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by Brödermann Jahn RA GmbH
Hamburg, Germany

(Eckard von Bodenhausen, Eckart Brödermann, Tina Denso, Philipp von Dietze,

Sebastian Kühn, David Mallmann, Antje Mattfeld, Johannes Struck, York Zieren),

Primerus, Hamburg, Germany

This summary of the top ten considerations for legal consequences of the Covid-19 pandemic has been prepared by Brödermann Jahn as of April 16, 2020. The summary focuses on key questions related to the COVID-19 pandemic when assisting US and other foreign corporations that have subsidiaries in Germany or are doing business with Germany companies.

In reaction to the COVID-19 pandemic, German federal, state and local authorities took actions to mitigate the further spread of the Sars-CoV-2 virus. These actions are based on the German “Infection Protection Act” and include a wide variety of measures to restrict public life, such as closure of shops and restaurants. On 27 March 2020, the German legislation enacted the “Law to mitigate the consequences of the COVID 19 pandemic in civil, insolvency and criminal proceedings” (“COVID-19 Pandemic Attenuation Law”); currently the legislator is asking stakeholders such as the German Bar to deliver input on necessary adjustments by a follow-up law which may be expected in late April or May 2020. Meanwhile, the law was executed by the President of the Federal Republic of Germany and entered into force with retroactive effect as of 1 March 2020. The law contains a bundle of modalities whereby it focuses on how to mitigate effects on liquidity of consumers and small companies.

In the following, we discuss a selection of major legal issues surging in connection with the COVID-19 pandemic under consideration of the newly enacted COVID-19 Pandemic Attenuation Law. The selection is based on questions from clients and discussions in the past three weeks. It emphasizes a number of aspects which are peculiar to German law (and which may therefore not come to mind of a US lawyer without comparative legal study) such as the right to request for an adaptation of contract. Also, this overview not only looks at the hurdles which have been caused by the COVID-19 pandemic but also at business opportunities following from the crisis such as investment opportunities. Each specific case may require a different strategic approach. Please note that this is a rapidly developing area. To stay current on recent developments, please feel free to contact us at any time.

Note: As usual, this overview constitutes a contribution to the discussion with ACC Counsels; it does not replace legal advice.

Table of Contents

COVID-19-Legislation; Company Law Risk Management and Avoidance of Insolvency

  1. What does the German COVID-19 Pandemic Attenuation Law mean for us?
  1. Can we continue business in Germany even if our German affiliate tumbles into a financial crisis as a consequence of the COVID-19 pandemic?
  2. Is there a risk that a COVID-19 pandemic crisis-based risk of my German affiliate reaches its US parent company?
  3. Can we, or our German affiliates, continue to do business with German companies which may be in a financial crisis because of the COVID-19 pandemic?
  4. Any other impact of the German COVID-19-Legislation?

Company Law

  1. How does the COVID-19 pandemic crisis influence the corporate governance of our German affiliate?
  1. Shareholder meetings
  2. Is our management team exposed to additional risks because of the COVID-19 pandemic?

Contract and Trade Law: Supply Chains

  1. How does the COVID-19 pandemic crisis influence supply chains (force majeure, withholding, general impact on existing and future contracts)?
  1. Does the COVID-19 pandemic crisis provide a force majeure reason or the like to excuse our non-delivery (or other breaches of contract) caused by interruptions of our supply chain?
  2. Does German law provide a basis for contract adaptation in light of the COVID-19 crises?
  3. If we are ready to deliver: Can customers refuse taking delivery of products?
  4. The sandwich position: Can suppliers insist that we take delivery of products while our customers refuse to take deliveries, we have reduced our workforce, stocks are full and we cannot handle taking deliveries?
  5. Withholding performance

Real Estate

  1. How does the COVID-19 pandemic crisis effect our German affiliate’s obligation to pay rent?
  1. Can it suspend payment of rents?
  2. Can it reduce the rent?

Labor Law

  1. What is the impact of the COVID-19 pandemic on the work force in our German affiliate?
  1. Can we reduce the work force?
  2. What are the rights of employees to stay at home or to work in a home office?

Corporate Finance / State Aid

  1. Can our German affiliate obtain German subsidies?

Privacy and Cybersecurity

  1. What is the impact of the COVID-19 pandemic on privacy protection?

Investment Opportunities, German Mittelstand, IT, SAP

  1. Are there special investment opportunities in the German market as a result of the COVID-19 pandemic?
  2. Is there any impact of the COVID-19 pandemic on procurement of IT products and services?

Litigation and Arbitration

  1. Is there an impact of the COVID-19 pandemic on arbitration in Germany?

COVID-19-Legislation; Company Law Risk Management and Avoidance of Insolvency

  1. What does the German COVID-19 Pandemic Attenuation Law mean for us?
  1. Can we continue business in Germany even if our German affiliate tumbles into a financial crisis as a consequence of the COVID-19 pandemic?

Generally speaking, German Insolvency Law provides for relatively strict requirements for filing for insolvency at an early stage in time when a financial crisis of a corporation becomes imminent. The COVID-19 Pandemic Attenuation Law contains provisions that seek to avoid insolvencies of companies due to reasons related to the COVID-19 pandemic. Art. 1 of the COVID-19 Pandemic Attenuation Law has created a new statute, i.e. the “Act for a Temporary Suspension of the Duty to file for Insolvency and to limit the Liability of Management in case of an Insolvency Situation caused by the COVID-19 Pandemic” (“COVID-19 Pandemic Insolvency Suspension Act”). Pursuant to Section 1 of this new Act, the obligation to file for insolvency due to reasons related to the COVID-19 pandemic is suspended until 30 September 2020. The law also empowers the Minister of Justice to extend by means of a legislative decree the suspension of the obligation to file for insolvency up to 31 March 2021.

  1. Is there a risk that a COVID-19 pandemic crisis-based risk of my German affiliate reaches its US parent company?

Different from many US company laws like the law of Delaware, German company law does not provide a similar degree of freedom of contract. It follows very strict rules that strike a balance between the interests of the shareholders of capital driven companies like the German Limited Liability Company (“GmbH”) and the interests of third-party creditors. Creditors will usually rely (i) on the capital contributions, registered in public commercial registers, which are subject to a series of mandatory rules to safeguard the company capital, (ii) on financial information including the published annual accounts (a delayed publication of which entails fines); and (iii) on contractual security agreements such as e.g. a bank guarantee or a letter of comfort of the parent company. There exists a flip side of this German rigidity with regard to its capital contribution and accompanying strict rules on management liability (with risks to be often covered by a D&O policy) which is helpful in the current COVID-19 pandemic crisis: In principle, there is no piercing of the corporate veil. Under normal circumstances, a shareholder is not legally obliged to supply additional funds (unless it previously violated the law on capital preservation of contributed capital e.g. by improper cash pool arrangements).

  1. Can we, or our German affiliates, continue to do business with German companies which may be in a financial crisis because of the COVID-19 pandemic?

Yes, for the time being. Under German insolvency law, a trustee for insolvency can usually challenge the payments made three months preceding the opening of insolvency proceedings and claim back such payments. The new German COVID-19 Pandemic Insolvency Suspension Act eliminates this risk for a certain period of time. If you receive payments from a German business partner for deliveries of goods or services in the ordinary course of business as contractually agreed until 30 September 2020, Section 2 sub-para. 1 no. 1 of the COVID-19 Pandemic Insolvency Suspension Act eliminates the risk that a trustee for insolvency may later challenge such payments.

Watch out for the following risk: As described above, pursuant to Section 1 of the COVID-19 Pandemic Insolvency Suspension Act, the obligation to file for insolvency is suspended only until 30 September 2020. If this time limit is not extended by legislative decree, the act creates a risk of a series of insolvencies throughout Germany in the second half of October/early November 2020.

  1. Any other impact of the German COVID-19-Legislation?

The COVID-19 Pandemic Attenuation Law contains a bundle of instruments available for consumers to mitigate potentially severe effects of the COVID-19 pandemic on their budgets. Consumers may presently refuse payment on long term consumer contracts, such as contracts on loans, electricity, gas, telecommunication, and sometimes water; further, in case of non-payment of rent, the landlord is prohibited to terminate the tenancy agreement. This may be helpful to know for your HR department in its communication with your employees, in case you have to put your employees on short-time work schemes with reduced payrolls (which is subsidized under specific circumstances by the state).

Further provisions of the COVID-19 Pandemic Attenuation Law are addressed in the considerations below.

Corporate and Company Law

  1. How does the COVID-19 pandemic crisis influence the corporate governance of our German affiliate?
  1. Shareholder meetings

For publicly traded corporations, such as stock corporations (“AG”) and the so-called Societas Europaea (“SE”), the COVID-19 Pandemic Attenuation Law provides a number of rules to enable virtual annual meetings, even if the articles of association of such a corporation do not include any provisions regarding online annual meetings.

The rules for corporations do not apply to German limited liability companies (“GmbHs”) as shareholder meetings of a GmbH can usually be handled more easily. Unless there is disagreement among the shareholders, it will normally be possible to pass shareholders’ resolutions in writing, e.g. as a follow-up to a telephone or video conference among shareholders. Details need to be determined with regard to the articles of association of the respective GmbH.

  1. Is our management team exposed to additional risks because of the COVID-19 pandemic?

Generally, any management of a German company is obliged to manage its company diligently. This applies as a basic standard also to the management of the company during the COVID-19 pandemic crisis.

As described above, pursuant to Section 1 of the COVID-19 Pandemic Insolvency Suspension Act, the obligation to file for insolvency is suspended until 30 September 2020. Thus, if the financial situation would require a management team to file for insolvency, the normal time limits to file for insolvency would start to run on 1 October 2020 so that the insolvency needs to be filed in usual circumstances promptly thereafter, i.e. latest on 21 October 2020. However, the COVID-19 Pandemic Insolvency Suspension Act includes a mechanism to extend the suspension of the obligation to file for insolvency (and thereby the starting date for assessing the time frame to calculate the roughly up to three weeks period to file for insolvency) beyond 30 September 2020 by legislative decree. Note that this would only apply to a crisis caused by the COVID-19 pandemic and not to a crisis that existed already before.

Contract and Trade Law: Supply Chains

  1. How does the COVID-19 pandemic crisis influence supply chains (force majeure, withholding, general impact on existing and future contracts)?
  1. Does the COVID-19 pandemic crisis provide a force majeure reason or the like to excuse our non-delivery (or other breaches of contract) caused by interruptions of our supply chain?

German law provides several instruments to cope with the interference of the COVID-19 pandemic which may have caused an interruption of the supply chain and/or closing down the running operation of the business of a German affiliate. Force majeure considerations provide one aspect within a bundle of considerations, including contract adaptation discussed at lit. b). Details depend on the applicable law or the applicable rules of law.

  • German contract law recognizes freedom of contract. Often, contracts will contain force majeure clauses which may or may not be applicable. Under German law, the legal assessment of the question whether a non-delivery or late delivery of services or goods is regarded as excused by a force majeure event depends on the specific wording of the respective force majeure clauses. Such a clause may also contain notice requirements.
  • Under German law, the Convention on International Sale of Goods for International Contracts on the sale of movable goods (“CISG”) applies as treaty law unless the parties have opted out (Note: The Convention has served as the blue print to the German sales law while it offers less restrictions on freedom of contract than the combination of German sales law and the German law on standard terms and conditions).

Pursuant to article 79 para. 1 CISG, a party is not liable for a failure to perform any of its obligations if it proves that the failure was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. In the case of the COVID-19 pandemic, such proof will often be possible in view of (i) the public health emergency of international concern raised first by the World Health Organization on 30 January 2020, and (ii) multiple further restrictions such as e.g. the call for staying at home to the extent possible by the German Chancellor in her second public speech to the nation on 23 March 2020. The decision how exactly to argue a force majeure event needs to be taken with due regard to the concrete circumstances. Article 79 CISG requires to give notice within a reasonable time after the party who fails performance knew or ought to have known of the impediment.

Under the German Civil Code, there is no general rule on frustration. Rather, an obligor (e.g. a contractual supplier of a good) can try to argue under Section 275 German Civil Code that, due to circumstances caused by the COVID-19 pandemic crisis and not stemming from its own sphere, (i) performance is objectively impossible “for the obligor or for any other person” (this is a very high standard), or (ii) performance “requires expense and effort which, taking into account the subject matter of the obligation and the requirements of good faith, is grossly disproportionate to the interest in performance of the obligee.”

  • If the parties have agreed on the application of the UNIDROIT Principles of International Commercial Contracts, article 7.1.7 provides a balanced force majeure regime (see the Official Comments of UNIDROIT at https://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2016). When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract (ibidem). The party who fails to perform must give notice to the other party of the impediment and its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, it is liable for damages resulting from such non-receipt.
  1. Does German law provide a basis for contract adaptation in light of the COVID-19 crises?

Again, it needs to be distinguished according to the applicable legal regime under German law.

  • Sometimes or under the contracts as drafted in some industries, the contract may contain a right to cancel orders or adjust the forecasts.
  • If the CISG applies (e.g. whenever your affiliate has sold movable goods and has acted without a choice of law clause providing otherwise, or by not integrating standard terms with a choice of law clause pursuant to the overriding standards of the CISG), it does not contain a right to contract adaptation even if the economic balance between the obligations of the parties is severely struck. In 2009, in the notable case Scafom International BV v Lorraine Tubes SAS decision, the Belgian Supreme Court held that (i) article 79 CISG governs hardship despite the fact that the provision does not mention the term “hardship” but merely the term “impediment”; and (ii) it has supplemented the details of the discovered loophole in the CISG on the basis of article 7(2) CISG by relying on the general principles which govern the law of international trade and therefore applied articles 6.2.1-6.2.3 UNIDROIT Principles which do grant a right to a contract adaptation. This is a debated decision from another jurisdiction, but a starting point if the CISG applies because of the principle of uniform interpretation under article 7 (1) CISG.
  • Often, the German Civil Code applies because of a choice of law clause or because the contract is more complex than a mere sale of goods. In that case, the starting point for any discussion on an adaptation of contracts is Section 313 para. 1 German Civil Code which provides:

Section 313
Interference with the basis of the transaction

(1) If circumstances which became the basis of a contract have significantly changed since the contract was entered into and if the parties would not have entered into the contract or would have entered into it with different contents if they had foreseen this change, adaptation of the contract may be demanded to the extent that, taking account of all the circumstances of the specific case, in particular the contractual or statutory distribution of risk, one of the parties cannot reasonably be expected to uphold the contract without alteration.

(Emphasis added).

The COVID-19 pandemic and subsequent government actions (such as the second speech of the German Chancellor to the nation on 23 March 2020 as well as federal and state restrictions on movement issued by all German states) have impeded the environment of production, global logistics, functioning supply chains and the availability of workforce. It is not foreseeable how quickly we, as a society, will have this pandemic under control. An official document of German Parliament entitled "Information for the Federal Government - Report on Risk Analysis on Civil Protection 2012" (Bundestagsdrucksache 17/12051, issued on 3 January 2013, p. 57 et seq.) can serve as an argument for changed circumstances necessitating a contract adaptation (e.g. with respect to delivery dates, time frames, stocks). In that risk analysis a model virus was discussed which resembles the present Sars-CoV-2 virus to a remarkable extent. Back in 2012, the model foresaw serious impediments for a three-year period with far over 20 million German citizens infected in three waves until vaccination would be in place. This official risk analysis is a good basis for the argument that the current COVID-19 pandemic is already shattering now the basis of the contract. While everybody certainly hopes that the crisis will be controlled faster and vaccination will be discovered sooner, this official document proves in our opinion conclusively for Germany that this crisis is fundamental. Since the end of March 2020, we have had a number of successful practical experiences working with this provision in the German Civil Code and this argument under the official 2012 risk analysis.

  • If the parties have agreed on the UNIDROIT Principles of International Commercial Contracts 1994, 2004, 2010 or 2016, articles 6.2.1 through 6.2.3 provide a regime which would entitle to request a negotiation about a contract adaptation if it can be proven, e.g. with reference to the same official German risk analysis discussed above, that the COVID-19 pandemic and the resulting change to the economic environment has [firstly] fundamentally altered the equilibrium of the contract either because [secondly] the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and [thirdly] (a) the events occured or become known to the disadvantaged party after the conclusion of the contract; [fourthly] (b) the event(s) could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract; [fifthly] (c) the events are beyond the control of the disadvantaged party; and [sixthly] (d) the risk of the events was not assumed by the disadvantaged party. The request shall be made without undue delay and shall indicate the grounds on which it is based (article 6.2.3). It does not in itself entitle the disadvantaged party to withhold performance (ibidem). If the other party refuses to negotiate and/or there is failure to reach agreement within a reasonable time either party may resort to the court. If the court finds hardship it may, if reasonable, (a) terminate the contract at a date and on terms to be fixed, or (b) adapt the contract with a view to restoring its equilibrium (ibidem).
  • When currently concluding new contracts, attention should be given to the choice of the applicable regime whereby articles 6.2.1-6.2.3 UNIDROIT Principles can give helpful inspiration, e.g. to contractually agree that, although the current COVID-19 pandemic is now known, the parties agree that later developments may still require to negotiate a contract adaptation in good faith
  1. If we are ready to deliver: Can customers refuse taking delivery of products?  

Again, it needs to be distinguished according to the applicable legal regime under German law. Often, German statute will apply in addition to contractual provisions.

If German statute applies, the non-acceptance of goods at the agreed time leads basically to default in acceptance of the goods (Sections 293, 271 German Civil Code). However, it can be argued that, in good faith (Sections 242, 241 para. 2 BGB), the supplier cannot invoke the delay of acceptance of customer due to the special circumstances of the COVID-19 pandemic.

Alternatively, the customer may rely on Section 313 (1) of the German Civil Code discussed above. It may request an adaptation of the contractual provisions regarding purchase quantities and delivery time, because the current COVID-19 crisis has led to a severe interference of the economic basis of the contractual relationship (production environment, readiness for acceptance of its own customer). This risk has not been allocated to a contractual partner, neither contractually nor legally. A right to request adaptation of the contract follows from this interference.

  1. The sandwich position: Can suppliers insist that we take delivery of products while our customers refuse to take deliveries, we have reduced our workforce, stocks are full and we cannot handle taking deliveries?

If German statute applies, the answer is no. See the arguments at lit. c) above.

  1. Withholding performance

In the context of COVID-19 pandemic based contractual disruptions, it is worth to consider the general statutory right to withhold performance under Section 273 German Civil Code which applies (unless its applicability has been explicitly excluded in the contract):

Section 273
Right of retention

(1) If the obligor has a claim that is due against the obligee under the same legal relationship as that on which the obligation is based, he may, unless the obligation leads to a different conclusion, refuse the performance owed by him, until the performance owed to him is rendered (right of retention).

Real Estate

  1. How does the COVID-19 pandemic crisis effect our German affiliate’s obligation to pay rent?
  1. Can it suspend payment of rents?

As a result of the changes of the German Civil Code under the COVID-19 Pandemic Attenuation Law, the risk to lose the rental contract when withholding rental payments for rented space for the months April, May and June 2020 is relieved, if it can be argued in a plausible way that there exists a relationship between the COVID-19 pandemic and its economic difficulties of payment. In such circumstances, the landlord cannot use the argument of a non-payment of rent as a reason to terminate the rental agreement. The business partner then has until 30 June 2022 to pay, belatedly, the rent due between April and June 2020 (e.g. by paying 1/36th on top of the normal rent during the 36 months as of July 2020). However, non-payment can bounce back. All other rights of a landlord are not excluded. It can claim interest at contractual or statutory interest rates which are substantially higher than usual interest rates these days. There is a debate if the landlord can draw any security. Without a clarification by the legislator which may follow in the context of an adjustment of the COVID-19 Pandemic Attenuation Law (on which the legislator is presently working) the defaulting lessee may possibly face two problems: (i) a bank which has to pay money to the landlord under a bank guarantee may turn against the lessee under the suretyship agreement and require payment under Section 774 para. 1 German Civil Code (such action may perturbate the goal of the COVID-19 Pandemic Attenuation Law, but is not technically excluded and the COVID-19 Pandemic Attenuation Law provides so far no defense against a request for payment by a bank desirous to recover payments made under the suretyship agreement).

  1. Can it reduce the rent?

Suspension of the rent under the Pandemic Attenuation Law builds up debt. In our opinion, but certainly subject to a Federal Supreme Court ruling in a few years’ time, the lessee may also be entitled to request a negotiation about the adaptation of the contract. With shops and restaurants closed, some German companies have refused to pay any rent for closed shops and are now about to enter into negotiations with their landlords, others have already reached agreements on a 50:50 basis. In case of office space which is still used but e.g. only at 50% because of the German policy that as many people as possible should stay at home or have to stay at home because of childcare issues, some landlords and tenants are presently discussing about a temporary reductions of the rent as of 23 March 2020 (which is the date of the second speech of the German Chancellor to the nation requesting citizens to stay at home as much as possible). The percentage of rent reduction is individually negotiated and there exists (currently) an openness by the landlords to discuss this in view of the real loss in turnover.

The legal basis is the same Section 313 of the German Civil Code as discussed above in the context of sales and supply contracts (see No. 3. b above), because the current COVID-19 crisis has led to a severe interference into the economic basis of the contractual relationship (here: the usability of the rented shop or office space). This risk has not been allocated to a contractual partner, neither contractually nor legally. A right to adapt the contract follows from this interference. As the German Federal Supreme Court has, in the past, regarded the business risk to be solely on the side of the tenant, the argumentation for the tenants’ side (that this jurisprudence will certainly change in view of the COVID-19 pandemic) is somehow more difficult, however not fruitless, than for the side of the landlords.

Labor Law

  1. What is the impact of the COVID-19 pandemic on the work force in our German affiliate?
  1. Can we reduce the work force?

If, for example, the COVID-19 pandemic leads to a decline in orders and resulting in a loss of work, you may - under consideration of the legal requirements described below - reduce the work force in your German affiliate:

  • In case that the number of employees in your German affiliate is 10 or less FTEs, you can terminate the employment relationship in compliance with the contractual or statutory notice periods and applicable protective legislation (e.g. for pregnant women). The deadlines for ordinary termination are set out in Sections 621 and 622 German Civil Code.
  • If you have more than 10 FTE employees working for your German affiliate, the regulations of the Act on Protection Against Unfair Dismissal applies and determines the legal validity of the termination. Among other things, the termination must be socially justified according to Section 1 of the Act on Protection Against Unfair Dismissal.
  • Another requirement for a valid termination is the participation of an existing works council (Section 102 of the German Works Constitution Law) in due time before the termination.

In order to avoid on the one hand a final loss of qualified employees and on the other hand long lasting legal proceedings, alternatively, you may in a first step reduce working time and apply for short-time work compensation (see the explanations in No. 6 below).

The reduction of working time in coordination with the works council and / or the employees through an agreement or through notices of change in case of refusal are milder means than dismissing employees. The use of the mildest means is one of the major principles of German Labor Law. A reduction of working time can be achieved more quickly than a termination, which can be vital for your German affiliate in the current situation.

  1. What are the rights of employees to stay at home or to work in a home office?

During the COVID-19 pandemic, some employees may consider staying at home just to stay healthy and not to become infected with the Sars-CoV-2-virus. Quite a large number of employees may have to stay at home as a consequence of the closure of schools and kindergartens, which occurred in the middle of March 2020 in Germany, and the resulting lack of care for children. The rights of employees (i) to stay at home or (ii) to work in a home office result either from the employment contract or from law:

  1. Right to stay at home

Care for health alone does not allow employees to stay at home, because the employer has in principle a right of direction vis-à-vis the employee and this right also includes deciding where to work. If the employee does not appear at the workplace without an excuse, this is a violation of contractual obligations and may lead to termination.

But there are, for example, the following exceptions:

  • If the government orders a complete shutdown of factories, companies and offices by way of a general decree, the employee is no longer able to meet the contractual obligation to appear at the workplace. At this point of time, there is no complete shutdown in Germany. Consequently, the employee has to appear at employer’s workplace, unless the employer has ordered home office (see below).
  • When most schools and kindergartens were closed in the middle of March 2020, many parents did not find care for their children because of the government´s short-term decision. The only solution for them was to stay at home. This in turn would result in a loss of remuneration for the employees concerned. To avoid such a loss, Section 616 of the German Civil Code stipulates, that

“entitlement to remuneration is not lost if the employee is unable to perform the work for a non-significant period of time through no fault of his own”.

According to the case law of the Federal Labor Court, the lack of care for children is such a reason within the meaning of Section 616 of the German Civil Code. German courts consider a period of 5 to a maximum of 10 days as a “non-significant period of time”. If the applicability of Section 616 of the German Civil Code is not excluded by the respective employment contract - frequently the applicability of Section 616 of the German Civil Code is contractually excluded - or by a tariff agreement -, the employer has to pay salary for such a period of absence, even if the employee stays at home and does not work.

If the period lasts longer, the employee must find other care for the children or take, for example, unpaid leave.

In view the very special situation in connection with COVID-19, we recommend to seek an amicable solution together with the employee that takes into account the interests of you as employer and of the employee.

  1. Right to work in a home office

Another question, we are regularly asked is whether employees are entitled to work in their home office.

  • German labor law does not provide for a regulation which would allow employees to choose their place of work without the consent of the employer.
  • As already mentioned under section (i), the employer has the right of direction vis-à-vis the employee and this right also includes the right to determine where to work. Unless otherwise agreed in the employment contract, the employee is not free to decide on his place of work. Should the employee work at home contrary to the contractual agreement with the employer, this would violate the obligations under the employment contract. Such a violation could lead to a written warning and finally to a notice of termination of the employment relationship, if the employee does not comply with the contractual obligations.
  • The legal situation would, however, be different, if the government ordered all factories, companies etc. to be closed and the employee were no longer allowed to go to work. In this case, the employee would not be able to perform the work he was offered in the workplace of the employer, but would retain the right to salary.
  • Since the current situation is absolutely new and unusual for all involved and the orders of the Federal Government and the states require to keep distance, solutions should be sought together with the employees to work in their home offices and – as long as this is possible – in the office.
  • However, all employers are strongly advised to take all precautions as soon as possible in order to enable employees to work in the home office in the event of a complete shutdown. This is the only way to prevent entitlement to payment of wages without receiving the work result from the employee.
  • Setting up a home office may include providing a computer, internet connection, printer and telephone. The Employer must also ensure that the employee complies with the data protection regulations.

Corporate Finance / State Aid

  1. Can our German affiliate obtain German subsidies?

There are various subsidies offered both by the Federal Republic / federal agencies and the states and their agencies. Your German affiliate can obtain them individually or side by side, if the legal requirements are met. Below we give an overview about the currently most frequently requested subsidies:

  1. Short-time work compensation

To avoid terminations in the event of loss of work, Sections 95 to 101 of Book III of the German Social Code (SGB III) provides that employees are entitled to a proportional compensation of the salary that they cannot work and are placed on short-time work due to the loss of work. As a consequence of the Convid-19 pandemic, the German legislator has now lowered the hurdles for short-time work compensation. In order to be able to apply to the Federal Employment Agency for short–time work compensation (hereinafter refered to as “Kug”), the following requirements must be met (cumulatively):

  • Significant absence of work: based on economic reasons or an unavoidable event (COVID-19), being of temporary nature, at least 10% of employees are affected by a loss of earning of each more than 10% of their monthly gross salary.
  • Operational requirements: a minimum of one worker; a company in the sense of SGB III is also a company department.
  • Personal requirements: the employee continues employment subject to compulsory social insurance and the employment relationship has not been terminated or is excluded from the Kug relationship.
  • Announcement of short-time work and agreement: the employees and / or the works council must be informed of the planned short-time work and must agree thereto.

If these conditions are met, the employer has to present the loss of work to the responsible employment agency. After approval by the agency, the employer calculates the short-time compensation (60 or 67% of the net salary not earned depending on whether the employee has children), pays it to the employee together with the actually earned net salary and then applies for reimbursement (of the short-time compensation) by the employment agency. The actual absence of work can vary monthly between 10 and almost 100% and the longest period for receiving short-time work compensation is 12 months.

Currently more than 470,000 applications for short-time work compensations have been submitted to the employment agencies. The Federal Minister for Employment, Hubertus Heil, presently discusses the possibility of raising short-time compensation up to 80% of the net salary not earned.

  1. Emergency aid (“Corona Soforthilfe”) for companies

Both, the Federal Government and the states have launched emergency aid programs for companies and the self-employed. Depending on the size of the company, one-off payments may be applied for, which range from € 2,500.- to € 30,000.-. The funding conditions vary from state to state, so that an answer can only be given on a case by case basis, depending on the respective location of the German affiliate. The following example illustrates this:

  • If your German affiliate is located in North Rhine Westphalia and you hold more than 50% of the company shares or voting rights, your affiliate is not allowed to apply the emergency aid. The reasons for this is that the parent company should initially provide financial support.

What all emergency aid programs have in common, however, is that the company must demonstrate a decline in sales of at least 50% or a massive restriction of the possibility of generating sales due to the Corona General Decree and that existing liquidity reserves must be used before an application for emergency aid can be made. Loss of sales, profit or earnings alone does not entitle to emergency aid.

Privacy and Cybersecurity

  1. What is the impact of the COVID-19 pandemic on privacy protection?

In particular since the entry into force of the General Data Protection Regulation (GDPR) in 2018 there exist high privacy protection standards in Germany. Even in these exceptional times of the COVID-19 pandemic, companies must ensure that the legal requirements of the GDPR are met in relation to customers, employees and business partners. There is no COVID-19 exception, not even regarding the statutory deadlines, which apply for example regarding the obligation of companies to notify authorities in case of data protection infringements.

The COVID-19 pandemic has also raised several new privacy and cybersecurity issues. In particular when setting up workplaces in home offices, appropriate and suitable technical and organizational measures (TOM) need to be ensured. In this context, inter alia, home office data protection guidelines are recommended to provide employees with guidance on how to deal with personal data in compliance with privacy and cybersecurity standards. Furthermore, the use of online communication platforms such as Skype, Zoom, GoToMeeting, etc. needs to comply with GDPR standards and requires companies to conclude data processing agreements according to Article 28 GDPR with the respective providers of such online communication platforms.

More privacy issues are raised, as many employers may be required, to process health data of their employees in order to fulfil their duties and to organize their work in line with national legislation. This may require a company that receives COVID-19 based health information to apply even higher data protection standards than in its ordinary course of business, because specific GDPR requirements apply to the processing of health data.

Investment Opportunities, German Mittelstand, IT, Business Software (SAP)

  1. Are there special investment opportunities in the German market as a result of the COVID-19 Pandemic?

The German economy has done quite well in the recent years. So far, many corporations are well funded. But this status will change, if the COVID-19 crisis continues. Even companies that have been doing well, will use up their financial reserves, so that the capital necessary for investments will be lacking. This capital will not only be provided by bank loans, but must also be in the form of equity. Therefore, many medium-sized companies will be looking for equity capital investors or for strategic investors to prepare for the future. Further, the COVID-19 crisis has already now rapidly increased digitalization in all situations, not only in business life but also in social, cultural and personal environments. Smart solutions beyond what had been deemed necessary are and will now be sought, and a very broad market from consumers, social institutions, schools, over sports clubs, theatres, to business world and industry stands ready to test and try.

Note: Our firm is well connected in various industries. From time to time we solicit business opportunities for our clients. This will be something which we will do also in the months coming.

  1. Is there any impact of the COVID-19 pandemic on the procurement of IT products and services?

The current situation in Germany caused by the COVID-19 pandemic highlights the increasing dependence of companies on digital solutions. Many companies with employees now working remotely have realized that they have to digitalize important areas of their businesses. It is to be expected that companies will make further investments on the procurement of IT products and services in the upcoming months. To make the modernization of the IT landscapes of companies more attractive, the German company SAP, Europe’s biggest provider of business software, has extended the timeline for the contract conversion program regarding the transition to its new cloud computing solution S/4HANA.

SAP’s S/4HANA software replaces the previous SAP software on-premises solutions. Maintenance for the previous software solutions will be stopped on December 31, 2027. Under SAP’s contract conversion program companies can receive substantial credits for the value of its previous SAP software when making acquisitions of the new S/4HANA software solutions (so-called "protection of pre-investment"). Without this program, customers are obliged to purchase the new S/4HANA software without receiving any credit for the value of its existing old SAP software contracts. The contract conversion program was meant to expire soon. However, SAP recently has announced that it will be extended.

In addition to the possibility of crediting the old SAP software contracts, the negotiations for the conversion to the S4/HANA software also offer an opportunity to achieve better commercial conditions, including higher discounts, as well as legal conditions for any existing or new contracts. Considerable savings can therefore be achieved in the following months.

Litigation and Arbitration

  1. Is there an impact of the COVID-19 pandemic on litigation or arbitration in Germany?
  1. Litigation

As for litigation before public courts in Germany, the measures taken as a consequence of the COVID-19 pandemic vary from court to court. Due to the independence of the judiciary, courts and judges in principle decide themselves on the further course of action regarding ongoing and new trials. Many courts have decided to extend timelines regarding briefs and postponed oral hearings.

  1. Arbitration

With respect to arbitration, several associations offering arbitral proceedings in Germany, including the most frequently used association based in Germany, the German Institute for Arbitration (“DIS”), published notifications that any requests for extensions of timelines regarding arbitral proceedings will take the COVID-19 pandemic into account. The Chinese European Arbitration Centre (“CEAC”) invites for email filing of any notice of arbitration.

About Brödermann Jahn

Brödermann Jahn is a business law firm which provides full service to national and international business clients with a focus on cross-border work (such as advice in trade and company law, IT, data protection, M&A, labor, comparative legal structuring, international litigation and arbitration). The firm considers law as a tool to increase the economic success of its clients and restore balance to their businesses. Clients come first.

Established in 1996 by Eckart Brödermann LL.M. with a background in French, US, German and Chinese law (Harvard ’83, Maître en droit, Paris, professor at the University of Hamburg and a Bar Certified Specialist of International Business Law), the firm has grown to a team of approximately 20 lawyers with in-depth knowledge in over 20 industries ranging from automotive and health to real estate and IT. The firm operates Germany wide and worldwide out of Hamburg, Germany’s largest trading city and port. Clients are situated all over Germany and on all five continents. The firm’s tool-kit includes modern legal tools such as the UNIDROIT Principles of International Commercial Contracts 2016, on which Eckart has written an entire article-by-article commentary (https://www.youtube.com/watch?v=jX0utyTCC5Q).

During the present COVID-19 crisis we work in fully functioning shifts, always half of us from home. We have set up a team pooling the daily input on COVID-19 legal solutions. Pro bono, we have contributed to expert statements of the German Bar to the German legislator on its COVID 19-legislation, or, for example, helped a local cab company to acquire state aid.

Brödermann Jahn is a member of The International Society of Primerus Law Firms.

Contact:

Prof. Dr. Eckart Brödermann LL.M., Dr. Philipp von Dietze, Tina Denso LL.M., Dr. Eckard von Bodenhausen, Dr. Johannes Struck, Dr. York Zieren, Sebastian Kühn

ABC-Straße 15
Hamburg, 20354 Germany

+49 40 37 09 05 0; cell phone: +49.172.42.90.500 (Eckart); +49.171.1450647 (Philipp)

Eckart.Broedermann@german-law.com; Philipp.von.Dietze@german-law.com

www.german-law.com