Employers across the globe are facing repercussions from the war in Ukraine. Which short-term employment law options do organisations have when experiencing supply bottlenecks and production stoppages?
The war in Ukraine and the sanctions against Russia by the international community as a result of the invasion are disrupting global supply chains. This can affect organisations with the consequence that employees cannot be sufficiently utilised, because activities have been slowed down or stopped. Affected employers may therefore need to examine what short-term options they have to reduce the costs of a (temporary) surplus of staff in order to maintain their economic viability in the long term. Organisations should also check whether they can benefit from state aid or specific legislation originally introduced to mitigate the effects of the COVID crisis.
In principle, the employer bears the risk of work stoppages. This means that if the employer cannot maintain its own production due to supply bottlenecks, employees are still entitled to their contractually agreed remuneration even though there is no work to be done.
Remarkably, the German Federal Labour Court recently made an exception from this general rule for employers affected by temporary government ordered shutdowns in response to the COVID pandemic.
Organisations that are forced to shut down their operations as a direct consequence of sanctions against Russia might try to invoke this new case law. However, probably only a few employers are affected directly, such as branch offices of Russian enterprises.
For most organisations, sanctions have an indirect effect, for example, supply chain disruptions because certain commodities cannot be imported from Russia anymore. That kind of disruption is a typical risk to be borne by the employer.
To mitigate that risk and the associated financial burden, employers in Germany in particular have the following options:
Use of working time accounts
Working time accounts contribute significantly to making working time more flexible. By making it possible to build up plus or minus hours to a certain extent, temporary supply fluctuations and bottlenecks can be mitigated. Working time accounts are often introduced through collective agreements, but individual agreements are also conceivable.
Ordering holidays
In cases where, for example, production comes to a complete standstill for a short period of time, ordering holidays for the whole organisation can also be a sensible measure, as the employees’ holiday entitlements are reduced at a time when they cannot be employed anyway. In establishments with a works council, co-determination rights must be observed.
Introduction of short-time work
Short-time work was already a widely used instrument for many organisations during the COVID pandemic. It enables employers to temporarily reduce the regular working hours (to ‘zero’, if needed) with a simultaneous reduction of pay, while a large part of the reduced pay is compensated by a short-time work allowance which is paid by a government agency. If necessary, this can be used for several months. Short-time work is usually introduced by way of collective agreements, but individual agreements are also feasible.
Currently, employers in Germany can benefit from specific short-time work legislation which was originally introduced during the COVID crisis and which has just been extended until 30 June 2022. Under this legal framework, it is easier to introduce short-time work and the short-time work allowance is higher than usual.
Apart from that, ailing companies might be eligible for other state aid in terms of guarantees, energy cost subsidies or loans. Given that the European Commission recently relaxed the rules for state aid against the background of the Ukraine crisis, the German government is currently exploring how to extend its assistance in particular for energy-intensive sectors.
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Disrupted supply chains: how can employers cushion the blow?
Employers across the globe are facing repercussions from the war in Ukraine. Which short-term employment law options do organisations have when experiencing supply bottlenecks and production stoppages?
The war in Ukraine and the sanctions against Russia by the international community as a result of the invasion are disrupting global supply chains. This can affect organisations with the consequence that employees cannot be sufficiently utilised, because activities have been slowed down or stopped. Affected employers may therefore need to examine what short-term options they have to reduce the costs of a (temporary) surplus of staff in order to maintain their economic viability in the long term. Organisations should also check whether they can benefit from state aid or specific legislation originally introduced to mitigate the effects of the COVID crisis.
What are the rules in Germany?
In principle, the employer bears the risk of work stoppages. This means that if the employer cannot maintain its own production due to supply bottlenecks, employees are still entitled to their contractually agreed remuneration even though there is no work to be done.
Remarkably, the German Federal Labour Court recently made an exception from this general rule for employers affected by temporary government ordered shutdowns in response to the COVID pandemic.
Organisations that are forced to shut down their operations as a direct consequence of sanctions against Russia might try to invoke this new case law. However, probably only a few employers are affected directly, such as branch offices of Russian enterprises.
For most organisations, sanctions have an indirect effect, for example, supply chain disruptions because certain commodities cannot be imported from Russia anymore. That kind of disruption is a typical risk to be borne by the employer.
How to react?
To mitigate that risk and the associated financial burden, employers in Germany in particular have the following options:
Use of working time accounts
Working time accounts contribute significantly to making working time more flexible. By making it possible to build up plus or minus hours to a certain extent, temporary supply fluctuations and bottlenecks can be mitigated. Working time accounts are often introduced through collective agreements, but individual agreements are also conceivable.
Ordering holidays
In cases where, for example, production comes to a complete standstill for a short period of time, ordering holidays for the whole organisation can also be a sensible measure, as the employees’ holiday entitlements are reduced at a time when they cannot be employed anyway. In establishments with a works council, co-determination rights must be observed.
Introduction of short-time work
Short-time work was already a widely used instrument for many organisations during the COVID pandemic. It enables employers to temporarily reduce the regular working hours (to ‘zero’, if needed) with a simultaneous reduction of pay, while a large part of the reduced pay is compensated by a short-time work allowance which is paid by a government agency. If necessary, this can be used for several months. Short-time work is usually introduced by way of collective agreements, but individual agreements are also feasible.
Currently, employers in Germany can benefit from specific short-time work legislation which was originally introduced during the COVID crisis and which has just been extended until 30 June 2022. Under this legal framework, it is easier to introduce short-time work and the short-time work allowance is higher than usual.
Apart from that, ailing companies might be eligible for other state aid in terms of guarantees, energy cost subsidies or loans. Given that the European Commission recently relaxed the rules for state aid against the background of the Ukraine crisis, the German government is currently exploring how to extend its assistance in particular for energy-intensive sectors.
For more information about compensation and benefits
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