The Reduction of Staff Working Hours: Kurzarbeit in German Law
By Dr. Jessica Ohle*, Rechtsanwälte Kliemt & Vollstädt, Berlin
An Alternative to Dismissals
First published March 9, 2009
Like most European countries, German law permits companies to reduce their employees' working hours. This is referred to as Kurzarbeit
in German, short time work
or partial unemployment
. Based on the collective operating agreement or individual contracts in place with the employees, the company will file a notice with the local labor authorities that it will have its employees work only part of their usual work time. The notice is part of an application for Kurzarbeit
subsidies, a federal allowance for the employees on short time work that may amount to up to 67% of their normal net income. In principle, the maximum period for obtaining this allowance is six months.
In response to the current world-wide financial crisis, the German government has extended this period to 18 months. Several large German employers, including Daimler and BMW, have recently decided to temporarily lay off their employees in accordance with this program. Kurzarbeit
permits employers to keep their trained staff on the payroll during economically difficult times because the state allowance eases their burden in terms of the continued salary payments. This program thus enables German companies to retain their trained staff in times when fewer orders are coming in. The following article gives a short outline of the pre-requisites established by German law for participating in the Kurzarbeit
program and the consequences it entails.
1. Substantial Lack of Work Due to Economic Reasons
The economic reasons for lack of work that may be cited include a general economic downturn of the economy as a whole, as well as temporary difficulties suffered by individual companies, provided they are connected to a general economic or structural change such as a depressed economy or an unfavorable exchange rate. An economic reason is also given if the lack of work is caused by a government decision or an administrative ruling, such as trade restrictions and import bans.
Seasonal weather changes and its consequences for the construction industry, for example, are not considered an economic reason. Nonetheless there are specific provisions such as Saisonkurzarbeitergeld,
seasonal short time worker allowance, that protect those sectors experiencing regular seasonal downturns such as the lodging, tourism, food and beverage, and construction industries. This allowance is available to companies from December 1 through March 31.
The lack of work must be temporary--there must be a likelihood that the situation will improve in future. Thus, no help will be available for products or services that are no longer in demand or that have become obsolete such as coachmen or stokers. This has been confirmed by the highest German court in social security matters (Bundessozialgericht): the lack of work is not caused by economic reasons if the product manufactured by a company--in this case, bandages against rheumatism made of cat fur--is no longer in fashion due to a changed perception of the public. The employer, a company, founded in 1922, had successfully applied for Kurzarbeit
support in 1989, 1992, 1993, 1994, 1995 and 1996. For 1997 and 1998, their application was denied by the social administration, and this was ultimately confirmed by the above ruling handed down by the federal supreme court for employment matters, Bundessozialgericht,
on December 19, 2005. The court held that it was incumbent upon the management to develop new products as cat fur declined in popularity.
Another important economic pre-requisite is that the lack of work must be unavoidable. The company must have taken all other measures open to it before applying for Kurzarbeitergeld. This includes paid vacation being taken and employee work time accounts being balanced etc. Kurzarbeit
is not intended to mitigate the effects of poor management.
2. Short Time Work as Governed by Employment Law
From a labor law perspective, the employer cannot simply implement short time work unilaterally. Many sectors of the German industry have concluded collective agreements with the labor unions that provide for short time work. The union agreements usually include specific rules about the pre-requisites for applying for short time work. This may include a minimum notice period for short time work, or mandatory supplemental payments by the employer to its employees.
If no such union agreement exists, the works council of the company must agree to the short-time work. If no works council has been elected, an agreement must be reached with the employees themselves. Although the minimum number required for a works council to be elected is only five employees, many German companies with up to several hundred employees do not have a works council. If it is not possible to come to an agreement with the individual employees about short time work, the employer usually issues terminations of the employment agreement combined with the offer of a new contract with new terms that include the option of short-time work.
Apart from this basis for short time work in general, all changes of the company work time have to be consulted with the works council (again, unless there is no works council elected). This means that an employer intending to implement short time work must initiate negotiations with the works council. Their duration depends on the nature of the relationship the employer has with the works council and of course on the advantages the employer is able to offer to the works council. Thus, they can be completed in the course of a single, if somewhat longer meeting, but they may also take several weeks or even months. If no agreement is reached, the employer will need to enter into a formal arbitration procedure with the works council. An experienced arbitrator will guide the employer and the works council towards an amicable solution. The objective of all negotiations is to conclude a written agreement with the works council on the implementation of short time work.
3. Formal Requirements Regarding Size and Type of Company
Unlike in other European countries, Kurzarbeit
support is available to all sectors of the economy in Germany, production companies and service providers alike. Thus, it is available to blue collar workers as well as white collar workers, provided they are employees as defined by German law, which excludes board members or the managing directors of limited liability companies, Gesellschaft mit beschränkter Haftung, GmbH,
as well as freelancers. The term has recently been extended to cover employees of temporary employment agencies.
There is no minimum size the company must have. Any employer who employs at least one employee is entitled to short time work allowance if all other conditions are met. According to German law, at least one third of the company's employees must lose at least 10% of their gross monthly income as a result of the reduced work time.
On January 13th, 2009, the federal government approved an amendment regarding Kurzarbeit.
The amendment is limited in time until December 31, 2010. According to the amendment, the requirements for Kurzarbeit
subsidies have been lowered. Now, all employees that lose at least 10% of their gross monthly income as a result of the reduced work time are entitled to Kurzarbeit
payments regardless of whether this affects one third or less of the company's employees. Also, the subsidy is now available to short-term employees.
support is available for the entire company but can also be reduced to certain divisions or departments. An example is the German manufacturer Bosch, whose automotive division recently filed for short time work, while their other divisions such as the household appliances division are doing very well. Short time work is defined as any reduction of the work time to less than 90% of the staff's regular work time. The work time can also be reduced to zero, which is called Kurzarbeit Null
4. Formal Requirements: the Employment Agency
The local office of Arbeitsagentur
(federal employment agency, in charge of short time work as well as unemployment benefits) must be informed of the intention to implement Kurzarbeit
. German law provides that this notice may be filed either by the employer or by the works council. In practice, it is usually filed by the employer, who will often retain a law firm to prepare the documents.
In addition to the notice, a formal application for the payment of short time work allowance will need to be filed by the employer, attaching a list of the salary payments of the company. A standard form issued by the employment agencies needs to be completed. This document is also available in most HR Management software programs.
5. Payment of Kurzarbeiter
Subsidy by the Employment Agency
Beginning on January 1, 2009, short time work allowance can be paid for a maximum period of 18 months. Compared to the periods granted by other European countries, this is very long. In Belgium and France, the maximum periods for subsidized short time work in the event of operations ceasing entirely are four or six weeks, respectively. The German maximum period previously amounted to only 6 months and was recently extended by the decision of the German government of November 12th, 2008, which was passed in view of the financial crisis. This extended period applies for all applications filed until December 31st, 2009. Unlike unemployment payments, the maximum period for short time work allowance applies to all employees, regardless of their age or seniority.
The maximum amount at which short time work allowance may be paid is 67% of the former net income and 60% for employees without families. This maximum payment is made if there is no work to be done (Kurzarbeit Null
). In all other cases, the payment is pro rated.
The employer calculates the allowance and pays it, doing so on behalf of Arbeitsagentur,
the federal labor agency with responsibility for unemployment payments. The employer must make the short time work payments in advance, and is subsequently reimbursed. The employer needs to furnish proof of the payments before being reimbursed, but often an exception from this obligation can be obtained from the employment agency.
A financial disadvantage of the short time work allowance is that the employer must continue paying the social security contributions for its employees. Under current German law, this adds up to 40.15 % of their gross income. This number breaks down to health insurance at 15.5%, nursing care insurance 1.95%, pension plan 19.9% and unemployment insurance 2.8%, in 2009. Usually, these social security deductions are split between the employer and the employee, are collected by the employer and transferred to the social security authorities. However, in the event of short time work, the employer alone is responsible for these payments. The financial burden resulting from this obligation is very much under dispute at the moment. The consensus in legal literature is that if a longer economic crisis continues for a long time with no end in sight, Kurzarbeit
can become quite expensive, especially if in the end, the same employees have to be terminated anyway. But for a shorter crisis, Kurzarbeit
has the great advantage of enabling employers to keep their skilled workforce so that the company can start again once the situation has improved. For those employers who have waived the right to terminate employees in a collective agreement, as many large German employers have, Kurzarbeit
is one of the few options available to them during a crisis.
The federal government has reacted to the dispute about the employer having to continue paying the social security contributions. According to the amendment that has been passed on January 13th, 2009, employers may file an application that they only have to pay 50% of the usual social security contributions for their employees. For employees which are currently on training near the job, the employer may file an application to pay no social security contributions at all. The social security contributions will then be made by the Arbeitagentur
agency. The amendment also simplifies the procedure of applying for and receiving the Kurzarbeit
The advantage, as seen from the perspective of employees, is that they can still file for unemployment benefits based on their regular salary after having been temporarily laid off, despite the reduced salary payments during that period. Their previous, regular income is still the basis for calculating their unemployment payments, and they are still entitled to the regular maximum period of unemployment payments, the duration of which depends on their age and seniority.
* The author is a German lawyer and certified employment law specialist. Dr. Ohle has many years' experience in employment law, gained at the Berlin and Cologne offices of Heuking Lüer Wojtek. She has worked at U.S. law firms, including Berliner, Corcoran & Rowe, LLP in Washington D.C. and Holland & Knight LLP in New York. Since 2002, she is a partner of Kliemt & Vollstädt, one of Germany's leading employment law boutiques. She can be reached at Jessica.ohle\at/kliemt.de
Cite as Ohle, The Reduction of Staff Working Hours in German Law,
18 German American Law Journal (Oct. 2, 2008), http://amlaw.us/ohlekurzarbeit2009.shtml.