A. In times of crisis: Transfer of employees as an alternative to short-time work?

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Last weekend (21/22 March 2020), media advertised a grand case: An international fast food chain is referring its employees to a retailer’s stores during the times of the Coronavirus crisis. How is that possible under aspects of (labour) law? And can such an unusual measure avoid short-time work on the one hand and cover personnel requirements on the other hand?

The opposites of personnel requirements could currently not be farther away. While companies have to cease operating nationwide, the remaining employees in the few still working industries can hardly meet the accrued workload. Supermarket shelves remain empty, chains of infection cannot be traced fast enough, the supply of systematically relevant goods is delayed. So why not “simply and unbureaucratically” deploy employees who are in short-time work and/or threatened by dismissal in other areas. A win-win-win situation for the involved employers, employees and social insurance funds?

While that solution impresses as an expression of solidarity and “neighbourhood assistance” at first glance, it causes some questions regarding labour law at second glance. If one company “lends” employees to another even temporarily, it is principally considered temporary employment within the meaning of the German Temporary Employment Act (Arbeitnehmerüberlassungsgsetz – AÜG), including all rights and duties stipulated therein. The following shows that the German Temporary Employment Act opens up real perspectives – at least if policymakers and legislators allow for a generous interpretation of the Act’s already existing special provisions.

B. Employee lease to avoid short-time work or dismissals (Sec. 1 Para. 3 No. 1 AÜG)

Sec. 1 Para. 3 No. 1 AÜG is the first obvious provision, as it explicitly excludes the transfer of employees in order to prevent short-time work or dismissals from the Act’s extensive restrictions. Therein, the transfer of employees to preserve jobs is only allowed under the following, cumulative conditions:

  • Transfer of employees between employers of the same industry,
  • for the prevention of short-time work or dismissals,
  • if it is provided for in a collective agreement applicable to the lessee and lessor.

I. Employers of the same industry

What does the same industry actually mean? The literature suggests that the distinction of an industry should be defined according to the system of industry associations of organised trade unions and employer’s associations (Schüren/Hamann/Hamann, 5th edition 2018, AÜG Sec. 1 Rec. 466, 567). Section 280 German Social Code – Book III and the Federal Statistical Office’s classification of industries offer further definitions (German Federal Labour Court, ruling of 18 March 2012 − 5 AZR 630/10, Neue Zeitschrift für Arbeitsrecht 2012, 978).

These sources argue to some extent that the term “industry” should not be interpreted broadly as such an interpretation would not satisfy the character of a special provision (see Schüren/Hamann/Hamann, 5th edition 2018, AÜG Sec. 1 No. 567). However, in the current situation that argument can be decisively answered with the following: The impact on the whole society of the Coronavirus pandemic is of such an exceptional nature itself, which was not and could not be foreseen to this extent by the legislator. In addition, many companies cannot be assigned clearly to one industry. The solution to define the assignment to one industry according to the “majority” of employees is not completely convincing. As a result, the term industry should be interpreted broadly in this situation. Maybe policymakers will even temporarily back away from this condition as a whole?

II. Prevention of short-time work or dismissals

If two employers of the same industry are involved, then the transfer of employees must have the goal to preserve jobs, meaning it must be for the prevention of short-time work or dismissals.

Firstly, the material conditions for obtaining short-time work allowance pursuant to Sec. 95 German Social Code – Book III or for operational redundancies must be factually present. The conditions for obtaining short-time work allowance are already being discussed on many occasions these days (see for example  « a short explanation of short-time work allowance »). The condition for redundancies is described as an economically motivated personnel reduction on the employer’s initiative. The Temporary Employment Act does not offer its own definition. For reasons of the legal system’s unity, the thresholds defined in Sec. 17 Protection against Dismissal Act (Kündigungsschutzgesetz – KSchG) and Sec. 112a Works Constitution Act (Betriebsverfassungsgesetz – BetrVG) are often referred to. Yet the legal implementation of dismissals is irrelevant here (operational redundancies, cancellation agreement, termination by employee). It does not matter either whether a possible works council agreed to the introduction of short-time work (Sec. 87 Para. 1 BetrVG) or whether the parties could agree on a social plan in cases of operational changes due to personnel reductions (Sec. 112a BetrVG), as the transfer of employees explicitly intends to prevent those measures subject to co-determination.

Secondly, the transfer of employees must also be objectively suitable to prevent short-time work or dismissals and may not only delay them. The paramount factor is therefore that there is only a temporary overstaffing, and the jobs will not be lost permanently. Sale difficulties due to economic downturns and production obstacles due to a shortage of raw materials or components are usual examples of that. Yet the current situation forcing countless companies to close down operations is also temporary, and hopefully the vast majority will commence operations again after the crisis.

III. Collective agreement of lessee and lessor

Finally, the Act requires both the lending and the borrowing company to have collective agreements which allow for the transfer of employees pursuant to Sec. 1 Para. 3 No. 1 AÜG. While the literature on labour law argues in some cases that the same collective agreement must be applicable to both parties, the Federal Employment Agency highlights in its instructions on the Temporary Employment Act that the same collective agreement does not need to apply to the lending and borrowing company. They must merely both allow for the transfer of employees in order to preserve jobs pursuant to Sec. 1 Para. 3 No. 1 AÜG. That is also expedient, otherwise there would hardly be a practicable area of application left.

The legislator intended the condition of a required collective agreement to secure the employee’s social protection and the labour market’s order, as well as prohibit a circumvention of the Temporary Employment Act’s protective regulations (BT.-Drs. 10/3206, p. 33). It is questionable on principle alone whether the Act’s purpose is fulfilled by the condition for a mutual collective agreement allowing for the transfer of employees. The regulation’s practical importance remains minimal for lack of collective agreements, but the condition should simply be expendable in the particular current situation. The legislator had situations in mind where companies temporarily have to deal with sale or production difficulties, and not an economic crisis triggered by a global pandemic. On grounds of social protection and securing the functionality of the labour market, the condition for a collective agreement should temporarily be suspended. Instead, the condition for the permissibility of the transfer of employees should be defined in another way for the period of the Coronavirus crisis. That way, employment would be secured, and the reduced cost of short-time work allowance and unemployment benefits would relief social insurance funds at the same time.

IV. Conclusion: A limited alternative only

A conservative and literal interpretation of the wording of Sec. 1 Para. 3 No. 1 AÜG only allows for a minimal area of application for this special case of transferring employees. It would be desirable if the legislator reacted to that issue – similar to the reliefs for short-time work – so creative interim concepts for the stabilisation of the labour market do not fail due to formal legal obstacles.

C. Group privilege vs. short-time work (Sec. 1 Para. 3 No. 2 AÜG)

The lease of employees within one group pursuant to Sec. 1 Para. 3 No. 2 AÜG, which excepts the lease of employees within one group of companies from the applicability of the Temporary Employment Act (the so-called group privilege), is far more common. Once again, the legislator had the social protection of employees in mind, which he generally did not consider compromised by transfers within one group.

  • The first condition is that lessor and lessee are part of the same group within the meaning of Sec. 18 Stock Corporation Act. On the term group, we refer to the detailed relevant literature. It does not matter whether the employee is transferred from parent company to subsidiary, the other way around or among companies of the same group level.
  • The Act requires additionally that the employee was not recruited with the sole purpose of transfer. Thereby, temporary employment companies within one group are not covered by the group privilege but are – as any other professional temporary employment agency – subject to the Temporary Employment Act’s restrictions. Yet mixed types of companies can also recruit employees with the purpose of permanently transferring them to third parties. Therefore, the group privilege principally requires an employee to perform his work for his contractual employer, who will only transfer him to another group company as an exception. Neither the Act’s wording nor its grounds provide clear regulations on the permissible total period or on the proportion of the transfer to the total working time. The keyword here is balancing of interests in individual cases.
  • Contrary to Sec. 1 Para. 3 No. 1 AÜG, the reason for the employee’s transfer does not matter regarding the transfer’s permissibility. It is permittable to transfer an employee in order to prevent short-time work, but it is not a requirement.

Consequently, group privilege offers a lawful possibility to react swiftly to shifted personnel demands within the group’s structure.

D. Occasional assignment (Sec. 1 Para. 3 No. 2a AÜG)

Employers could use a third tool to temporarily assign employees to another company during times of crisis – at least provisionally: the occasional lease pursuant to Sec. 1 Para. 3 No. 2a AÜG. This permission is technically an exception, which the legislator included in the Temporary Employment Act to balance the expansion of permissions dictated by European law. It was originally intended for small crafts businesses and non-profit organisations (BT-Drs. 17/4804, 9) and its application is accordingly restrictive.

It allows for an assignment to another company if it is a) occasional and b) the employee was not recruited for the purpose of assignment.

Employers may raise the questions, when and to what extend an assignment is considered occasional. According to the Act’s grounds, strict requirements must be met to fulfil the “occasional” criterion (Schüren/Hamann/Hamann, 5th edition 2018, AÜG Sec. 1 Rec. 676). While that can be expected of an exception, it does not help those applying the Act, as both “strict requirements” and the term “occasional” leave room for interpretation.

Literature recommends that the requirements for occasional assignment are met if the reason for the assignment is unpredictable and occurs at short notice (see Ulber/J. Ulber Sec. 1 Rec. 501; Schüren/Hamann/Hamann, 5th edition 2018, AÜG Sec. 1 Rec. 677a). The loss of workings hours should be included in this exception, considering in particular the German Federal Government’s daily behavioural orders. There is no strict temporal limit for an occasional assignment. Literature names three months as a guideline, the Temporary Employment Act’s original time limit for an assignment.

It seems feeble to adhere to such a time limit. Firstly, the legislator explicitly refrained from regulating such a limit. Secondly, that approach dismisses the true potential of the exception: The interpretation of its vague legal concept.

That is exactly the approach on which an employee’s assignment to another company due to the crisis can be based. The term “occasional” is a vague legal concept. Therefore, its interpretation must be aligned to the values enshrined in German Basic Law. That means the principle of a social state pursuant to Sec. 20 Para. 1, Sec. 28 Para. 1 Sen. 1 Basic Law (Grundgesetz – GG) should primarily be taken into account, which stipulates the protection of those insured from needless insurances cases. Here, a temporary assignment of employees to another company could contribute by reducing the payment of short-time work allowance.

In addition, the assignment of employees to crucial, systematically relevant industries guarantees general public services, ultimately adhering to the state’s protection mandate pursuant to Sec. 2 Para. 2 GG. The exception also considers the legal positions of employees, who agree to the assignment (Sec. 12, Sec. 2 Para. 1 GG), as well as the rights of business owners (Sec. 14 GG), who harmonize economic risks (lessor) and operational requirements (lessee).

Based on the pandemic’s impact on the whole society and the consequences for the national economy, as well as the infrastructural provision of society, the regulation’s interpretation must be that the exception applies for the time of the pandemic. That does not mean that it loses its characteristic as an exception. After all, it is unlikely that a pandemic of this scope repeats itself during the next years.

E. Battered by the crisis: Relevant industries and outlook

All three special cases described here on the transfer of employees have in common that the Temporary Employment Act largely – apart from the construction industry’s restrictions – does not apply to them. That means that they do not require an official permission to assign employees to another company in particular and do not have to uphold the principle of equality in general. As described above, at least Sec. 1 Para. 3 No. 2a AÜG offers companies without collective agreements or group privilege an alternative choice to short-time work and dismissals by assigning employees to other companies swiftly and unbureaucratically, provided that the employee agrees to the assignment or has already agreed to temporary employment in an individual contract before. Besides that, policymakers and legislators are still tasked to react to this unusual situation with effective measures.

At the same time, employers now need to act in creative and cooperative ways to create synergies like those mentioned in the example at the beginning. Employees of a fast food chains are not the only ones who can help in supermarkets. Teachers in public service have also already been asked to support the health offices. Can retail employees temporarily take on tasks in e‑commerce? Does the increased demand for online classes offer new perspectives to employees in IT? There seems to be no limit to entrepreneurial ingenuity.

 

Your contact person:
Dr. Andrea Panzer-Heemeier, Managing Partnerin
M +49 173 7291 414
E andrea.panzer-heemeier@arqis.com

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