“Kurzarbeit”– Opportunities and risks for employers and employees

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Short-time work is “our strong bridge to cross the deep economic valley” according to Hubertus Heil, German Federal Minister of Labor. In Germany, the number of applications for Kurzarbeitergeld (short-time allowances) due to the corona crisis has already far surpassed the number of applications during the financial crisis of 2008/2009.

Kurzarbeit in a nutshell
Short-time work means a “temporary reduction of working hours due to loss of work, resulting in a reduction of remuneration accordingly.” It can, therefore, function as a tool to prevent dismissals in a critical situation.
Upon the employer´s application, the Federal Employment Agency (FEA) will partially compensate the monetary loss employees experience with a short-time allowance, currently amounting to 60% of the loss of their net income (67% for employees with children).

To be eligible for short-time allowance, the following requirements (§ 95 SGB III) have to be met:

  • Considerable loss of work with loss of remuneration;
  • Operational requirements;
  • Personal requirements; and
  • The employer has notified the FEA of the loss of work

Generally, the duration of eligibility is limited to a period of 12 months and can be extended by statutory instrument to up to 24 months.

Easier access to Kurzarbeitergeld due to the coronavirus
The German government has issued statutory instruments relaxing the requirements for the short-time allowance, applicable for the period from 1 March to 31 December 2020, as follows:

  • 10% of the workforce has their working hours cut by more than 10% (normal threshold 1/3 of the workforce);
  • No more requirement to build up negative working time balances;
  • Contract workers are also eligible for short-time allowance; and

Social security contributions, which employers normally have to pay for their workforce, will be fully reimbursed by the FEA

Employer´s risks for criminal liability
In mid-March, the German government forecasted around 2.35 million short-time workers for the year 2020 equaling a financial burden for the FEA of at least 10 billion euro.
The possibilities for abuse will most certainly keep prosecution authorities and criminal defense lawyers busy for a long time beyond corona times.
Special audit groups have already been formed with the Federal Employment Agencies across several Federal States in order to detect suspicious applications and to forward them to the Central Customs Office and to the Public Prosecutor´s office.
Therefore, it might be worth taking a look at the following question:

What are the risks for criminal liability for employers?
If the information provided to the FEA by employers when applying for the short-time allowance is inaccurate or incomplete, this could constitute fraud, according to § 263 StGB (German Criminal Code), or – in case the application is rejected – attempted fraud.
The most relevant form of perpetration will probably occur when the statement regarding the reduced working hours on the application does not correspond with the actual hours worked (e.g. the employees continue to work full-time or to exceed the allowed reduced working time).
Employers could also commit subsidy fraud if the short-time allowance is classified as “subsidy” in the sense of § 264 Section 8 StGB, incurring a maximum penalty of imprisonment of up to 5 years.
“On the topic of fraud, there is even an increased risk of committing subsidy fraud, as subsidy fraud does not require an intent at the time of filing the application. According to § 264 Section 5 StGB, a careless (“leichtfertig”) declaration of facts, which turn out to be incorrect, can be sufficient to commit subsidy fraud.
Employees who are aware of the circumstances can easily become liable for accessory to fraud or accessory to subsidy fraud by having provided their consent to the short-time work, which is required for the employer to apply for the short-time allowance in the first place.
Furthermore, the abusive introduction of the short-time work scheme can also lead to the criminal liability of the employer due to withholding and embezzlement of wages (§ 266a StGB).

Impacts on the immigration status of foreign nationals
In order to employ foreign nationals in Germany, employers are under obligation to comply with rules stipulated by German Immigration and Labor Law. In practice this means that employers are obliged to keep an employee’s copy of the identification document and the German work and residence permit WRP on file. The WRP is an official document and proof that a foreign national is permitted to work for a specific employer in a specific position in Germany. Each WRP entails certain requirements. Additionally, it is bound to the initially submitted personal and work-related information regarding the foreign national as well as the employer. Within the WRP Extension, the immigration office and FEA, who mostly cooperate within the immigration process, review whether this information is accurate. Here, the FEA mainly focuses on the question of whether the initially stated salary amount was truthfully paid to the employee. As sufficient proof of payment, the employee’s payslips are requested and used in order to complete the compliance check.

Reduction of salary
As the implementation of short-time work leads to a reduction of the initially approved salary amount by a certain percentage, there is a crucial question: How will the immigration status of foreign nationals in Germany be impacted (regardless of whether an extension is required or not)?
In the circular letter dated 24 March 2020, which aimed to address the situation of the immigration offices across Germany which was caused by COVID-19, the Federal Ministry of the Interior gave explicit instructions regarding the impacts of short-time work in respect of a foreign national’s WRP. Hereby, it is clearly emphasized that short-time work will not negatively affect the validity of the WRP, with the rationale being that a German employment contract is to be seen as a granting prerequisite in obtaining a WRP for which “the employment” constitutes the purpose of stay. This purpose of stay remains unchanged, despite the implementation of short-time work and a reduced salary, as long as the employment contract persists.

Employees need to be very cautious at this point: Contrary to the implementation of short-time work, the termination of an employment, despite the COVID-19 crisis as cause of the same, constitutes the ending of the purpose of stay (if purpose of stay is “employment”). In contrast to a lot of other European countries, there is no protection of dismissal due to COVID-19 in Germany. Under these circumstances, the duration of stay in Germany might be shortened at the discretion of the immigration office, whereas foreign nationals holding a permanent residence permit do not have to fear such consequences. The circular letter further expressly states that even the holders of permit types which are bound to a certain minimum salary threshold, for example EU Blue Card holders, will not have to fear the loss of their privileged immigration status in Germany.
In order to avoid any inconveniences when filing the extension application, we recommend notifying the immigration office about the implementation of short-time work and the receipt of a reduced salary as a consequence of it. Even though it is taken as a matter of course, the implementation of short-time work is required to be proven as equivalent to the COVID-19 crisis in order to be covered under the regulations mentioned in the circular letter.

Short-time allowance
The procurement of public funds generally leads to the expiration of the WRP. Consequently, the receipt of the short-time allowance appears to be another arguable aspect of short-time work. The Residence Act (Aufenthaltsgesetz) clearly differentiates between public funds and benefits based on personal contributions that do not jeopardise the validity of the WRP. As a benefit paid by the unemployment insurance based on payments of the employer and of the employee, the short-time allowance is not considered a public fund benefit and therefore does not put at risk the validity of the WRP. Despite the clarification of a huge amount of uncertainty on the extraordinary circumstances caused by the COVID-19 crisis, the circular letter does not provide a clear answer on impacts of purchasing other public funds and repercussions on the current residence status of foreign nationals whose sustainment of livelihood might be endangered. Therefore, we highly recommend scrutinizing the possible negative impacts of receiving other public funds prior to applying for the same.
The COVID-19 crisis and the lockdown of the majority of the immigration authorities has decelerated the immigration of skilled foreign nationals to Germany and thwarted the efforts of the German government to address the huge lack of skilled workers. Nonetheless, certain foreign nationals travelling from an EU country to Germany will be allowed to cross the German border according to the EU Commission, aiming to grant the continued free movement of all workers in critical occupations, including both frontier workers and posted workers. (See more)
The Commission has also proposed a European instrument (SURE) supporting short-time work schemes and similar measures in the member states.

European comparison of systems of short-time work
Where does Germany stand in comparison to the short-time work schemes of other EU countries?
The possible duration of short-time work (from 3 months to 2 years) as well as the amount of the short-time allowance (from 60% to 100%) vary widely across Europe.
As the below infographic shows, Germany seems to be rather the latecomer in Europe, especially compared to Nordic countries (Denmark, Sweden), but also to the Netherlands or Ireland, where losses are compensated to 100%.
Further differences can be found in relation to employer contributions to the short-time-work allowance or dismissal protection. Many countries (for instance Austria, France, Spain, Netherlands, Denmark) have incorporated a protection against dismissal in their short-time-work system, which is not the case in Germany.
It therefore remains to be seen whether the current German bridge construction will be strong enough to withstand the load.



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