Compensation and State aid – does the State have to pay for corona?

Not only Germany, but the whole world has to come to grips with corona. An unprecedented scenario is pushing our social life, our economy, and our politics to their limits and beyond. Many people are asking themselves now: “Who will pay for the economic and personal damage?”

Regrettably, the answer is anything but satisfactory. But there is at least a little hope.

The framework under civil law – such as claims between contractual partners in supply chains, termination and adjustment options – is discussed in other articles on our website. Below we deal with claims against public authorities.

The most important details in brief:

• If one of your employees is sent to “corona quarantine” by the public health department without at the same time undergoing medical treatment, you may be entitled to claims for compensation under the Protection against Infection Act. These must be filed quickly (within three months!). Make sure to take care of this in due time.
• Generally being affected by everyday restrictions and the loss of sales due to the crisis does not justify compensation! Do not block the channels of the health authorities with pointless compensation applications under the Protection against Infection Act. Let us advise you first.
• Instead, take advantage of government assistance. These are not “handouts,” but rather compensation measures owed by the public sector for the consequences of the crisis in accordance with the duty of the welfare state.
• Documentation, documentation, documentation! Keep written records of the changes in your company due to the corona crisis, either in the form of a business diary or by collecting all orders and organizational measures in a “corona folder” – it will likely be only when the crisis is over that claims need to be documented in detail. It is good to be prepared by that time at the latest! While this may be self-evident for large companies, particularly small and medium-sized enterprises may have to develop those routines only. Let us assist and advise you.
• Compute and document your sales and productivity losses in “real time,” i.e., with weekly and monthly computations, to be prepared for the application procedures and their subsequent reviews!
• This also includes distinguishing between general economic effects and the “corona crisis.” Restaurant owners who experienced low sales in the winter months would have opened their terraces in the sunny spring. Rigid extrapolation of the January figures to the rest of the year is not possible in these cases, but you will have to put forward the right arguments.
• In general, we are confident that the promised “unbureaucratic” and “flexible” assistance from federal and state authorities will be forthcoming. Much of this will be provided on a loan basis, however, in conjunction with companies’ principal banks. The stress test for this system is yet to come. Applications will become more frequent and may overburden authorities and banks. Expect delays. The better you are prepared, the faster you can be assisted!
• Without wanting to be prophetic: the big settlement will come after the crisis. It is precisely because funds will hopefully now be allocated quickly and without lengthy reviews that there will be at least random checks after the crisis, specifically to uncover cases of abuse.
• Remember also that even where loans are granted without interest, they have to be repaid at some point. Business owners must personally guarantee these loans, meaning that private assets are also potentially “in peril.”

What is the legal basis for all this?

Legal scope of the Protection against Infection Act

All current federal, state, and local measures are based on the Act on the Prevention and Control of Infectious Diseases in Humans (Protection against Infection Act). The historical predecessor law still had the martial name of “Federal Epidemic Act.” Diseases, epidemics, and, in times of globalization, increasingly pandemics have accompanied human civilization for thousands of years. The Protection against Infection Act offers the entire range of instruments of reactions by the State that were in place centuries ago: isolating infected persons and protecting society from the spread of an outbreak of infectious diseases by means of curfews and codes of conduct. In addition, in what is a development of modern times, education, research and cross-border cooperation is governed by the Act.

Measures to contain an epidemic are designed to limit human behavior, in particular exchanges in social and thus economic life. Where hands are shaken, diseases are spreading fastest. It is therefore a necessary consequence that “normal” life is impaired – possibly to a very large extent. If social contacts are prohibited, stores closed, people asked to stay at home, everyone is suffering and many will suffer massive economic damage. The socio-psychological effects of all this cannot be discussed here. They are enormous.

Compensation for persons in corona quarantine

Only those who are directly and immediately affected by measures of the health authorities are entitled to compensation. Section 12 Protection against Infection Act is therefore also entitled “Compensation in special cases.”

According to Section 56 Protection Against Infection Act, monetary compensation is paid to anyone who is or becomes subject to prohibitions in the exercise of their previous employment as a “corona case” (infected or suspected case) on the basis of the Protection Against Infection Act and thereby suffers loss of earnings. The same applies to individuals who have been or will be segregated for this reason. The term “seclusion” is better known as “quarantine.” This means that persons who have been quarantined by order of the authorities although they do not require medical treatment are in principle entitled to compensation. Anyone who has only stayed away from work as a precautionary measure due to their own decision or at the request of their employer will not be entitled to compensation.

Compensation for salaried employees is usually based on the loss of earnings in accordance with their current salary entitlement. The compensation for loss of earnings is paid to employees by their employers, which receive the payments from the body responsible under national law.

Self-employed individuals who are unable to work due to quarantine may also apply for loss of earnings and assistance to cover the ongoing operating costs of their businesses.

In all cases, only real losses resulting from the prevention of work are covered. This does not include loss of earnings due to economic hardship or general restrictions (such as general restaurant or store closures). If the prevention of work at the usual place of work can be compensated for in some other way, for example by work from a “home office,” the claim for (possibly proportional) compensation is not applicable either.

Recommendation: If one of your employees had to stay at home because of a suspected case of corona due to an official order and work in a “home office” or similar was not considered, you may file an application for compensation with the responsible state authority. Forms are available from the local health authorities on the Internet.

Tip for use in practice: Remember to document the absences in due time, retain official documents, and keep a diary of the days of absence from work. Important: Generally, the application must be filed within three months from the start of the quarantine.

No compensation for those affected by general restrictive measures

Section 16(1) Protection against Infection Act provides that the competent authority may take the necessary steps to avert a danger threatening individuals or the general public if facts are established which may lead to the occurrence of a communicable disease such as Covid-19. Section 28 Protection Against Infection Act provides that in the event that cases of corona, for example, are detected, the competent authority may take the necessary protective steps. The competent authority may thus restrict or prohibit events or other gatherings of a larger number of people. It may also obligate persons not to leave the place where they are located or not to enter places designated by the authorities until the necessary protective steps have been taken. Section 32 Protection Against Infection Act authorizes the governments of the German states to issue appropriate orders and prohibitions to combat communicable diseases, including by means of ordinances. These restrictions may restrict basic rights of citizens – if necessary to a very large extent.

The extent to which restrictions are permitted is subject to an extremely complex balancing act between the general interest, the interest of each individual, and the likelihood that one or the other will be affected by possible measures.

The Federal Administrative Court once put it this way in a case relating to measles long before corona:

“The principle applicable in general police and regulatory law that the greater and more serious the damage that may occur, the lower the requirements to be placed on the probability of damage occurring (is to be) used (...). In the event of a highly infectious pathogen, which in the case of an infection would very probably lead to a fatal disease, it is likely, in view of the serious consequences, that the comparatively low probability of contact relevant to the infection will be sufficient. (Therefore, it is) appropriate to use a “flexible” scale for the sufficient (simple) probability, which is geared towards the degree of risk of the respective disease.”

Federal Administrative Court, March 22, 2012 – 3 C 16/11, NJW 2012, 2823, beck-online

Although it is foreseeable that, if the situation worsens, there will also be legal disputes on individual aspects of the measures taken, at present neither side is arguing that the measures taken are disproportionate, even though there have never been such massive and comprehensive restrictions worldwide.

Therefore, if we can expect that, in view of the epidemiological and virologic facts known at present and the statistics on diseases and mortality, the current action is necessary, there will be no claim for compensation or indemnification against the public authorities, since the authorities are, of necessity, acting lawfully.

Since the generally imposed restrictions mean correspondingly deep cuts for many companies and individual tradespersons and freelancers, it is not only a friendly gesture by the State to offer assistance, but its duty as a welfare state. This assistance is given in the field of state subsidies, however, where the principle applies that there is no entitlement to them, but only the right to be treated equally with others when such assistance is granted. If the money available is scarce, it must be distributed according to equal standards, even if not all needs can be met. It is precisely because funds will hopefully now be allocated quickly and without lengthy checks, however, that at least random checks will have to be carried out after the crisis to see whether the money has reached the right targets, and particularly to uncover cases of abuse.

Therefore, we recommend that you familiarize yourself in due time with the assistance offered, the requirements, and consequences. We provide continual information on our website and are able to support you in the application process.

Since the entire matter is new and unprecedented, it can only be presumed today that, despite all the flexibility and the promised avoidance of too much bureaucracy, the application process will quickly overburden the official resources at federal and state levels, all the more so as the authorities are also affected by staff shortages due to the corona crisis. This is already becoming apparent now when processing applications for short-time work allowance.

Recommendation: If not already done, you should start to document the operational and financial effects of the corona crisis in detail! Record the changes in your company as a result of the corona crisis in writing, either by keeping a business diary or by recording all orders and organizational measures in a “corona folder.” Either when applying for assistance now, or in any case in review procedures after the crisis is over, you will be asked to provide proof of your needs. If State aid is granted, its proper use must be proven. We expect that large companies are preparing for this anyway through contingency plans. For many small and medium-sized enterprises, this is all entirely new territory.

Tip for use in practice: Compute and document your sales and productivity losses in “real time,” i.e., with weekly and monthly computations. As far as your accounting and controlling system is still functioning in terms of staffing and technology, you should try to work out the “corona effect.” The understandable despondency and excessive demands of many individuals in these times should not stop you from doing so. This also includes distinguishing the general economic effects from the “corona crisis.” Restaurateurs, who had low sales in the winter months, would have opened their terraces in the sunny spring. Construction sites could have been opened after the winter months, etc. Rigid extrapolation of the January figures to the rest of the year is not possible in these cases, but it is up to you to forward the right arguments.

Other compensation and savings (short-time work allowance, changed purchasing costs) must be honestly offset.

In general, we are confident that the promised “unbureaucratic” and “flexible” assistance from federal and state authorities will be forthcoming. Much of this will be provided on a loan basis, however, in conjunction with companies’ principal banks. The stress test for this system is yet to come. Applications will become more frequent and may overburden authorities and banks. Expect delays. The better you are prepared, the faster you can be assisted

We must all prepare for the fact that this corona year will have to be “accounted for” in its details at some point in time, perhaps not until 2021. Tax burdens will have to be recalculated, assistance loans may have to be paid off. We all have a lot of work to do!

Status: March 23, 2020