The coronavirus is all over the news. What German employers need to consider now.

What is short-time work?

Short-time work is defined as the temporary reduction in operational working hours (including the complete cessation of work for a certain period of time, so-called "zero working hours" [Kurzarbeit Null]. This can apply to the entire operation or to selected organizational units thereof.

What is the purpose of short-time work? Why is short-time work worth having?

Where short-time work applies, employees work less (on a temporary basis) and, accordingly, receive less remuneration from their employer during this period. This allows employers to reduce labour costs if, for example, supply chain interruptions occur in connection with the coronavirus outbreak or if an operation has to be shut down temporarily due to protective measures imposed by the government.

Reductions in remuneration for employees will be made up for by the government to some extent. Under certain conditions, employees subject to short-time work may be eligible to so-called "short-time work allowance" [Kurzarbeitergeld], as part compensation for the employees' loss in wages.

Can employees simply be ordered to switch to short-time work?

No. Employers may not unilaterally order short-time work as part of their right to give instructions. Short-time work requires an agreement with the works council or, where a works council does not exist, with the individual employees concerned.

How and with whom must short-time work be agreed?

Where no works council exists, an employee must explicitly consent to the reduction in their working hours. Such an agreement can be included in either the employment contract or, subsequently, in an amendment to the employment contract. Introducing short-time work in operations that have a works council is less complex because in these cases, a works council agreement on short-time work can – and must – be concluded with the works council.

Does the works council always have to be involved when short-time work is introduced?

Yes. In operations that have a works council the work council must always be involved.

Is it possible to reduce working hours to zero?

Yes. There is no limit to the reduction in working hours. In other words, a reduction in working time can also lead to "zero working hours".

Does the mere implementation of short-time work entitle the employees concerned to short-time work allowance?

No. In order to qualify for this state benefit, further conditions must be met.

Which conditions must be met?

In addition to the actual implementation of short-time work, the granting of short-time work allowance requires a significant reduction in working hours which

  • is due to economic factors or uncontrollable circumstances (e.g. supply chain interruption due to a pandemic, the ordered shutdown of an operation);
  • is temporary (i.e. there must be a certain likelihood that the operation will switch back to full-time work in the foreseeable future);
  • is unavoidable (i.e. all reasonable measures must be taken to prevent a reduction in working hours); and
  • more than one third of the employees working in the operation or operational unit are affected by a loss in remuneration exceeding ten percent in a given calendar month.

What else must the employer do to be able to apply for short-time work allowance?

Short-time work allowance is granted only if the short-time work was unavoidable, i.e. the employer must first have taken all reasonable measures to prevent a reduction in working hours.

For this reason, a reduction in working hours may initially have to be compensated for by using certain types of working time credits. It may also be necessary to first grant paid holidays. On the other hand, it is not necessary to let to any temporary agency workers working for the operation before introducing short-time work.

Ultimately, the options to avoid short-time work in an operation must always be reviewed on a case-by-case basis.

Must short-time work affect the entire company for the employees to be eligible for a short-time work allowance?

No. For the granting of short-time work allowance, the relevant entity is not the company, but the operation in question. The employer may also introduce short-time work in selected parts of the operation (business division) only.

Who is responsible for applying for a short-time work allowance?

The process must be initiated and carried out by the employer.

Are there any deadlines that have to be observed in connection with the application?

It is imperative that the application for short-time work allowance for the respective month be filed within a period of three months. This period will begin upon expiry of the month for which an application for a short-time work allowance is to be filed.

How long can short-time work last? What is the maximum length of time for which the short-time work allowance will be paid?

There is no fixed maximum duration for short-time work per se.

The short-time work allowance on the other hand will only be granted for a limited period of 12 months. In exceptional cases, the Federal Ministry of Labour and Social Affairs [Bundesministerium für Arbeit und Soziales] may extend the duration for which the allowance can be drawn to 24 months by way of a statutory instrument.

Who receives how much short-time work allowance?

The amount of the short-time work allowance is calculated for each individual employee in a precisely regulated procedure.

Employees are not eligible to receive short-time work allowance if they have reached the statutory retirement age or are in minor employment [geringfügig beschäftigt]. Sick employees, on the other hand, are not excluded from drawing short-time work allowance.

Must income tax be paid on the short-time work allowance?

No. Income tax will only be deducted from the actual gross remuneration which is paid by the employer, if any.

What effect does short-time work have on social security obligations?

Coverage in the statutory social security system remains unchanged during this period.

Can an employer order short-time work several times in one year?

As a rule, yes. However, where the short-time work – and thus the granting of the short-time work allowance – is interrupted by more than three months, a repeat notification of the reduced working hours will be necessary in order to initiate a new period of time in which the allowance can be drawn.

Can short-time work allowance be revoked? If so, for what reasons? Will the employer be liable in this case?

Yes. The employment agency may later find that the actual conditions for the granting of short-time work allowance did not apply after all.

Can an employee be dismissed for operational reasons despite working short-time and drawing short-time work allowance?

Yes. Generally speaking, the employer is entitled to dismiss employees for operational reasons even during the period of short-time work. Any arrangement to the contrary can only apply if corresponding bans of dismissal have been agreed. In practice, works councils often make their approval of short-time work dependent on the agreement of such bans on dismissal. Moreover, requesting short-time work suggests that the employer considers the need for reduced working hours to be only temporary. In a dismissal proceeding, the employer will however have to demonstrate why a permanent loss of the jobs in question is now to be expected. This means that the reasons for dismissal will have to be more substantial than the reasons that led to the introduction of short-time work.