What do you do with staff when the energy and raw materials required for production are lacking?

As a result of the war in Ukraine, prices for raw materials and energy have risen immensely and are currently causing problems not just for internationally oriented German industry. On the contrary, it is affecting companies in all sectors and of all sizes. As a result, according to a study by the DIHK, around 88% of German companies are currently struggling with higher purchase prices for their products and services. Similarly, a significant deterioration in the gas supply seems increasingly likely, at the latest once the early warning stage of the gas emergency plan has been declared, which means that a "triage" in gas supply stoppages with preference given to certain industries also seems increasingly realistic. 

More and more companies are therefore confronted with the question of whether they can respond to the production disruptions by introducing short-time work or by business closures or relocations in the short term.

Is short-time work a solution?

The corona pandemic led to the facilitated receipt of short-time work benefit. For example, the number of employees who had to be affected by the loss of work was reduced from a minimum of one-third to a minimum of 10 percent, and the build-up of negative working hour balances prior to claiming short-time work benefits was waived completely. It was only back in February 2022, i.e. still before Russia attacked Ukraine, that the ‘traffic light’ coalition launched a further extension of the corona special rules on short-time work, albeit only for a period limited until 30 June 2022. In this context, the period of entitlement to short-time work benefit was extended to up to 28 months. In addition to this, the following pandemic-related special rules continue to apply until then:

• the continued exemption of mini-jobs from being counted towards the short-time work benefit,
• the increased staggered benefit rates for longer periods of short-time work (up to 87% of net wages) and
• easier access to short-time work.

However, after 31 March 2022, employers will continue to be reimbursed for half of the social security contributions only if the short-time work is combined with a qualification. This makes the short-time work more expensive for companies. In addition, as some of the companies affected by supply bottlenecks have already been on short-time work since the beginning of the pandemic due to corona, there is a risk that the maximum period of entitlement to short-time work benefit will soon be exhausted. This, in turn, will require a break in short-time work of at least three months in order to be able to make a renewed application, for which all requirements for the receipt of benefits (applicable at such time) then have to be met again.

Lack of raw materials as the reason for the loss of work?

Employees are entitled to short-time work benefit if the loss of work is due to economic reasons or an unavoidable event. An economic reason may be a temporary loss of work due to the economic, structural or general economic and labour market situation arising from a shortage of orders, e.g. as a result of a shortage of operating materials and supplies. Insofar as the reason for the shortage of raw materials in production thus lies outside the company’s operational sphere, this is considered a reason for the receipt of short-time work benefit. In case of a shortage of raw materials because no orders were placed for such materials due to excessively high market prices, however, the reason for the shortage of operating materials and supplies lies within the company’s operational sphere and does not meet the eligibility requirements for short-time work benefit. An unavoidable event for the loss of work also includes a loss of work due to official or officially recognised measures. Measures ordered or recognised by authorities include ordered restrictions on water, gas or electricity supplies. In this respect, an energy triage - as apparently now being considered by the German government – can, in particular, represent an unavoidable event for individual sectors of the economy, for which short-time work can be introduced. 

Losses of work due to political decisions by the Federal Republic of Germany / EU against other states ("economic embargo") are also to be regarded as unavoidable events within the meaning of an official measure. However, this would have to be assessed differently in case of losses of work occurring as a result of political sanctions imposed on Germany by other countries. Furthermore, short-time work can only be ordered if the loss of work is only temporary, i.e. if the overall circumstances of the individual case (e.g. type of production, raw material situation, profitability and liquidity of the company) indicate that there is a certain degree of probability that the company will return to full-time work in the foreseeable future.

Please note that the introduction of short-time work in companies with a works council is always subject to its co-determination (Section 87 (1) No. 3 German Shop Constitution Act [Betriebsverfassungsgesetz, BetrVG]) and thus requires the conclusion of a shop agreement. The shop agreement concluded on short-time work is then also one of the preconditions for applying for short-time work benefit. .

How can you react flexibly to fluctuations in raw material supplies during the period of short-time work?

Firstly, the degree of flexibility depends on the legal basis for introducing short-time work.

In companies without a works council, the employer has stipulated the right to order short-time work in the employment contracts. These regularly contain notice periods, which would therefore also have to be observed time-wise in the event of a change in the scope of short-time work.

In companies with a works council, on the other hand, the question arises as to how flexibly a shop agreement can be used to respond to such fluctuations. Recently - as a result of the corona pandemic - there has been an increase in employment court decisions on the question of the validity of shop agreements on short-time work. In principle, according to the case law of the BAG, a shop agreement on short-time work is only valid if it regulates "at least the determination of the start and duration of short-time work, the regulation of the scheduling and distribution of working time and the selection of the employees affected". It has not been clarified beyond doubt whether, on grounds of the principle of legal clarity, the shop agreement itself has to specifically define the scope of the short-time work and name the employees at the company who will be affected by the short-time work. However, there are good arguments in favour of regulating with the responsible works council within the framework of a shop agreement on the introduction of short-time work that the amount of short-time work is determined according to the order situation and that short-time work can extend to zero short-time work. Subsequently, the parties can specify in writing the scope of the short-time work and the group of persons affected in an annex to the shop agreement, e.g. on a monthly basis, and make this public. However, it is only possible to implement this in collaboration with the works council. In practice, an exception is made for the premature complete discontinuation of short-time work, which can usually be declared unilaterally by the employer on the basis of a corresponding provision in the shop agreement. 

Please note, however, that the ordering of overtime (also subject to co-determination pursuant to Section 87 (1) No. 3 BetrVG) during short-time work is fundamentally impermissible, because this would indicate that the loss of work is not unavoidable. In addition, the ordering of overtime would regularly stand in the way of an immediate return to short-time work, as overtime that has built up must first be reduced again before short-time work can be commenced.

Relocation of the business as an alternative to short-time work?

Business relocations are also currently being discussed as an alternative to short-time work. For example, the company could relocate its business or a business unit (e.g., production), either temporarily or permanently, to another country where the company would face fewer or no energy or raw material shortages.

Please note that a relocation that is only temporary would not constitute grounds for a permanent loss of the job, which means that terminations for operational reasons cannot be declared on this basis. This is only different in the case of a permanent relocation of the business abroad. However, one should bear in mind here that a cross-border relocation of a business or business unit can also trigger a transfer of business pursuant to Section 613a German Civil Code [Bürgerliches Gesetzbuch, BGB] (BAG, judgement of 16 May 2002 - 8 AZR 319/01) if, for example, a group affiliate abroad acts as the new owner of the business and continues the business organisation unchanged. If, on the other hand, the business organisation is not maintained upon the relocation of a business or business unit abroad, this constitutes a closure of the business (unit), which precludes a transfer of business.

In the above considerations, the co-determination rights of the works council pursuant to Sections 111, 112 et seqq.  BetrVG must be observed, i.e. in terms of timing, if the requirements of Section 111 BetrVG are met, a compromise of interests first has to be concluded with the works council or a conciliation board procedure carried out and concluded before the relocation measures can actually be started. This takes time, which certainly has to be taken into account when weighing up the measures to be taken.

Should you have any questions, please do not hesitate to contact us!

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