Hundreds of thousands of employers in Germany are currently using the instrument of short-time work allowance (KuG) to compensate for the loss of work in their companies. Thus they maintain employment relationships subject to social insurance contributions. Foreign employers also employ employees subject to social security contributions in Germany. In many cases these foreign employers do not have fixed operational structures and employ the employees e.g. in their home offices. According to the current practice, these employees with the last-named employers do not receive short-time allowance. There are, however, good arguments to suggest that this is contrary to constitutional and EU law.

Federal Employment Agency demands fixed operational structures in Germany

So far, the employment agencies have refused to grant the KuG to foreign employers for such employees, arguing that this would require fixed local operational structures in Germany. An excerpt from the current directives of the Federal Employment Agency in para. 97.2 reads as follows: "Therefore, home office employees of foreign companies who do not maintain a business in Germany are not entitled to KuG, even if they are employed subject to social security contributions under German law”. There are good arguments to suggest that the requirement of fixed operational structures is contrary to fundamental and EU law, and that the social security contributions paid in Germany entitle them to receive KuG.

First court decisions prove the agencies right

The first social courts have confirmed the view of the employment agencies in interim legal protection and tried to remove legal objections to the denial of KuG. The outcome of the main proceedings is still open. Foreign employers with work loss in Germany should consider whether they secure the option of KuG. Therefore they have to report the loss of work to the employment agencies and take legal action against refusal decisions, in order to profit, should the position of the employment agencies be declared unlawful.

Operation or operation department according to § 97 Social Code III (SGB III) with registered seat in Germany

For the granting of KuG, a company or a company department within the meaning of § 97 SGB III is required. The operational structure is defined as an organisational unit within which the owner and the employees continue to pursue a specific work purpose using tangible and intangible resources. Accordingly, the existence of a separate institutional management in personnel and social matters (for hiring, dismissals etc.) is decisive for the operation. In order to be eligible to apply for KuG, the business or business department must be located within Germany.

Established operational structures or domestic reference is necessary

The first court decisions on this subject generally follow the above-mentioned concept of operation and acknowledge that the purpose of the KuG is to stabilize jobs in Germany. The State Social Court Bayern requires consolidated operational structures for this purpose, such as an office equipped with appropriate material and personnel resources. It was not sufficient for the State Social Court Bayern, that the applying temporary employment agency with 350 employees (subject to social security contributions from the aviation industry in Germany) maintains an office from which administrative staff regularly work. The Social Court Schleswig required a permanent office based in Germany and therefore denied the KuG for three employees of a Danish joint stock company who work in Germany in their home office (Social Court Schleswig, decision of 15.05.2020, file no. S 30 AL 7/20).

According to the Federal Social Court, the economic policy purpose is decisive

In both court proceedings, the applicants expressed legal concerns about the denial of KuG, which are supported by other experts: For example, the Federal Social Court has already decided that for benefits such as the KuG, the economic-political purpose is decisive, namely the perpetuation of work in Germany and thus the loss of work in Germany. KuG is financed exclusively by contributions to unemployment insurance and thus by social insurance. It is therefore difficult to understand why a certain form of (tax-relevant) operation or operation department is required in Germany as a precondition for an entitlement to KuG. This applies in particular against the background that, according to the most recent case law of the Federal Social Court, the territoriality principle applicable in the Social Code does not prohibit a grant of benefits abroad and the territorial scope of benefits results solely from the substantive law on benefits.

Fundamental rights and EU law argue for a different interpretation

It is therefore possible that the Federal Social Court, in further development of its case law, will evaluate the preconditions for the entitlement to KuG for employees working in Germany for foreign employers differently. This is also supported by EU law: The relevant EU regulation stipulates, in agreement with the ECJ, that benefits are to be provided by the competent institution of the member state in whose territory the activity is carried out.

Furthermore, the current interpretation could infringe the freedom of movement of workers and the freedom to provide services, which are protected under EU law. Because foreign employers and the employees working for them in Germany are discriminated against comparable employers based in Germany. A violation of the principle of equality under Article 3 para. 1 of the German Constitution is also possible because the legislator is not free to differentiate the conditions for the obligation to pay contributions and the entitlement to benefits without important objective reasons. This is supported by the fact that the entitlement to KuG, like the entitlement to the unemployment benefits, is entitled to the employee personally. It is therefore not comprehensible why an employee must first lose his job in order to benefit from unemployment insurance - this does not seem compatible with the meaning and purpose of KuG.

See also