Dismissal during short-time work – what is the wage entitlement during the period of notice?

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Due to massive sales losses in almost all sectors of the economy, short-time work had to be ordered in countless cases in Germany since the beginning of the Corona crisis. Hereby the companies affected want to avoid redundancies and at the same time counteract financial imbalances. Nevertheless, redundancies may occur for operational reasons. But what happens to the employment relationship in such a case? From whom can the employee claim his or her salary and at what amount?

In principle, redundancies for operational reasons are also possible during short-time work. For this purpose, external circumstances must have changed after the introduction of short-time work and new, urgent reasons must have arisen. This is because short-time work is based on an only temporary loss of working hours, whereas redundancies for operational reasons require a long-term loss of employment opportunities.

After a redundancy for operational reasons during short-time work, several questions arise immediately. Does the employment relationship continue to be subject to the regulations on short-time work or does the employee receive his full wage entitlement “back” by the end of the notice period?

At least, the employee loses his or her entitlement to short-time allowance (KUG) when notice of termination is given in accordance with section 98, Subsection 1, No. 2, of the German Social Code (SGB) III, since this can no longer fulfil its job-securing purpose. This brings the question of a wage claim against the employer into focus.

There are hardly any reliable sources on this question in both literature and case law. This makes it clear in what kind of exceptional situation affected companies find themselves in as a result of the COVID19 pandemic. However, it is precisely this regulatory vacuum that also offers opportunities and enables an argumentative discussion of the question. The following principles should be considered.

I. Regulations in company agreement or collective bargaining agreement

First of all, the employer should look for clauses on dismissal during short-time work in relevant collective bargaining and company agreements. It is not uncommon to find therein explicit rules on wage entitlement following dismissals during short-time work. In most cases, these are designed in an employee-friendly manner and grant full wage entitlement until the end of the notice period. In others, the introduction of short-time work under labour law is linked to the payment of KUG, which also leads to a full revival of wage entitlement once short-time work ceases to exist. If there is no corresponding regulation, the general principles governing the obligation to pay wages must be applied.

II. Lapse of short-time work

If there are no express agreements, the decisive factor for the obligation to pay remuneration is whether short-time work continues to apply to the employee concerned or whether the short-time work has lapsed with the notice of dismissal and the employee ca demand his full wage again.

  1. Interpretation

The introduction of short-time work can be based on several different legal bases (collective bargaining agreement, company agreement or individual agreement). Even if these legal bases differ in their legal character and mode of operation, they are all accessible to interpretation. For this reason, the consequences of the dismissal for the short-time work agreement must first be determined by way of interpretation, considering the specific design of the legal basis.

The Higher Labour Court (LAG) of Hamburg has based its interpretation of a company agreement on the concept of “short-time work”. The term has been considered to indicate that the parties involved wanted to reach a regulation which would tie in with the social law regulations on short-time work and would at least not conflict with these regulations. The purpose of the agreement on short-time work is to avoid dismissals for the period of validity of the short-time work regulation. With reference to the fact that a KUG entitlement only exists in an employment relationship which has not been terminated, it has been held – with a slightly modified case constellation – that a short-time work agreement was not applicable to employees who had already been dismissed, since it was not possible that those for whom the purpose of short-time work could still be achieved would receive financial compensation, while those who had already been dismissed would have to bear the loss of wages themselves (LAG Hamburg, 10 May 2007 – 8 Sa 69/06, BeckRS 2009, 57472, under 3 b) cc)).

Ultimately, the introduction of short-time work will always provide a contextual link to the KUG under social security law. However, this alone will not lead to the conclusion that all agreements and contracts provide for the ending of short-time work as soon as a notice of dismissal is given. The interest in financial compensation, which the judgment of the Higher Labour Court of Hamburg seeks to do justice to, can also be met without the short-time work agreement being cancelled.

Rather, the principle is that the failure to grant KUG – per se – does not affect the labour-law dimension of short-time work (German Federal Labour Court (BAG), 11 July 1990 – 5 AZR 557/89, NZA 1991, 67). Therefore, it can be argued in an employer-friendly manner that, without specific references in the legal basis, a condition of short-time work cannot be concluded by granting short-time work compensation.

  1.  Interference with the basis of the transaction

The loss of the basis of the transaction with regard to the agreement on short-time work pursuant to section 313 German Civil Code (BGB) could also be discussed. When agreeing on short-time work, did not both parties assume that the Federal Employment Agency would pay the KUG? This question can also only be discussed on the basis of general considerations, as it has not yet been decided at the highest court level.

The interference with the basis of the transaction requires a contract. Short-time work agreed upon in an individual contract can easily be understood as such. However, it is already disputed whether and to what extent section 313 BGB is applicable to collective bargaining agreements by analogy. Even those who affirm a fundamental applicability call for restraint in the application of this legal instrument. Those affected by a collective bargaining agreement, i.e. employers and employees, are to be considered particularly worthy of protection in their trust in it.

An invocation of section 313 BGB by the employee appears questionable from another point of view as well: If the employee retains the wage claim in the amount of the KUG, his economic situation does not change. Therefore, there is certainly no significant change in the underlying circumstances.

For the employer, the possibility of invoking section 313 BGB is also not available, since it is precisely the legislator’s intention that the employer shall bear the economic risk. This risk is only mitigated by the granting of KUG and is not completely removed. Moreover, the adjustment or cancellation of the agreement on short-time work would also make little sense because companies still have no interest in the employee’s work performance.

III. General payment claim

If the interpretation shows that short-time work is to continue despite the abolition of the KUG, the question arises as to whether and how much salary the employer must pay for the remaining duration of the employment relationship.

During the period of notice, the employee is entitled to a reduced wage entitlement in accordance with section 611a para. 2 BGB to the extent of the short-time work introduced in the event of only partial short-time work. Of course, this does not apply in case of no short-time work at all.

In addition, at most one further wage entitlement pursuant to sections 611a, 615 sentence 3 BGB in the amount of the KUG may exist, but not in the amount of the total wage.

The prerequisite for such a claim is that the employer bears the risk of loss of working hours. In principle, the employer bears the operational and economic risk. If the employee is willing to work and offers it pursuant to sections 295 BGB ff., the employer must continue to pay wages even if there is actually no need for the work to be performed, sections 611a, 615 p. 1 BGB.

This risk is taken away from him – at least temporarily – by the possibility of agreeing short-time work and the payment of KUG by the Federal Employment Agency. §§ Sections 611a, 615 sentence 1 BGB are excluded as a basis for the employee’s claim in the event of effectively agreed short-time work, because they presuppose that the employer is in default of acceptance. However, in the case of legally and effectively ordered short-time work, the employee’s obligation to work is wholly or partially waived.

According to the ruling of the BAG as already cited above (BAG, 11 July 1990 – 5 AZR 557/89, NZA 1991, 67, under I. 2.), the economic risk of the employee is revived by the loss of state assistance. Although the ruling refers to the withdrawal of the decision on the approval of KUG, conclusions can be drawn from this for the case under discussion here. However, the wage entitlement can only be up to the amount of the reduced wage entitlement plus KUG remaining in the case of only partial short-time work since the employer only bears the economic risk at this level. The employee cannot be in a better position due to the elimination of the KUG. Under the agreement on short-time work, he is still no longer or only partially obliged to perform his work until the end of the notice period. He cannot claim full wages for this.

IV. Opportunity for proactive regulation

It goes without saying that the parties to the employment contract are free to reach an amicable agreement on the further obligation to work and the corresponding wage entitlement in the course of the termination. In the interest of both parties, such an arrangement creates legal clarity and makes the cost risk of termination calculable for the employer. Of course, the employer will be dependent on the employee’s cooperation. It is therefore advisable to meet the employee with admissions and ideally to regulate the entire termination of the contract with a comprehensive settlement agreement.

Even before there are redundancies in the company, a retroactive regulation on dismissal is possible and is recommended in view of the risks outlined above. The negotiating skills of the employer will be crucial in this respect.

V. Conclusion

If the employer dismisses the employee during on-going short-time work, the employee’s entitlement to KUG will elapse. It is to be expected that an employee will subsequently turn to the employer and demand his full wages, possibly with the view that “the short-time work is now no longer applicable”. If there are no collectively agreed provisions on the wage claim until the end of the notice period, the employee’s request can be rejected at least in part and the wage claim can be limited to the amount of the KUG for the duration of the notice period. In the case of only partial short-time work, the amount to be paid is of course increased by the reduced wage entitlement to be paid up to that point.

Your contact person:
Tobias Neufeld, LL.M., Partner
+49 172 6865 911
E tobias.neufeld@arqis.com

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