May.20.2020
The COVID-19 crisis led to drastic changes in employment. Although measures have been taken by the German legislator and the government to secure jobs, staff cuts appear inevitable for many companies as the crisis progresses. The following blogpost explains how short-time work and layoffs relate to each other and what companies must do to effectively terminate employment.
If the Dismissal Protection Act (Kündigungsschutzgesetz – KSchG) ("DPA") applies, which is the case if the employee has been employed for more than six months and if there are more than ten employees on the ground in Germany, employees may only be dismissed if there is a specific justification which may be based on conduct, personal or operational reasons. Neither the COVID-19 crisis nor the introduction of short-time work will change this. If the economic situation created by the crisis is meant to justify dismissal, then only in the context of a dismissal for operational reasons.
Where short-time work has been introduced, there are special features to be observed. In any case, a dismissal for operational reasons cannot be justified on the same grounds that led to short-time work. Short-time work requires a temporary loss of working hours, whereas a dismissal for operational reasons requires a permanent loss. If a dismissal for operational reasons is declared during short-time work, additional or new circumstances must exist.
The employer must therefore prove that the situation has worsened since the introduction of short-time work to the extent that there will be a permanent loss of work. Collective bargaining and shop agreements may contain provisions which restrict dismissals for operational reasons during periods of short-time work which should be checked.
Under the DPA, a dismissal for operational reasons requires urgent operational requirements which make it impossible for the employee to continue working in the company. Such an operational requirement can be based on internal (e.g. restructuring) or external (e.g. lack of orders) circumstances These circumstances have to cause a permanent reduction in the need for further employment. With a view to the COVID-19 crisis, a deterioration in the order situation may be relevant here. However, the employer would have to prove in court that his employment needs are likely to be reduced permanently.
In addition, it is necessary that the in-scope employee can no longer be employed anywhere in the company and that a due social selection process has been carried out. In the social selection process, comparable employees are categorized according to their social protection needs using specific criteria (length of service, age, alimony obligations, severe disability) to ensure that the socially "strongest" employees are made redundant, i.e. the younger employee, the employee with a shorter tenure, less alimony obligations etc.
Also, the general requirements every dismissal must fulfil need to be considered. This notably includes the written form requirement for notices (this can be logistically tricky during a pandemic), observing the notice period, prior consultation of the works council, if any, and, in the case of the dismissal of severely disabled persons, the prior approval of the Integration Office (Integrationsamt) or any other authority if the employee qualifies for special dismissal protection.
Depending on the size of the company, a so-called mass dismissal notification (Massenentlassungsanzige) to the Federal Employment Agency (Bundesagentur für Arbeit) may be required if the number of planned redundancies within 30 days reaches a certain threshold. The works council, if any, needs to be involved in this procedure, too. Unlike in some US federal states like California and New Jersey, where the fairly comparable WARN acts exclude COVID-19 related layoffs or requirements for employers have been suspended, the DPA does not provide for such exception. For example, if the number of employees permanently employed in Germany is between 20 and 59 and five or more employees are to be laid off within 30 days, such notification is required. Otherwise, the dismissals are invalid.
The chart below shows the threshold triggers:
| Thresholds for Notification Obligations | |
|---|---|
| Operation regularly employs | Number of dismissals |
| more than 20 but less than 60 employees | more than five employees |
| at least or more than 60 but less than 500 employees | 10 % of the employees regularly employees in the operation or more than 25 employees |
| at least or more than 500 employees | more than 30 employees |
Dismissals not only include dismissals by the employer, but also any other employer-initiated termination of employment, including separation agreements which is why the notification process needs to be considered when organizing negotiated exits as well. The process itself is not too time-consuming but needs to be carried out thoroughly to avoid exposure.
Please feel free to reach out to our Employment Team in Germany or your usual contact at Orrick to find out more or if you need any help.