I. Background

As a result of the corona crisis, many companies are forced to significantly reduce their work capacity due to the existing risk of infection, official or legal orders or disruptions in the supply chain and on the sales side.
In order to make the economic consequences of the reduced work performance more bearable for all sides, short-time work promoted by the Federal Employment Agency is particularly suitable for this purpose. The working time of the persons concerned is reduced considerably or even to “zero“, the company does not have to pay any remuneration for the saved working time and the employees receive compensation from the Employment Agency amounting to 60% or 67% (if there is at least one dependent child) of the lost net salary.
However, a legal basis is always required for the employer to introduce short-time work. Where collective agreements or works agreements are applied, this may be of a collective-law nature or consist of individual contractual agreements between the employer and the employees concerned. Although the unilateral introduction by means of the instrument of change of notice is conceivable, it will generally not be a viable option in practice due to the required reason for termination and the notice periods to be observed.

II. Clause on short-time work in employment contracts

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If a company wishes to use the instrument of short-time work, it will consequently regularly have to conclude appropriate agreements with the employees concerned. Since the consequences of short-time work are detrimental to employees despite the incentives, there is a considerable risk that in the event of a crisis a not inconsiderable proportion will refuse to introduce short-time work. However, it is possible to include a clause when the employment contract is concluded which allows the company to unilaterally order short-time work if necessary. Experience has shown that such clauses are rarely problematic for the employees concerned at the time of recruitment.
The possibility to promote short-time work has existed in Germany for many years. However, the actual usage during normal times is rather low. For example, in the years 2011 to 2019, short-time work was used for a maximum of approximately 100,000 to 200,000 employees. By contrast, a total of around 7.3 million people in Germany were on short-time work in May 2020. Against the background of the manageable extent of short-time work in normal times, the conclusion of general short-time work regulations in sample employment contracts has so far been the exception. However, in view of the exploding numbers in the COVID-19 pandemic, it is obvious that such regulations are recommended for all companies in employment contracts to be concluded in the future.

III. Holiday entitlement during short-time work

Entitlement to compensation for short-time work is excluded if the employees concerned are granted paid leave. This results from the statutory provisions for such compensation. However, there are no explicit statutory rules on the extent to which employees acquire holiday entitlements during the period of short-time work. It is argued that the holiday entitlement should arise in proportion to the amount of work actually performed, because the employee has free time during the reduced working hours, for which he could not expect to acquire holiday entitlements. The exact calculation of the leave entitlement could be carried out in the same way as in the case of changing part-time work. As far as is apparent, however, there is as yet no case law on this issue, so that considerable uncertainties remain.
In 2012, the European Court of Justice ruled in the case of a German employee that a provision in a collective agreement according to which the entitlement of an employee to paid annual leave on short-time work is reduced in proportion to the reduction in working hours during the period of short-time work is compatible with EU law. It must therefore be assumed that a corresponding provision in employment contracts will also be regarded as effective. Against this background, it is recommended to include such a provision in future employment contracts. This can reliably prevent unnecessary disputes on this issue in the future.

IV. Recommendation

When drafting future employment contracts, clauses should be included which allow the company to unilaterally order short-time work and provide for a pro rata reduction in holiday entitlements during the period of short-time work in line with the reduction in working hours. We are happy to assist you in the formulation of these clauses.