CORONAVIRUS SARS-COV-2 Options for creating (workforce) flexibility and reducing labour costs

Options for creating (workforce) flexibility and reducing labour costs in a crisis.

An economic downturn was already looming on the horizon. The coronavirus pandemic has placed an additional burden on the economy and is creating immediate pressure for many companies to act.

Your response plans to overcome the impact of this pandemic now need to change from those implemented in the early days of the crisis. One impact of the economic downturn is the continued shortage of skilled workers. Experience shows that a knowledge economy follows every crisis. Organisations that tackle the cri-sis with workforce adjustment measures that support short term plans alone are likely to face a shortage of the people needed to secure their position in the economic upswing, and in the long term.

It is therefore essential to use smart restructuring measures to retain as many qualified specialists as possible and to use staff cuts as a last resort.
We have outlined some of the alternative options to support your businesses and to avoid losing your most skilled people.

1. Workforce Flexibility

• Reduction of working time accounts / overtime The reduction of working time accounts / overtime is often one of the first measures taken during a crisis to counteract overcapacities. Unless otherwise stipulated in the contract, employers can unilaterally order the reduction of working time accounts / overtime.
• Ordering of company holidays Employees are granted a uniform amount of vacation time. The company or parts of it will therefore be temporarily closed. In a company without a works council, the employer can unilaterally order company holidays if there are urgent operational reasons. In a company with a works council, the introduction, timing and duration of company holidays are subject to the mandatory co-determination of the works council.
• Sabbatical leave is the granting of a continuous longer period of leave. This can result either from the combination of several annual recuperation holidays and/or from the compensation of overtime, the compensation of leisure time credits or also from the granting of unpaid "leave". The basis is a corresponding agreement between employer and employee, from which, among other things, the duration of the employee's release period as well as the periods of time off which are subject to remuneration and those which are not.
• Partial retirement arrangements can still be agreed. However, these are no longer subsidized by the state.
• Early retirement agreements are intended to bridge the phase until the standard retirement age is reached by paying a severance payment and then using benefits from unemployment insurance. Unlike partial retirement, the employee no longer performs any work.
• The use of external workforce by way of temporary employment or within the framework of contracts for work and services allows flexibility. Such contracts can usually be terminated at short notice.
• Hiring out own employees is possible if the company has its own employee leasing permit. This means that employees who are not working to their full capacity can be temporarily assigned to customers with corresponding needs.
• Employment and qualification societies are forms of organisation for the further qualification and labour market integration of employees. As a rule, employees who would otherwise become unemployed as a result of a dismissal go there. Through qualification measures and support in the application phase, employees are to find a new employment relationship without interim unemployment. The organisations are subsidised by the state under the conditions of Section 216a SGB III and "co-financed" with the employer's own company funds.
• Outsourcing If necessary, it may be advisable to outsource certain activities or divisions of the company and to outsource the corresponding tasks in the future. In this case, questions of transfer of business arise in particular.

2. Workforce Cost Reduction

• Short-time work is the temporary (usually for a period of up to 12 months) shortening of the normal working hours in order to reduce the economic burden on the company by lowering staff costs. The employee is released from the obligation to perform work, but also loses his or her right to remuneration. The employee's corresponding loss of earnings is compensated by short-time work compensation. The introduction of shorttime work requires a legal basis; this can be a collective agreement, a company agreement or an individual contractual regulation. In companies with a works council, the implementation of short-time work is subject to co-determination. In a company without a works council, it must be implemented in an individual agreement (by mutual agreement or by means of an amended notice of termination).
  The German government intends to counteract the threat of economic crisis in the wake of the coronavirus pandemic with an emergency package. The focus of these considerations is to make it easier to introduce short-time working. For this reason, the German Bundestag passed the "Work of Tomorrow Act" on March 13, 2020 in a rush, which contains the new regulations on short-time work compensation. The new regulations are to come into force as early as 1 April 2020.
• State Aid in connection with the coronavirus. If employees are affected by an officially ordered quarantine, they can apply for compensation for loss of earnings (Section 56 of the Infection Protection Act). This is calculated for the first six weeks after the loss of earnings, and thereafter according to the amount of sickness benefit. In the case of employees, the employer pays compensation on behalf of the responsible authority for the first six weeks. On request, the employer will be reimbursed the payments. The employer may also apply to the responsible authority for an advance in the anticipated amount of the reimbursement. The Federal Ministry of Economics and Energy is in constant contact with industry on the effects of the coronavirus. The effects on the German economy are difficult to estimate on the basis of current knowledge. In order to limit the economic impact, support instruments for companies are initially available under certain conditions, in particular working capital loans from the German state-owned development bank Kreditanstalt für Wiederaufbau (KfW). Ongoing consultations on further support measures are held.
• European Social Fund (ESF) The ESF is the EU's most important instrument for promoting employment and offers, among other things, qualification and supports social integration. Both public and private institutions can be supported by the ESF. However, for the funding period 2014-2020 all deadlines have already expired. No specific programmes have yet been defined for the period starting in 2021.
• Deferral agreement with the social insurance institutions regarding social security contributions The collecting agencies may defer contribution claims if immediate collection is associated with considerable hardship for the employer and the claim is not jeopardised by the deferral. Under certain circumstances, the agreement of the pension and unemployment insurance institutions is also required (Section 76, para. 3, SGB IV).
• Salary renunciation is the final renunciation by the employee of a part of his salary or wages. The salary waiver must be valid under labour law. Possible restrictions can result from the minimum wage law or collective agreement regulations, for example.
• Cancelling voluntary benefits The employer can cancel voluntary benefits to which there is no legal entitlement. As far as benefits are concerned that are subject to a so-called reservation of voluntary benefits, the question usually arises as to the validity of the reservation of voluntary benefits. Here, too, the legal requirements - as with the reservation of revocation - are high.
• Adjustment / reduction of variable remuneration A frequently used instrument in times of crisis is the adjustment of variable remuneration components. In many cases, corresponding adjustment / revocation reservations are included in (employment) contracts which are subject to strict judicial control. Unilateral adjustments can therefore only be implemented to a limited extent in practice.
• Dismissal / termination of company agreements If benefits are granted by company agreement, a dismissal / termination of the company agreement is possible. As a rule, however, such works agreements will continue to have an effect due to the subject matter (subject to co-determination) until they are replaced by another agreement.
• Exit from collective bargaining / reorganization collective agreement In individual cases, an exit from the association may come into consideration as an element of flexibility. However, a collective bargaining obligation remains in force until the collective bargaining agreement ends (cf. Section 3 Para. 3 of the Collective Bargaining Act). In addition, reorganization collective agreements that contain certain savings measures (e.g., suspension of wage increases, reduction/non-granting of social benefits) can also be considered. As a "quid pro quo", the trade union involved will usually demand the exclusion of dismissals for operational reasons for a certain period of time. 
• Outplacement is the counselling for professional reorientation. The service is usually financed by the employer, with the aim of opening up prospects outside the company for one or more employees. Outplacements are often the subject of termination agreements.
• Voluntary programmes create financial incentives for employees to leave the company quickly on a consensual basis in the event of impending staff reductions. Volunteer programmes must comply with the principle of equal treatment, prohibitions of discrimination and the co-determination rights of the works council, among other things. In addition, corresponding agreements with employees pursuant to Section 17, Para. 1, Sent. 2, KSchG, as having been initiated by the employer, may be subject to the obligation to notify mass dismissals. 
• Notice of termination for variation of contract terminates the employment relationship, together with the offer to continue the employment relationship under amended conditions. Notices of termination with a change of employment to reduce pay are subject to high legal hurdles and are only conceivable as a measure if all other cost-cutting measures by the company have been exhausted.
• Staff reductions as the most drastic measure ("ultima ratio") are associated with various legal hurdles; these include a reconciliation of interests and a social compensation plan (if a works council exists), notification of mass dismissals, proper social selection, etc. However, not only in legal terms, but also with regard to time and operational implementation, appropriate measures require careful preparation.

The selection and implementation of appropriate measures depends on individual circumstances. This overview therefore does not replace an assessment of the legal situation in your company and does not constitute legal advice. We are available at any time to answer your questions and our specialists are pleased support you.

We have compiled on our website comprehensive information and recommendations for action in response to the legal implications arising from the coronavirus pandemic: Coronavirus - legal issues