Next month the German legislature will introduce certain amendments to the Senior Part-Time Employment Act. Of particular importance for many employers is that they may be required to provide financial security against bankruptcy for the benefit of their senior part-time employees.

Senior part-time employment was introduced in 1996. It was an effort on the legislature’s part to reduce Germany’s high unemployment rate by making part-time employment for senior-level employees financially attractive (for both the employee and employer). Briefly, if the employer and the senior employee agree on a part-time status for the employee, the local employment agency will assume some of the financial burden to make this financially attractive to the employee so long as the employer hires either an unemployed person or an apprentice. Though this program did not initially meet with as much fanfare as hoped, it does seem to have caught on (newly released statistics show that of the approximately 580,000 retirees per year, over 12 percent were senior part-time employees just prior to retiring).

There are two types of senior part-time employment programs available: the "continuous" model (the employee works part time for the duration of the senior part-time relationship — often six years) and the "block" model (the employee works full time for the first three years and then is released from his work obligations entirely for the final three years). Regardless of which alternative is chosen, the employee will earn at least 50 percent of his salary—plus a step up (see below)—for the duration of the senior part-time arrangement. As a result of the nature of the program, the employee will build up a credit against the employer if the parties choose the "block" model since the employee will initially be working full time, but earning less than his fulltime salary. As a result, only the "block" model is subject to the security requirement. The security against bankruptcy must be in place for the duration of the senior part-time relationship.

The wording of the statute is somewhat amorphous as it requires only that the employer must provide security against bankruptcy "in a suitable manner". Fortunately for employers, it includes specific examples of what type of financial security will not satisfy this requirement, i.e., accruals, a promise to assume an obligation, guarantees and assumptions of debt declarations. However, bank guarantees, pledges, various insurance alternatives or a mutual trust would be acceptable.

The above-mentioned step-up will initially be paid by the employer and then be subject to reimbursement by the local employment agency if the employer satisfies the statutory requirements — most notably, hires either an unemployed person or an apprentice. An employer is required to provide the financial security against bankruptcy once the employee’s credit claim can be three times the "ordinary income". This will almost always be the case so that employers will almost always be required to provide the financial security if the parties decide on the "block" senior part-time employment arrangement. "Ordinary income" means that part of the income that is subject to social security obligations plus the employer’s social security obligations on behalf of the employee. (In Germany, the employer and employee typically split the security obligations equally bet ween themselves.) However, the step-up that is to be subsequently reimbursed by the local employment agency is not subject to the bankruptcy protection requirement. Similarly, the employer may not use the paid-in step-up (with respect to his salary and his pension contribution) to reduce the amount subject to the bankruptcy protection.

The employer is required to evidence to the employee that it has the security obligations in place as of the time that an employee has built up a "credit" against the employer and every six months thereafter. Though the amended statute does not call for sanctions if the employer fails to satisfy its obligations, the employee does have a legal right to force the employer to provide the requisite security.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.