Out-Law Analysis | 16 Jul 2020 | 1:02 pm | 7 min. read
The economic impact of the coronavirus pandemic is likely to force many employers to consider restructuring to future-proof their businesses.
Several countries have applied support schemes to help employers manage the financial challenges they are facing and encourage them to retain staff.
Pinsent Masons' Manfred Schmid and Lara-Christina Willems in Germany, Diane Nicol and Chris Evans in the UK, and Valérie Blandeau and Anne Cardon in France explain how the situation has differed for employers in their jurisdiction.
In Germany, Covid-19 did not result in a complete lockdown. Every German state treated the situation a bit differently. There are rules requiring masks to be worn and for social distancing to be observed, but public transport continued as normal and there was no prohibition on office working. However, during the height of lockdown restaurants and most shops were closed and, if offices were open, health and safety obligations were in place to promote social distancing and cleaning.
Since then restrictions have been loosened in stages. Germany is going back to normal step by step, as far as possible. Many restaurants are returning to normal opening hours and more and more employees are going back to work, including in offices, though many still prefer to work from home. This has spurred discussion regarding permanent home-office options in Germany.
To save costs, many employers have chosen to reduce the working hours of staff and, as a consequence, applied a reduction in pay.
In a bid to preserve jobs and to avoid redundancies, the German government has established a scheme that allows employers to apply for state funds to support the payment of employees. Under the scheme, employees will commonly receive up to 60-67% of their salaries, though these payments can increase to 80%-87%. The scheme has enabled employers to retain employees on full short time work patterns.
Many clients have contacted us in recent months regarding the implementation of short time work. We have seen employers encounter problems with the scheme, which requires a works council agreement or agreement with every employee individually.
With major efforts ongoing to minimise redundancies in Germany, we have yet to see a major announcement of redundancies by a major employer. It may be that these will come in the next couple of months depending on whether there will be reduced activity levels for businesses.
Redundancy protections have not been loosened or made easier by the government in any way, however – the same standard of protections in place before the crisis continue to apply.
If an employer employs more than 10 full-time employees on a regular basis, employees are protected under German law by the termination protection act (Kündigungsschutzgesetz). The legislation requires an employer to have a reason to terminate an employee who has been employed for more than six months.
From an employer perspective, while the imposed shut-down or partial shut-down of their business will provide them with a straight forward reason for making wholesale redundancies, the process may become more complex if only certain employees are to be dismissed. In such circumstances the so called social selection applies under German law, which obliges the employer to compare the employees and to protect those employees who have "better social data", which relates to their age, seniority, family obligations and disabilities.
If the business has a works council, employers should be aware that they need to be involved and the time for negotiations should be taken into account when it comes to the timing of redundancies.
UK lockdown measures were first announced on 23 March. Subsequently, the measures have been slowly eased, though the approach taken and timetables adopted when reducing the level of restrictions has differed across England, Scotland, Wales and Northern Ireland.
The restrictions have generally been severe, with whole sectors closing completely and the emphasis in others being on staff, where possible, to work from home. Offices, shops and the hospitality sector are beginning to reopen now, though, with social distancing measures in place, they look very different than before the pandemic.
A new furlough scheme was introduced, which was unprecedented in the UK. It pays 80% of an employee's wages up to £2,500 per month. Many employers have elected to top up staff wages to avoid any significant shortfall. There has been a significant take up of the scheme, with figures from May showing around 7.5 million jobs had been furloughed. The scheme has been extended to October, but employers are required to contribute to the payments on an increasing scale.
Before 1 July, staff were unable to work whilst they were on furlough, but the government has introduced a 'flexible furlough' scheme, which allows staff to work reduced hours/part-time and for employers to claim under the scheme for the periods when staff are not working.
Some employers, however, have not used the furlough scheme – especially in the oil and gas, and financial services sectors. This is either as a result of there still being a requirement for their staff to work full time, as there has been no reduction in demand, or concerns around the negative publicity if they are seen to use the furlough scheme.
One of the challenges we have seen around furlough is the interaction with unions. Employers are seeking to make redundancies, but the unions are refusing to engage in collective consultation where individuals are furloughed. Whilst employers may have a defence in this situation, this poses difficulties from a wider industrial relations perspective, including where there needs to be discussions around different ways of working.
One of the complexities with staff returning to work is the health and safety obligations and the personal liability of directors if they don't get it right. For those who can work from home we are going to see significantly increased home working, not only as a health and safety measure, but also as a result of employers seeing that working from home can be beneficial.
We are, however, beginning to see a large number of redundancies being made, with high street chains collapsing and a large number of construction sector employers making redundancies as well. This is only likely to increase as we get further into the year and employers start to properly assess the impact of Covid-19 on the business.
The lockdown in France was imposed on 17 March, with the first tranche of restrictions subsequently lifted on 11 May. Since then, president Macron has continued to ease the restrictions on daily life as the virus remains relatively contained in the country.
What the government has notably been doing is to review a scheme called short time working, or chômage partiel. This scheme allows you to reduce working time to zero if economic circumstances require that.
The scheme has been amended throughout the crisis to extend who is eligible, extend the activities it applies to, and create a specific set of circumstances for Covid-19. The scheme has also been amended to multiply the level of remuneration guaranteed and reimbursed by the French government by a factor of five.
Before the crisis, the state would only remunerate up to €1,200 a month for a full-time equivalent employee, but it is now roughly €5,000. The scheme has been used to support every type of company and activity in France, from bars and restaurants to IT companies and law firms, and could be in force until the end of the year.
An alternative short-time scheme recently entered into force in July 2020 to enable companies to benefit from short-time working for up to two years subject to the execution of a collective bargaining agreement and a minimum activity of 60% – this measure is designed to help companies avoid making redundancies, and also help businesses return faster to previous activity levels with staff levels at pre-pandemic levels.
In France, companies can also obtain a loan from the banks with zero interest.
Despite the support schemes in place, it is likely that many employers will explore restructuring options to reduce their cost base for the uncertain times ahead. At this stage, alternative options are currently opted for by companies such as the implementation of Collective Performance Agreements (CPA), enabling companies to reduce the costs related to the workforce, by reducing remunerations or adapting working time and mobility of their employees. The termination of employment contracts are not forbidden for the moment, but plans have been put forward, notably the CPA. It is likely that French authorities would very closely review terminations by a company if it had received money from the state and then envisaged to restructure.
At the moment, the short time work scheme enables employees to continue their work, but we are aware of restructuring and reorganisations in the pipeline, though most won't start until the autumn.
The government has started to implement controls within companies, and a number of companies will have to reimburse the funds they have received in support from the state and face potential fines if they have not implemented the short time working scheme in compliance with the legal requirements. This might lead to an increase in the number of restructurings to come.