On 22 June 2022 the German Federal Cabinet has – once again – extended the special rules and regulations for short-time work benefits (Kurzarbeit") by three further months until 30 September 2022.

Russia's invasion into Ukraine and the global disruptions in supply chains following from Putin's aggression intensified the pressure on practically all production lines. So, while the pure Corona related simplified regulations regarding short-time work benefits will expire on 30 June 2022 – as planned – short-time work benefits will continue to be available for companies if 10 percent of the staff of a company are affected by loss of work.

Looking back

German State Aid Kurzarbeit and the Corona-related simplified access to it should have expired by the end of March 2022. Germany's Secretary of Labour and Social Affairs, Mr. Hubertus Heil (SPD), however, extended the Covid-19 privileged rules and regulations until 30 June 2022.

It is undisputed that Kurzarbeit protected Germany against massive insolvencies over the last two Corona years. No doubt, the last extension of easy access to it, has further protected thousands of jobs, in the severely harmed industries like hotel, event and trade fair, travel as well as the retail industry. And the most recent extension will continue to protect the German economy significantly affected by the Ukraine conflict and supply chain disruptions.

Kurzarbeit was instrumental in saving hundred thousand from losing their jobs. Without it, employers would have been forced to terminate their workforces substantially. Not few experts, however, are now foreseeing dramatic and substantive lay-offs, possibly even a flood of repayment requests by the Federal State Agency against those companies who have failed to stop Kurzarbeit subsidies and to start restructuring their businesses.

What is Kurzarbeit – watch out for the risks

State Aid Kurzarbeit in its original form was designed to provide companies with a time to breathe".

For a limited period, as an interim state subsidy, Kurzarbeit should bridge a difficult time. In other words, it was necessary to show and prove to the Federal State Agency (Bundesagentur für Arbeit) that a relatively short period of economic hardship was going to be overcome! State Aid Kurzarbeit was not designed to delay and extend unavoidable scenarios of partial or complete shutdowns. It was not a tool to delay necessary restructuring measures of German companies via staff lay-offs. Not to speak of strict obligations to file for insolvency under tight mandatory deadlines.

The extended period under simplified access to Kurzarbeit must now be used by German companies to evaluate their business plans. It is key now to start preparing restructuring plans, including staff reductions to avoid being forced into tight insolvency rules once these simplified state aid rules will come to an end. Having collected state aid from the Federal State Agency over many months will not make this task easier – to the contrary.

When filing now for mass dismissals, companies will face increased and stricter requirements of prove and complex argumentation will be necessary to comply with. Forecasts which were provided to the State Agency when applying for Kurzarbeit must now carefully be reviewed and – possibly – revised. Many operations will be stretched under the substantive workload of preparing balances of interest and social plans while – at the same time – having the majority of their Kurzarbeit grants being reviewed.

Employers be aware

Be aware that Germany's strict co-determination laws will make things worse if your operations have elected works councils and/or are under the political influence of unions (Gewerkschaften).

Any restructuring measures require extensive preparation by management together with their external service providers, accountants, lawyers, or other experts. Detailed "Story Books" need to be prepared prior to entering into mandatory negotiations with the Works Council. Over the last decade, compliance issues have increased which demand well prepared communication – internally and externally. The recent 2022 Works Council Elections in Germany – regular elections only occur every four years - were serious events and thus Employers are well advised to be also prepared in this regard.

Watch out for our next episode "German State Aid - Restructuring Options following end of Kurzarbeitergeld" upcoming shortly.

See the authors' webinar "German State Aid – will mass Insolvency be next?":


Also note the authors' publications on German labor and employment law:

Labor Law Magazine, Step-by-step", page 16 ff. Labor Law Magazine (deutscheranwaltspiegel.de)

[Mondaq Link: https://www.mondaq.com/germany/insolvencybankruptcy/1206310/restructuring-business-operations-you-better-have-your-storybook39-well-prepared]

Labor Law Magazine, Take action now. Sustainability and Human Resources", page 7 ff. Labor Law Magazine (deutscheranwaltspiegel.de)

[Mondaq Link: https://www.mondaq.com/germany/diversity-equity-inclusion/1206750/take-action-now-sustainability-and-human-resources]

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.