• Insights

Workforce reduction after corona short-time work: liability risks and strategy advice from Germany

Written by
Kliemt.HR Lawyers, the first port of call in employment law for top-class and future-proof advice.
The simplified rules for (state-subsidised) short-time work have provided temporary economic relief for many companies, enabling them to better weather the Covid-19 crisis. But now many are faced with the question of whether short-time work is sufficient, or whether they need to further cut costs, including potentially by implementing a workforce reduction. But how easily can employers ‘switch’ from short-time work to staff reductions?

Different forecast decisions

At the heart of the problem is the fact that the introduction of short-time working and the decision to reduce staffing levels each require different business forecast decisions.

According to s96 para. 1 of the German Social Code III, the introduction of short-time work requires a work stoppage the reasons for which are of an economic nature or result from an unavoidable (external) event. The Covid-19 crisis represents such an unavoidable event (this is also the view of the Federal Employment Agency). The loss of working hours must be based on the (justified) assumption that the loss of working hours is only temporary and not permanent.

The situation is different, however, for a workforce reduction for operational reasons. On the one hand, such a decision can be based on various (both internal and external) causes that make it impossible for the employee to continue working; on the other hand, the employer must demonstrate here that the cause leads to a permanent reduction in the required number of workers in the company.

When is a switch from short-time work to workforce reduction possible?

What at first sounds like a fundamental contradiction does not mean, however, that a switch from short-time work to staff cuts would be fundamentally unthinkable, at least cases where the employer has not committed to restrictions on dismissals as part of the introduction of short-time work. However, the scope of application is limited: workforce reductions following short-time work are only possible in cases where the factual situation has subsequently (that is, after the introduction of short-time work) changed in such a way that the ‘temporary’ forecast proved to be incorrect and there is now a forecast for permanently reduced work. Simultaneous use of short-time work and staff cuts due to different forecast decisions in different parts of the organisation (e.g. different departments) is also uncontroversial.


This supposedly simple assessment often poses great challenges in practice if and because (often due to the urgency of the situation in March 2020) the relevant factual basis was not properly documented in many companies:

  • In the situation in which short-time work was announced, was it clearly documented (and the underlying assumptions clarified) that the loss of work would only be temporary? Was this established in an audit-proof manner?
  • Were there any changes during the short-time working phase that meant the original forecast was invalidated by new developments, and were these also documented (for example, was more work lost than originally forecast in some departments, while in others, there were sudden peaks in orders)?


In essence, this leads to a single question: what exactly has changed that made a switch in the forecast from ‘temporary’ to ‘permanent’ possible?

The business decision

Employers are therefore advised, even if this is not standard practice, to at least lay down in writing the company’s decision to reduce staff, and:

  • to clarify in particular whether the causes are external or internal; and
  • to document whether and to what extent this is based on facts that have changed since the introduction of short-time working.


Typically, an internal strategic decision will follow the (externally initiated) corona short-time work. In order to be able to make a valid decision, the employer must in particular consider what staff cover would be required to cope with the target work requirement without recourse to regular overtime.

… in order to avoid risk

If the employer switches from short-time work to staff cuts at the drop of a hat, this can be doubly problematic.

Firstly, with regard to short-time work, the question can arise (for example during the next audit) whether the conditions for a temporary loss of working hours were met at all or whether a permanent loss of working hours was not predicted from the outset, but the benefits of the short-time working scheme were taken advantage of even where it was clear the prerequisites were not met.

This results in considerable criminal law risks for the organisation’s directors and officers, as well as potential claims for repayment by the Employment Agency or for outstanding payments from employees with regard to lost wages. In extreme cases, this can lead to a risk of insolvency.

With regard to the workforce reduction, it is possible the employer may not be able to meet the requirements for presentation and burden of proof in any potential dismissal protection proceedings (these requirements are higher than in the normal course of events) and therefore may risk losing the case.

Only by precisely documenting the employer’s decision, and, if necessary,  the documentation bringing up to speed regarding short-time work can these risks be reduced and a safe transition from short-time work to personnel reduction be ensured.

Till Heimann
Partner - Germany
Kliemt.HR Lawyers