Short-time work and termination for operational reasons

In principle, the employer may terminate an employment relationship for operational reasons despite short-time working if there are urgent operational requirements which are opposed to a continued employment of the employee. It must be borne in mind that a temporary lack of work - as is required for short-time working - is not sufficient to justify termination for operational reasons. According to the case law of the German Federal Labour Court (BAG), the fact that short-time work is implemented in the company even serves as an indication that the need for employment has not decreased permanently but is only temporary. Nevertheless, despite the short-time work, an urgent operational requirement for a termination may exist if the employment requirement for individual employees affected by short-time work is permanently eliminated due to other circumstances that occurred later. The employer may therefore prove that operational requirements exist despite short-time work by presenting specific facts.

However, the employer must first have fully exhausted all possibilities for reducing the working time offered under the regulations on short-time work. Only if there is then still a surplus of employment can a termination for operational reasons be justified.

In the termination protection proceedings, the employer must explain and prove why, contrary to the indicative effect of short-time work, it can now be assumed that for individual employees affected by short-time work there will be a permanent lack of work. The termination cannot therefore be justified on the same grounds as those given for the introduction of short-time working.

According to the BAG's case law, the employer must explain in more detail the facts from which it follows that a reduced volume of work and employment requirement can be expected in the long term in the future. For example, a mere reference to orders about to be completed and the absence of follow-up orders is usually not sufficient. On the basis of its order and personnel planning, the employer must explain in detail why there is not only a short-term fluctuation in orders, but a permanent decline in orders is to be expected. The existence of possibly only short-term fluctuations in production or orders must be excluded. The employer must present the permanent reduction in the volume of work in a comprehensible manner by comparing the relevant data from representative reference periods. This increased burden of submission of facts must be taken into account in the content and substance of the submission. The employer must therefore explain in concrete terms to what extent and on the basis of which measures the activities previously performed by the dismissed employee are no longer performed. The employer must present the effects of the corporate targets and plans on the expected volume of work on the basis of a conclusive forecast and indicate how the work available can be performed by the remaining personnel - within the framework of their contractually owed regular weekly working hours.

Whether the employer's assessment of the development of the demand for labour can be examined by the labour court as to its correctness or can only be subjected to arbitrary control depends on the nature of the business decision on which this assessment is based.

If the reduced demand for labour is based on a organisational decision actually implemented in the business, i.e. if the decision is taken for internal reasons, the court can only examine whether the decision is obviously not based on objective reasons, irrational or arbitrary. In this case, the business decision cannot be examined as to its objective justification or appropriateness. If, on the other hand, the reduction in staff is based solely on external circumstances (e.g. decline in orders, supply bottlenecks, sales problems, market changes) without the employer having made an entrepreneurial organisational decision, the court can fully review whether the external circumstances for the dismissal actually existed and whether they led to a permanent reduction in the volume of employment.

The employee's entitlement to short-time working allowance generally ceases upon receipt of the notice of termination for operational reasons, irrespective of the period of notice. The claim is subject to the condition that the employee fulfils the personal requirements of Section 98 (1) of the German Social Code (Sozialgesetzbuch, SGB), Book III. Upon receipt of the notice of termination, the requirement of Section 98 (1) No. 2 SGB III, according to which the employment relationship may not be terminated or dissolved by a termination agreement, no longer applies.

With reference to the instructions (Geschäftsanweisung, GA) on short-time working allowance issued by the Federal Employment Agency in July 2009, some argue that if an action for protection against unfair dismissal is filed, there is still an entitlement to short-time working allowance for the period after receipt of the notice of termination if it is not yet clear whether the job will be retained. However, this can no longer be derived from the current instructions on short-time working allowance “GA Kurzarbeitergeld” (in the version of 20 December 2018).

Moreover, in a judgement from 2009, the BAG countered this view by stating that it was not compatible with the legal wording because the wording of the law only refers to the fact of the termination and not to whether it still needed to be reviewed by a court.

Nevertheless, in the event of termination, the employee is not entirely without a claim to compensation for loss of earnings. The employer then bears the economic risk in the amount of the short-time working allowance again, and the employee can assert a claim for compensation for loss of earnings against the employer.

We would therefore recommend consulting the responsible employment agency on this point in advance if it is planned to give notice of termination for operational reasons during the period of short-time work.

If, due to the ongoing crisis, attention is increasingly focussed on drastic reorganisation programmes and dismissals, the employer must take into account the possible obligation to reconcile interests and to draw up a redundancy programme if a works council exists. This raises the question of what effects the start of negotiations on reconciliation of interests and redundancy programmes may have on the receipt of short-time working allowance.

In its current “GA Kurzarbeitergeld” on short-time working allowance (in the version of 20 December 2018), the Federal Employment Agency takes the view that if the employer decides to shut down a business or parts of a business or to carry out a substantial reduction in staff, which required notification of collective redundancies, the entitlement to short-time working allowance will lapse as soon as actual  implementation steps are taken. Implementation steps are deemed to be “actual” if, for example, notices of termination are issued, or a reconciliation of interests is concluded with a list of names. The background to this is that when a reconciliation of interests with a list of names is concluded, the parties to the agreement have already reached an actual agreement as to which employees are to be affected by the intended staff cuts and will receive a notice of termination. The prospective termination of the individual employment relationship manifests itself in the conclusion of a reconciliation of interests with a list of names in a manner comparable to that in which notices of termination are already issued.

The mere commencement of negotiations on reconciliation of interests and redundancy programmes, on the other hand, should not yet lead to the loss of entitlement to short-time working allowance, as the measure has not yet been actually implemented. However, it is advisable to coordinate this with the responsible employment agency in advance.