Short-time work vs. dismissal for operational reasons - two labor law instruments that are mutually exclusive?

Short-time work has become a crucial corporate instrument to counter the temporary loss of work due to the Covid 19 pandemic. But what happens if there are signs of a further decline in work that can no longer be countered by short-time work alone? Does short-time work rule out the possibility of dismissals for operational reasons? Does a dismissed employee automatically drop out of the short-time work scheme? And could the employment agency even be entitled to repayment or damage claims?

1. Dismissal for operational reasons during a phase of short-time work

1.1. When an employer introduces short-time work it assumes that the loss of work is only going to be temporary. The loss of work is considered to be temporary if the transition to full-time work can be expected again in the foreseeable future with a certain degree of probability. The declaration of dismissals for operational reasons, on the other hand, re-quires urgent operational reasons leading to a permanent loss of the need to employ persons.

Contrary to how it might seem, however, short-time work and dismissals for operational reasons are fundamentally not mutually exclusive. Even during a phase of short-time work - subject to collectively bargained or shop agreements - dismissals for operational reasons are not excluded. This is secured by the case law of the Federal Labor Court [Bundesarbeitsgericht - BAG] from past economic crises.

1.2. Thus, if an employer determines during a phase of short-time work that, contrary to its previous assessment, (further) operational reasons exist that will lead to a permanent loss of work, it can also pronounce dismissals for operational reasons during the short-time work phase (BAG, judgement dated 26 June 1997 - 2 AZR 494/96). However, since the employer bears a higher burden of representation and proof of the reason for the ter-mination because it had originally forecast just a temporary loss of work, the reasons justi-fying the termination must be different from those given for implementing the short-time work. It therefore will not be sufficient, for example, to merely point out that contact re-strictions due to the pandemic are lasting longer than originally assumed (e.g. 6 weeks in-stead of 4 weeks). The situation is different if, for example, the employer’s main customer or supplier becomes insolvent during the period short-time work due to the pandemic: This can then constitute a valid reason for legitimizing the entrepreneurial decision to declare dismissals for operational reasons.  

1.3. Upon the employee’s receipt of the notice of dismissal, the prerequisites for receiving short-time work compensation are no longer met. From this date, the employment agency no longer pays short-time work compensation for the employee. Nevertheless, unless the short-time work is terminated, the dismissed employee continues working the reduced working hours. Employers therefore have to address the follow-up question of how dismissed employees are to be treated during the continued phase of short-time work until the date on which their employment relationship ends and, in particular, how much remuneration is to be paid to the dismissed employees.

1.4. Similarly, the termination of the employment relationship for operational reasons during short-time work may cause the employment agency to conclude that the application for short-time work compensation was made unjustly. This can lead to an obligation on the part of the employer to pay damages regarding the short-time work compensation granted pursuant to § 108 (3) sentence 1 German Social Code Book III [Sozialgesetzbuch III - SGB III] in conjunction with § 45 (2) sentence 3 SGB X. The employment agency’s damage claim against the employer also and especially includes cases in which the ap-proval of short-time work compensation was retrospectively unlawful. Employers who de-cide to close down their business and dismiss all employees for operational reasons dur-ing a period in which short-time work compensation is being paid should inform the em-ployment agency of this without undue delay in order to avoid liability for damages.

1.5. In the case of operational changes during short-time work, dismissals for operational rea-sons pending a change of contract also play a more than insignificant role. Due to their na-ture as a termination of the employment relationship with an offer to continue the employ-ment relationship under changed conditions, some are of the opinion that the same high requirements apply as to the aforementioned dismissal terminating the employment rela-tionship; this is not the case, however. The employer must be in a position to implement reorganizations during a phase of short-time work so that it is also in a position to face the market situation with a new work organization when it restarts operations and thereafter. 

2. Dismissal for operational reasons after the end of a phase of short-time work

After the end of a phase of short-time work, dismissals for operational reasons are gener-ally permissible - unless there are deviating collective or shop agreements. In this case, the declaration of corresponding dismissals is based on the usual principles again.

Conclusion

Even during and after phases of short-time work, companies can carry out restructuring measures and the associated staff reductions. However, in order to meet the increased burden of representation and proof in unfair dismissal proceedings and to exclude risks arising from having previously received short-time work compensation, employers are well advised to plan such dismissals carefully.

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