The F.A.Z. is not known for lurid headlines, but this topic was too tempting even for the business editors ("Mercedes announces high profits and almost simultaneously applies for "Kurzarbeit"/short-time work"; FAZ, Wirtschaft, p.15 of 21 Feb. 2023).
Politicians express outrage, but what is the legal situation? Will generous subsidies now be followed by meticulous checks and, in the end, strict penalties?
While, in December 2022, the German government extended easier access to short-time allowances until the end of June 2023 (which was justified by the Ministry of Labor and Social Affairs because supply chains continue to be disrupted), the reviews of the approval notices by the German Federal Employment Agency are still underway. According to new estimates by the Munich-based Ifo Institute, the number of people on short-time working will remain at a (relatively) low level - currently probably below one percent of the workforce. But the issue is anything but "off the table" for many companies.
Final audits by the employment agencies
Within seven months of receiving the subsidies, the Federal Employment Agency regularly conducts final audits/ "Abschlussprüfungen" of the approved benefits. If it deems that false information was given or errors were made in the accelerated procedure, companies may face criminal consequences in addition to the collection of overpayments, full reclaims, or possible claims for damages.
This should not really surprise anyone, since the agency already makes it clear in the state aid application form that it will file criminal charges with the public prosecutor's office if incorrect information has led to the granting of benefits. Fraud and, in particular, subsidy fraud would then be criminal offenses subject to investigation. Did the statement of false facts or the misrepresentation of circumstances lead to the payment of subsidies to which there would have been no claim had the true circumstances been considered?
Don't get me wrong, companies like Mercedes-Benz are unlikely to face accusations of applying for grant money illegally. The compliance teams in companies of this size will keep a watchful eye to ensure that they always act within the framework of applicable laws; the risk of image-damaging press alone is too high.
A brief review
Simplified, the state aid procedures were as follows: short-time allowances/ "KUG" were often paid quickly and without bureaucracy if a company had suffered a significant loss of work due to the pandemic, along with a corresponding loss of remuneration benefits. In this case, the employer would have given advance notice of the expected loss of work and at the same time assured the agency that pandemic-related economic reasons had caused the loss of work. After a summary examination, a decision of recognition/ "Anerkennungsbescheid" was issued, the company could file the KUG application and receive a provisional benefit decision from the Agency. On this basis, the employer paid short-time allowances to its employees and was subsequently reimbursed by the employment agency.
Since short-time work is from the outset a temporary bridging measure, the companies were always subject to a timely and careful review of the facts and circumstances. If changes became apparent to the employer, e.g., the loss of work was no longer pandemic-related or actual working hours no longer corresponded to the scope of the requested short-time allowance, the company was obliged to notify the Employment Agency of the changed situation without delay. Whether this has always been the case in the past two years of the pandemic remains to be seen. What will companies have to face now and how should employers behave in the context of upcoming final audits by the employment agencies?
What companies should do
If it can be assumed that pandemic-related short-time work has been terminated or will be terminated in the near future, the Federal Employment Agency and the state authorities responsible for paying out the subsidies will be initiating careful and critical reviews of all applications for subsidies.
In the specific context of the granting of KUG, it is part of the normal procedure for all short-time work, pandemic-related or not, that the Federal Employment Agency conducts final audits at the company after the short-time work has ended. Written notification of the date of the final audit is therefore not necessarily associated with a suspicion of irregularities.
How companies prepare for the audit of their financial statements
Companies themselves have a considerable interest in achieving legal certainty regarding the proper duration and amount of KUG payments made and to be in a position to actively cooperate in the audits. The German Federal Employment Agency produced a "Checklist on documents for the KUG final audit" for this purpose (https://www.arbeitsagentur.de/vor-ort/rd-bw/download/1533758681784.pdf). What should you be prepared for? For each calendar month in which KUG and social security contributions were reimbursed, it is advisable to have:
- pay stubs,
- payroll accounts,
- individual employment contracts of KUG recipients,
- any relevant collective bargaining agreements,
- existing company agreements and
- related letters of termination.
In addition, questions will also certainly be asked about statements of residual leave accounts and the development of order books to verify lost work.
What are possible remedies
After the audits are completed, the Agency will issue a benefit decision. This can lead to anything from certification of adequate payments to the recovery of wrongly made KUG payments, fines, or even criminal charges in the case of grossly negligent or intentionally false statements. Companies have the right to take legal action against a decision of the Agency. In the event of a lawsuit, the Employment Agency will generally have the burden of proof, but as already mentioned, companies are obligated to cooperate and provide information. Companies should not underestimate the time and costs involved. Timely preparation for the expected final audits is imperative.
Back to Mercedes-Benz: Mercedes-Benz will survive the media outrage - errors in KUG applications are not to be expected in Sindelfingen. Final audits will remain silent here and, above all, without consequences. The outraged politicians in Berlin are advised to gain a better understanding of the legal and regulatory situation before they pompously moralize in lurid German newspaper "Bild".
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.