based on the so-called flat-rate net loss of earnings during the entitlement period (calendar month). This is the difference (the net pay differential) between the flat-rate net pay based on the target pay (gross pay subject to social security contributions excluding the loss of working hours) and the flat-rate net pay based on the actual pay (actual gross pay in the month of short-time working). The target earnings are calculated on the basis of the ‘regular current income from employment during the calculation period’. In addition to the monthly fixed salary, this includes, for example, allowances, benefits in kind and commissions (average of the last three months). Overtime or extra-time pay, one-off payments and expense allowances are not taken into account.

The short-time work allowance (Kug) is then granted
at a rate of 60 per cent, or 67 per cent if at least one child lives in the household, of the net pay difference. However, the ‘target pay’ is, as a general rule, limited to the regular gross earnings for social security purposes up to the contribution assessment ceiling for statutory pension insurance (EUR 6,900 ‘West’, EUR 6,450 ‘East’). As with unemployment benefit, this covers the loss of earnings up to the level of pay on which contributions are paid. If, even during short-time working, the actual pay received exceeds the contribution assessment ceiling, no short-time working allowance can therefore be paid.

To determine the amount of short-time working allowance (Kug), the Employment Agency provides a ‘Table for calculating short-time working allowance (Kug)’, from which the flat-rate monthly net pay can be derived for the respective gross pay (target and actual pay), taking into account benefit rates 1 and 2 (67 or 60 per cent) and the income tax bracket entered on the employee’s electronic income tax card (so-called ‘calculated benefit rates’).

Does the imposition of short-time working preclude redundancies?

No, the employer is still entitled to give notice of termination – e.g. on personal or behavioural grounds – even during a period of short-time working. If, during the short-time working period, the employer determines that, contrary to their earlier assessment, a circumstance does exist which leads to a permanent loss of work – e.g. due to the outsourcing of a function – they may, according to the case law of the Federal Labour Court, also give notice of redundancy on operational grounds. However, redundancy on operational grounds must not be based exclusively on reasons that had already led to the introduction of short-time working.

How does a dismissal during short-time working affect entitlement to short-time working allowance?

Termination simultaneously extinguishes the entitlement to short-time working allowance, as the payment is then no longer intended as bridging support until a return to normal working hours, but rather because the job has been permanently lost. In this case, there is no objective basis for the payment of short-time working allowance.

For any questions arising in this context, please feel free to contact your usual point of contact within our employment law team or email info@kallan-legal.de.

The situation resulting from the impact of the coronavirus is changing rapidly. The information above reflects the situation as at 8 April 2020, which may have changed since then.