How companies with international offices can apply for short-time work in Germany

Short-time work is not restricted to employers with German business establishments

A short-time allowance is a proven means of surmounting difficult business phases without the respective company being forced to dismiss parts of their personnel. The COVID-19 pandemic has been considered a large-scale practical test of its application and resulted in a broad acknowledgement of its virtues and potential.

Contrary to popular belief, short-time compensations are not reserved for companies residing in Germany. Still, certain requirements have to be met for companies with international offices to make use of it.

• First, it is important that employees working in Germany are paying into Germany’s social insurance. Furthermore, the employment relationship must adhere to German law.
• Secondly, Germany’s Federal Employment Office will only grant short-time compensation under the precondition of the company itself or one of its operational departments entertaining offices in Germany. In order for said offices to qualify as an official place of work they need to accommodate at least one of the company’s employees. However, the Federal Employment Office also demands for a stable infrastructure regarding said German branch of the company. Entertaining a company or an operational department whose employees are exclusively working from home has in the past been grounds for contention between the Employment Office as well as those seeking short-time allowances.

No short-time compensation for Scandinavian employer – a verdict with perspective

In February 2023, the higher social court Berlin-Brandenburg rejected the lawsuit of a Swedish entrepreneur seeking short-time allowance for his Berlin-based employee at second instance. The verdict, however, should not be evaluated as a precedence for international employers’ claims falling flat on principle. Instead, it reinforces the fact that said suits need to adhere to certain requirements and furthermore be filed in an adequate manner.

The Stockholm-based company was specialized in consultations regarding international expansions. Its Berlin-based employee, who served as the sole employee of said firm in Germany, advised fashion and cosmetics retailers seeking to expand into new markets or establish distribution of foreign brands within Germany. Her employment contract was based upon valid German law and she was also paying into Germany’s social insurance.

In 2020, the onset of the COVID pandemic resulted in severely diminished revenue for retailers, which in turn negatively affected the company’s capabilities to provide consultancy. Therefore, the Swedish employer opted to apply for a short-time allowance for their Berlin employee. Berlin’s Employment Agency rejected the application. Its reasoning: No discernable establishment within Germany.

The Employment Agency was missing an “autonomous institutional administration in charge of organizing the execution of procedural functions while also assuming responsibilities pertaining to social and staff sectors.”

Everything is dependent upon the operational department

The Swedish employer subsequently went to court – and upon filing their lawsuit in Berlin-Brandenburg’s social court was initially met with success. The court sentenced the Employment Agency to furnish an order recognizing the company’s right to apply for a short-time allowance. It reasoned that based upon the geographical distance between Berlin and Stockholm there were no legal grounds for acknowledging that both departments were serving as one unitary establishment. Instead, the court argued that the lone Berlin employee constituted a separate operational department – thus allowing for the short-time compensation to be sanctioned.

The Employment Agency successfully filed an appeal against this decision in the regional social insurance appeals tribunal. The second instance dismissed the Swedish employer’s request for a short-time allowance for its Berlin-based employee.

According to the regional social insurance appeals tribunal, the deciding factor for its decision was a simple formal mistake: When processing the claim at first instance, the Swedish plaintiff had failed to check the box “for operational department” and instead ticked the box “for the company”. Since the latter was officially located in Sweden, the lawsuit was rendered invalid.

“Merely as an addendum” the prevailing judges commented that there was no operational department maintained in Berlin since there is no set definition for it to be found within Germany’s employment or social law. The courts are of the conviction that an operational department must be recognizable as an autonomous part of the company it is subordinated to. The Swedish employer would have needed to prove that its “one-woman operation” constituted a separate department. The reasons given for the judgement suggest that there were two substantial criteria that needed to be taken into consideration:

• The company would have needed to maintain a permanent residence for its operational department in Berlin. Proof of its existence would then have been able to be maintained through a respective clause in the employee’s contract.
• The service portfolio of the Berlin department would have needed to differ from the general service portfolio of the overall company – for example by assigning clear-cut mercantile, technical or personnel actions or strategies to activities conducted in Berlin. The mere geographical distance between Berlin and Stockholm was deemed insufficient.

Conclusion: The right to apply for short-time compensation is possible for international employers – albeit not to be taken for granted

Although the Swedish employer failed to claim a short-time allowance for their Berlin employee, that does not mean that it is impossible for other foreign companies with employees in Germany but no permanent business establishment to apply for it. One would be well-advised, however, to examine their own business organization first.

The regional social insurance appeal tribunal’s decision suggests that the right to short-time compensation is denied whenever the German employee of a foreign company could as well work from anywhere else on the planet.

Requirements include an operational department with an organizational purpose and a basic infrastructure within Germany. From this point of view, job descriptions and organizational charts as well as defined business establishments in employment contracts are bound to gain importance when applying for short-time work on German soil in the future.

No objection to constitutional or union law

Berlin-Brandenburg’s regional social insurance appeals tribunal rejected the juridical objection that the demand for an operational department was infringing upon the non-discrimination precept.

This argument was justified by claiming that employees contributing to Germany’s unemployment insurance are not profiting from short-time compensation – solely for the reason of their employers failing to establish an adequate business organization.

Additionally, it is pointed out regularly, that the requirement of a business establishment is discriminatory towards foreign employers within the European Union as well as their employees – therefore breaching prevailing EU regulations protecting free movement of labor. Berlin judges remained unphased by this assessment.

Paychex: Professional German payroll for international employers

For decades Paychex has been offering foreign employers with no set human resources infrastructure in Germany professional payroll accounting for their German employees.

Outsourcing these obligations to us provides you with a competent and reliable payroll process, thus significantly alleviating your company’s efforts. In case you want to find out more, do not hesitate to contact us.