Germany: Hotel industry in the Coronavirus crisis – German labour law options for overcoming the second lockdown

By Benjamin Karcher

02-2021

Probably no other industry has been hit as hard as the hotel sector by the Coronavirus pandemic and the resulting restrictions on public and economic life. The entire industry has been tested with overnight stays falling significantly during the first lockdown, an accommodation ban for tourists since November 2020 and business travellers only being permitted accommodation if their stay is "absolutely necessary". Given the accommodation industry in Germany had a total turnover of about EUR 33 billion in 2019, the government assistance on offer seems like a drop in the ocean. For many businesses, it is now a matter of survival. During the current lockdown, hotels in Germany will be reimbursed to some extent by state aid to cover up to 75% of their lost revenues since November and they may also apply for bank credits.

With over three million people employed in the tourism industry, employers in the hotel sector are also faced with the question of what labour law options they may have to help them survive the crisis. This article considers some of the employment law measures that hotel businesses in Germany may choose, or have chosen, to implement.

Short-time allowance


In Germany short-time work is the labour market instrument used during a crisis to reduce liquidity shortages and preserve jobs. It is the weapon of choice during difficult times to maintain the base workforce and enable an employer to continue to employ / pay its staff during a downturn.

Short-time work is a temporary reduction of regular working hours in a company. The employees are temporarily released (either fully or partially) from their obligation to work and their remuneration is reduced accordingly. The government provides subsidies to the employer, which the employer pays out to employees affected by the reduction in working hours to compensate for their loss of remuneration.

Short-time work compensation is granted by the government regardless of a company’s financial situation, if it is affected by a temporary reduction of workload due to an external, inevitable event. In response to the COVID-19 pandemic, the government has made the requirements for short-time work compensation temporarily more flexible. Short-time work and short-time allowances have proven their usefulness since the beginning of the crisis in Germany, and abroad. As a result of the Employment Security Act ("Beschäftigungssicherungsgesetz") passed by the Bundestag on 20 November 2020, the increases made at the start of the pandemic and limited to 31 December 2020, as well as the simplified access to short-time allowance, will remain in place in principle for 2021. Specifically, this means that for all employees placed on short-time work by 31 March 2021, the regulation on increasing short-time allowance (from the standard 60/67% of net loss in pay to 70/77% from the fourth month and 80/87% from the seventh month) will be extended until 31 December 2021.

In this context, the months of entitlement do not have to be continuous. This means that interruptions to short-time work (even for more than three months) do not affect the amount of short-time allowance. However, the extended period of entitlement to short-time allowance of up to 24 months only applies to companies that have started short-time work by 31 December 2020. The full reimbursement of social security contributions during short-time working will be extended until 30 June 2021. From 1 July 2021 to 31 December 2021, 50% of social security contributions will be reimbursed provided that short-time work began by 30 June 2021.

Staff reduction

Because of the short-time work scheme, it may be problematic to implement staff reductions. Short-time work is intended to provide temporary economic relief for the company by reducing personnel costs. At the same time, the jobs of the employees affected are to be retained for the duration of the short-time work. This presupposes only a temporary loss of work. By contrast, compulsory redundancies are the method of choice if the loss of work will be permanent.

Although they may seem contradictory at first glance, staff reductions and short-time working are not mutually exclusive. On the contrary, they can both be effective and complementary means of successfully restructuring and reorganising a company. Both measures should be well thought out, especially in terms of timing, and ideally integrated into a comprehensive restructuring concept.

One conceivable arrangement for parallel short-time work and staff reductions is that short-time work is used to contribute to economic recovery of a business suffering a temporary loss of work for those in particular jobs, whilst compulsory redundancies are implemented in respect of employment opportunities that cease to exist permanently.

In this respect, short-time work due to temporary loss of work also does not preclude the employer from changing his prognosis and making an entrepreneurial decision that leads to the permanent and complete elimination of jobs by means of termination for operational reasons. The employer must then set out in detail the facts which indicate that a reduced volume of work and reduced employment needs are expected in the future on a permanent basis and as very high standards of dismissal protection apply, one should consider a mutually agreed termination with the relevant employees.

Employee leasing

Whilst many companies only maintain a skeleton staff, there still are other companies with desperate labour/workforce shortages. Employee leasing can provide solutions here. Incidentally, this applies not only when short-time allowance is ruled out due to already planned layoffs, but also to other cases. For example, with marginal employees who are not eligible for short-time allowance or low-income earners for whom short-time work and the receipt of short-time allowance would cause a significant financial burden. Furthermore, as employee leasing cannot be used by employers to fill full time roles on a permanent basis, capping individual assignments at 18 months can be a practical alternative during uncertain times. As companies also need to react quickly if the economy is opened up again, employee leasing may be an option in the recovery phase.

Fixed-term contracts

In order to be able to react flexibly to the on and off lockdown measures in the future, some employers are considering fixed-term contracts. In this way, the future development of the company can initially be observed and the employment situation reassessed after the end of the fixed-term period. However, the means of fixed-term contracts should also be used with caution and they need to be in written form before any work is commenced.

Insofar as employees are to be hired for the first time under an employment relationship, employers are not subject to any special restrictions. Up to a period of two years, newly hired employees may initially be given a fixed-term contract without justification by a factual reason; up to this two-year total period, a fixed-term employment relationship may also be extended three times.

After this, it becomes more difficult to maintain fixed-term engagements. For example, fixed-term employment longer than two years or after a temporary employment contract has already been extended three times require a factual reason to justify a fixed-term employment.

The decisive question in these cases is whether the uncertainty for employers in terms of planning and forecasting for their business in times of Coronavirus would suffice as a factual reason to justify the fixed term. We believe that this uncertainty alone would not be sufficient without further reasons. According to the case law of the Federal Labour Court, a generally uncertain planning situation with regard to economic and corporate developments is not sufficient as a factual reason for a fixed-term contract. Hence, careful employers should limit the length of fixed-term employment contracts to two years or less.

Nevertheless, there are also various pitfalls to be aware of when it comes to fixed-term employment contracts in general. Most notably, if a fixed-term contract is legally invalid, it is deemed to have been concluded for an indefinite period. So, if an employer makes a mistake with a fixed-term employment contract and the employee initiates court proceedings in time, this can have serious consequences. If the lawsuit is successful, the employee has a right to an indefinite employment contract. For example:

  • When extending a fixed-term employment contract, it is imperative not to change any contractual details, as in doing so a new contract is concluded, and as multiple fixed-term employment contracts without a factual reason are legally invalid, the contract is considered to be of unlimited duration.

  • A contract can only be extended as long as it runs. If, for example, an annual contract ends on 31 March 2021 and the contract extension is not signed until 1 April 2021, it is legally a new contract, and the same applies here as above - two successive fixed-term contracts without a material reason are not legal, and so the new contract is deemed open-ended.

  • Fixed-term employment relationships are particularly problematic if the contract is to be terminated by regular notice. In principle, the fixed-term employment relationship ends only upon expiry. If this is not desired, a deviating provision must be explicitly included in the employment contract. However, extraordinary termination for cause (e.g. due to theft or fraud) remains possible in the case of fixed-term employment.

Extension of the probationary period

Employers who hired employees shortly before the start of the Coronavirus-related restrictions, and who quickly had to reduce most or even all of their working hours as a result of the introduction of short-time work, were often unable to gain a sufficient impression of employees' suitability before the end of the waiting period for general protection against dismissal (in Germany this protection kicks in after six months of employment provided the company employs more than ten full time employees in Germany). In this case, employers are faced with the question of whether it is possible to extend the probationary period.

At first glance, it appears that the employer only has two options. Either it terminates the employment contract with the employee whom it could not sufficiently test or continues the employment relationship beyond the expiration of the statutory probationary period without being certain that the employee is suitable. Despite the lack of a possibility to directly extend the statutory probationary period, case law has recognised two options that offer employers a practical way out and de facto lead to an extension of the maximum statutory probationary period (though both should be treated with caution and only used in justified cases).

1. Termination agreement with extended termination period

The Federal Labour Court has recognised that the parties may conclude a termination agreement and within this framework agree on a termination date which would be after the end of the statutory probationary period. It is important that the employer expresses the unconditional intention to terminate the employment relationship with the termination agreement because the employee has not proven him or herself sufficiently so far.

2. Notice of termination with extended termination period

As an alternative to concluding a termination agreement, the employer may also terminate the employment relationship within the statutory probationary period and grant an extended termination period. Should the employer and the employee wish to continue the employment relationship due to the employee's proven performance, they may agree to do so. However, unilateral withdrawal of the termination is not possible.

Obviously, both options can grant some more flexibility, however such extension would be permissible only for a very limited period in time and should never exceed two or three months in total.

Conclusion

Clearly, there are a number of measures and ways for employers to try to overcome the current crisis and to face the various obstacles put in their way by these challenging times. Nevertheless, it is apparent that the hotel industry has been hit hard by the current crisis and will need years to recover fully or even partially. The labour law measures set out in this article may provide some ways for hotel businesses to mitigate against the effects of the pandemic and to safeguard the workforce. Potential restructurings should be particularly well-planned and all proposed steps aligned to avoid pitfalls or contradictions.