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New German Law on Temporary Employment
The German parliament has passed the revised German Employee Leasing Act (Arbeitnehmerüberlassungsgesetz) which is effective as of 1st
of April 2017. The revised Act contains several major changes regarding employee leasing and service contracts. It has been criticized by many since it will make employee leasing more complicated and almost impracticable for those who are concerned about committing unintentional breaches of law.
New provisions regarding leasing agreements and employment contracts
In general, service contracts can contain regulations regarding the assignment of temporary employees. These employees can work on the basis of employee leasing or based on contracts for work. If the work is carried out in the framework of employee leasing, strict rules will apply. For contracts for work, on the other hand, there is more flexibility and less protection for the workers.
In the past, there was a tendency to phrase contracts as “contracts for work” and not as “employee leasing”, adding a contingency plan in case the legal relationship should end up being regarded as employee leasing. If there was a chance that the contract could also be employee leasing, possible lenders would hold a so-called precautionary personnel leasing licence (Vorratserlaubnis) to demonstrate that they would have had the authorization to lend employees in the first place. Prior to 31st
of March 2017, if a contract for work turned out to be employee leasing, the mere fact that there was a precautionary licence was enough to retrospectively legalise the form of contract. By this means, if the lender had transferred employees to the hirer based on a contract for work, it was deemed legal to later rephrase the agreement as temporary leasing – the temporary leasing was thus not unlawful since the necessary authorization could be provided.
The new regulation eliminates this dual option. From 1st
of April 2017, any leasing agreement must explicitly specify that the subject matter of the contract is the leasing of temporary employees and nothing else. The contract must undoubtedly state that employees will be transferred based on employee leasing. Therefore, contracts for work cannot retrospectively be rephrased as employee leasing anymore because the subject matter had not been specified as such in the first place. Today, if a contract for work turns out to be employee leasing, a precautionary personnel leasing licence will not help anymore.
Since there is no transitional rule, the new legal requirement applies to any employee leasing which takes place on or after 1st
of April 2017. All such contracts must be phrased as temporary employment contracts if they are in force on 1st
of April 2017 or later. Therefore, if employee leasing had been in place already and the contract did not correspond with the new regulation, a perfectly legal execution of a perfectly legal contract became illegal once the new regulation came into force. Since such specifications were not a common standard until now, it is very likely that there are many contracts on employee leasing that violate the new law. The risk is high for both parties involved if a contract for work turns out to be a leasing agreement.
While it is understandable that the law tries to eliminate the abuse of rights in cases of deliberately hidden employee leasing, the new regulation will also lead to a criminalization of mere errors. It is far from reality to assume that anyone who used to hold a precautionary licence did so out of a dishonest motivation to deny temporary employees their rights. In practice, possible hirers mainly used to hold such licence out of uncertainty regarding the legal situation. Under the new regulation, parties will rather treat a contract as temporary employment, even if they are rather sure that it is in fact a contract for work, since there is no risk for erroneously applying employee leasing regulations in the context of a contract for work, but a very high risk if it is the other way around.
Maximum duration of 18 consecutive months for deployment of temporary workers to the same hirer
The In the past, there was an unspecified time limit for the duration of employee leasing. The only caveat required that the employment must be "temporary". It was unclear after which lapse of time "temporary" becomes "permanent". Under the new framework, the law explicitly states that anything up to 18 months duration is considered temporary, and employee leasing periods must not exceed this duration.
The focus is not on the position, but on the individual temporary worker. The main idea is that the hirer should offer a contract for work to anyone who has been at his place for 18 months and to take over the employee into permanent employment. If the hirer does not wish to enter into a contract for work with the outsourced employee, the employee will be required to leave. The same position can be filled permanently with temporary workers, as long as they are exchanged at least every 18 months. Any interruption of at least three months will start a new 18 month period for a specific worker. After such interruption, a previously employed temporary worker may return. The 18 month period cannot start before 1st
of April 2017. Thus, temporary employees who joined the hirer on 1st
of January 2017 will have to leave by the end of September 2018, not by the end of June 2018.
The Exemptions are only permitted via Collective Bargaining Agreements (CBA); this is meant as an incentive to participate in CBAs.
Entitlement to equal pay and equal conditions
The law states that temporary workers must receive the same salary as regular employees within nine months of commencement, and the same employment conditions must apply as is the case for permanent staff. Exemptions for the first nine months can be regulated in industry-specific CBAs. If there are specific "industry surcharge wage Agreements" (Branchenzuschlagstarifverträge), this period can be extended to a maximum of 15 months, as long as the temporary worker ends up receiving equal pay at the end of this period and in the meantime receives a gradual increase in pay starting after a maximum orientation period of six weeks.
As with the previously mentioned 18 month period, the nine month period can also only commence on or after 1st
of April 2017.
No strike breaking and other changes
As of 1st
of April 2017, temporary workers cannot replace other employees on strike. Previously, they were permitted to refuse such replacement, but could also opt to carry out tasks which used to be the duty of those on strike. The new regulation contains a strict employment ban, even if the temporary worker wants to do the job. The strict ban also applies to temporary workers who had been employed before the beginning of the strike and had thus not been hired as a strike replacement. While there is a strike, temporary workers may only carry out tasks that would not be carried out by striking employees if they were not on strike. The main idea is to give strikes more impact, which seems doubtful from a constitutional point of view. Further changes contain amendments of the Works Council Act.
Severe consequences for violations
The consequences for violations are rather severe. In particular, the fines which apply in case of specific breaches are high, and a statutory change of employer can also occur. Infringements are "punishable" by a change of employer, particularly by a violation of the 18 month limit. The same legal consequence applies if the contract is not explicitly phrased as employee leasing.
The statutory change of employer means that the employment contract between lender and worker is declared void, while the law stipulates that the hirer becomes the employer. This is awkward since the hirer will then also be liable for payment of social security contributions. Most likely, the hirer will be in debt towards the agencies since he may not even be aware of the fact that he has become a statutory employer of the employee who had previously been hired.
If the employee does not want this change of employer, there is a highly complicated procedure to reset to the previous status. The employee may declare to the employment agency that he wishes to remain with the previous employer. By this means, the agency will learn about breaches of law and can instigate further sanctions.
These sanctions mean massive administrative fines for both lender and hirer. Infringements carry high fines which can reach up to EUR 500.000,00. Interestingly enough, nothing is punishable by higher fines than strike breaking. This makes the aim of the new legislation clear: to enforce collective bargaining agreements and to strengthen unions.
Conclusion
The new law is heavily criticized since employee leasing has been rendered very unattractive, and because unintentional breaches of the law or evasion both carries a high risk. Since the framework has become rather complicated and both hirers and lenders are threatened by high fines, it is not clear if this is in accordance with European Law which guarantees the existence of employee leasing.
With the new law in force, contracts must be reviewed even more thoroughly than before. The contractual design to avoid the application of the Employee Leasing Act is becoming a risky business and requires absolute accuracy in contract drafting and in monitoring of the employment. This also applies to hirers since fines can also be caused by infringements committed by them. In particular, even if there is a well-designed non-leasing contract, hirers must be careful to not change the way the contract is carried out, i.e. not give instructions to non-staff, not assimilate them with regular staff, differentiate between external personnel and their own staff etc. If this cannot be arranged, the contract should rather be conceptualized as temporary leasing in the first place.
If you have any questions related to this topic, please feel free to contact
Dr Franziska von Kummer
(Lawyer, LL.M., M.C.L., Licensed Specialist for Labour Law, Business and Economics Graduate).