Current ruling: Short-time working allowance for managing directors

The coronavirus crisis is hitting many companies hard. To mitigate these consequences somewhat, short-time working allowance is being granted. This is intended to support companies and preserve as many jobs as possible. The question therefore arises as to whether managing directors can also receive short-time working allowance.

The Speyer Social Court recently dealt with this question in summary proceedings and made a potentially groundbreaking decision (case reference: S 1 AL 134/20 ER). In principle, managing directors can also receive short-time working allowance, but it depends on the individual case. The decision has so far only been published in a press release and has not yet become legally binding. Further decisions must therefore be awaited. Nevertheless, the judgment of the Social Court is interesting for many companies that are affected by a significant loss of working hours.

The facts of the case

A limited liability company (UG), i.e. a so-called small GmbH, which is active in the tourism and sports business, has applied for interim legal protection to be granted short-time working allowance for its UG managing director as well. The company was mainly active in the field of travel and school transport. Due to the effects of the coronavirus crisis, its economic existence is threatened.

The employment agency rejected this application. The managing director of a GmbH is in charge of the company's fortunes. It is therefore part of his area of responsibility to find new customers and business areas and to avoid short-time work. Furthermore, a managing director is not an employee and is therefore not covered by the provisions of § 95 SGB III, which are limited to employees. This was the reason given for the rejection.

The decision

In its decision, the Speyer Social Court disagreed with this assessment and issued the requested temporary injunction.

There were no indications that the employment relationship of the UG managing director could not give rise to an obligation to pay social security contributions. There were also considerable losses due to the losses in the area of travel and school transport, to which the UG had essentially shifted its business purpose. It was therefore to be feared that the employment relationship with the managing director would have to be terminated if no short-time working allowance was paid. This would result in the managing director becoming unemployed, which is precisely what the short-time working allowance is intended to prevent.

What can be inferred from this decision

The Speyer Social Court makes it clear that managing directors can also receive short-time working allowance. The decision therefore covers two key problem areas.

Firstly, the question of whether managing directors are even covered by the personal scope of application of Section 95 SGB III, which expressly only applies to "employees". Secondly, the question arises as to whether a managing director can be affected by a significant loss of working hours at all, as their field of employment also includes the acquisition of new customers.

The personal area of application

The Speyer Social Court considered the UG managing director to be an employee in the present case. This is in line with the established case law of the Federal Social Court.

This is based on the consideration that the concept of employee under social security law differs from the concept of employee under labor law, as defined in Section 611a BGB.

The concept of employee in social security law

In social security law, an employee is anyone who is in an employment relationship subject to social security contributions. This is defined in § 7 Para. 1 SGB IV as non-self-employed work, in particular in an employment relationship. Accordingly, the employment must be subject to instructions.

The wording "in particular in an employment relationship" makes it clear that employment subject to social security contributions may also exist in other legal relationships, such as in the context of the activities of oranges. This may therefore also include managing directors of a GmbH.

Employment subject to social security contributions for managing directors

The specific individual case is decisive as to whether the activity of the managing director of a GmbH is subject to social security contributions. In addition to the provisions of the GmbH Act and the articles of association, the managing director's employment contract under the law of obligations is also decisive for the managing director's position in relation to the GmbH. Pursuant to Section 37 (1) GmbHG, managing directors are obliged vis-à-vis the GmbH to comply with the restrictions on representation in the articles of association or the resolutions of the shareholders.

The managing director of a GmbH is therefore - at least in principle - not self-employed, but subject to the corresponding instructions. This means that the employment relationship is subject to social security contributions. The managing director is therefore covered by the concept of an employee within the meaning of social security law.

Exception for managing directors not bound by instructions

The only exception is in the case of a managing director who is not bound by instructions. These are not subject to any restrictions vis-à-vis the GmbH. Freedom from instructions is given if the managing director is in a position to prevent unpleasant instructions due to his legal authority.

A distinction must be made here between shareholder managing directors and external managing directors. Shareholder managing directors are those who themselves hold shares in the GmbH, i.e. who also have a say at a shareholders' meeting. Third-party managing directors do not hold any shares in the GmbH themselves.

In particular, a shareholder managing director who holds at least 50% of the shares in the GmbH or has a blocking minority is free to issue instructions. However, this is also possible in individual cases for external managing directors who are contractually granted the status of a shareholder who is not subject to instructions as part of the articles of association or by shareholder resolutions.

It can therefore be assumed that the managing director in the present case was not a shareholder-managing director with at least 50% of the company shares or a blocking minority and was not otherwise exempt from instructions. Accordingly, the employment in this case was subject to social security contributions and therefore also had the status of an employee within the meaning of Section 95 SGB III.

Can a managing director be affected by a significant loss of working hours?

As it is also part of the managing director's remit to find new customers, his activity is independent of the actual order situation in the company. If the company's order situation is poor, it would therefore be the managing director's task to use his manpower to find new customers and thus improve the order situation again and lead the company out of the crisis. Therefore, the activity of a managing director would in principle never be affected by a significant loss of working hours or even the activity of a managing director would be completely excluded from the regulations on short-time work compensation.

However, this assessment cannot be inferred from Section 96 SGB III, which specifies the characteristic of a significant loss of working hours. This does not refer to work performance within the meaning of Section 611a BGB. Accordingly, the activity of the managing director is not excluded. Rather, the entire economic activity of the company is included, i.e. also the activity of the managing director.

Moreover, the current problematic situation also involves a special circumstance. Due to the coronavirus crisis, the entire area of activity of the company in question, travel and school transport, has been severely restricted or in some cases made completely impossible. This circumstance can also have an impact on the managing director's scope of activities. Accordingly, the activities of a managing director may also be affected by a considerable loss of working hours.

However, as his work is not directly affected by the current order situation and in this respect also differs from the work of other employees, there are likely to be corresponding differences in the assessment of the amount of short-time working allowance. However, no statements on this can be found in the press release of the Speyer Social Court. It is worth keeping an eye on these proceedings.