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No Continued Payment of Wages in the Event of a Pandemic-Related Company Closure

Discussion of the Federal Labour Court's ruling of 13 October 2021 (Ref.: 5 AZR 211/21)

"No work, no pay" - this principle in German labour law was recently confirmed by the Federal Labour Court (Bundesarbeitsgericht, BAG) in its ruling of 13 October 2021 (ref.: 5 AZR 211/21): If an employer has to temporarily close its business due to a government-imposed general lockdown to combat the Corona pandemic, it is not obliged to pay its employees remuneration under the aspect of default of acceptance.

During the Corona pandemic, many businesses were forced to close due to the lockdown, which particularly affected the restaurant, hotel and retail sectors.

The defendant employer operates a trade in sewing machines and accessories and maintains a shop where the plaintiff employee works as a marginal sales employee. In April 2020, the employer had to close the shop due to a general order by the authorities, which meant that the employee could not work. She did not receive any remuneration during the time of the closure and, as a marginal employee, was not entitled to short-time work allowance because she did not meet the personal requirements for short-time work.

With her lawsuit, the employee therefore demanded payment from her employer for default of acceptance for the month of April. The employee argued before the court that the officially ordered closure of the company was to be attributed to the employer's operational risk. The employer, on the other hand, was of the opinion that officially ordered Corona measures did not fall under the employer's operational risk, but concerned the general risk of life, which could not be controlled and had to be borne equally by everyone. Moreover, in the case of continued payment of wages, the employee would be financially better off compared to other employees who are on short-time work and only receive short-time work benefits.

While the lower courts affirmed the employer's operational risk, the BAG ruled in the case at hand that the employer does not bear the risk of loss of work if, in order to protect the population from severe and fatal courses of disease due to Sars-Cov-2 infections, social contacts are reduced to a minimum in a federal state by official order and all establishments not necessary for the care of the population are closed almost nationwide. This does not realise a risk inherent in a particular enterprise, since the impossibility to perform work in such cases is the consequence of a sovereign intervention to combat a dangerous situation affecting society as a whole. In this case, the employer does not bear any obligation to indemnify and pay.

The BAG clarified that it was the responsibility of the state to provide appropriate financial compensation for affected employees, as had been done in part with the facilitated access to short-time allowance. In its assessment, the court saw that there are currently gaps in the social security system for marginally employed persons - as in the present case. However, the lack of downstream entitlements could not infer an employer's obligation to pay under labour law.

In view of the decision, employers could consider reclaiming wages paid on the grounds of unlawful payment. In this context, (collectively agreed) contractual preclusion periods are likely to become relevant and discussions about the objection of unjust enrichment (Sec. 818 para. 3 of the German Civil Code (Bürgerliches Gesetzbuch, BGB)) are likely to arise.

Apart from these aspects, the legislator must decide whether to close the protection gap, if necessary retroactively, by amending the law, taking into account the interests of the affected employees and the interests of the state.

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