Introduction

Discussions concerning the reform of temporary employment planned by the coalition government characterised 2016. It was intended that the Employee Assignment Act, the Works Constitution Act and the Civil Code be readjusted in order to "align temporary work with its core function and prevent the abuse of structures with contracts for work and services" (Parliamentary Print Item 18/9232, page 1). Based on the first draft legislation (which has since been adjusted several times), Parliament and then the upper house of Parliament consented to the reform law, which entered into force on April 1 2017.

Legal definition of 'employee assignment'

Previously, the Employee Assignment Act contained no legal definition of 'employee assignment', but rather presupposed such an assignment. Effective as of April 1 2017, Section 1(1)(1) of the act has such a definition. Accordingly, in connection with their business activity, employers acting as temporary employment agencies must assign employees (temporary employees) to third parties (hiring companies) for the performance of work. Employees are assigned for the performance of work if they are integrated into the employment organisation of the hiring company and are subject to its instructions (Section 1(1)(2) of the act).

It is doubtful whether the legislative goal not to change the act's previous area of application can be achieved with regard to Section 1(1)(2). According to the legislation, based on jurisprudence this clause determines under which requirements an employee can be assigned. The clause is thereby intended to help distinguish between the engagement of an employee in connection with an employee assignment and an agent in connection with contracts for work and services or service contracts, but it should not change the legal situation (Parliamentary Print Item 18/10064, page 13). It is problematic that the legislature simply intended to follow jurisprudence. The wording of Section 1(1)(2) failed or did not succeed sufficiently. According to the Federal Labour Court, an employee assignment exists if the hiring company is provided with personnel who are fully integrated into its business operation and who carry out the work exclusively under its instructions and in its interest (7 AZR 497/89, January 30 1991; and 7 AZR 269/07, August 13 2008). However, Section 1(1)(2) does not stipulate 'full' integration or 'exclusive' subjection to instructions.

It remains to be seen how the adjustment of Section 1(1)(2) will be received in practice, particularly by the permit and customs authorities. It is not to be presumed that the requirements developed by the jurisprudence for an employee assignment pursuant to Section 1 of the act will change. Rather, the relevant criteria ('full' integration and 'exclusive' subjection to instructions) must continue to be read into Section 1(1)(2) by way of interpretation, such that an engagement of temporary employees previously carried out as a contract for work and services cannot be re-declared into an employee assignment on the basis of the changed statutory regulations and definitions.

The provision in Section 1(1)(2) does not, for example, aim to limit the entrepreneurial activity of consulting companies (Parliamentary Print Item 18/10064, page 13). The new provision is not intended to stand in the way of the proper use of contracts for work and services or service contracts in the contemporary forms of the creative or complex project business, as they can be found in business consulting, IT industry optimisation, development and IT introduction projects. The general principles for the distinction of services under service contracts and contracts for work and services on the one hand, and an employee assignment on the other, will continue to apply. A consultant bound to an activity in the business of the company, with respect to the place of work, does not by itself give rise to personal dependence on such a company. Rather, in accordance with previous practice, an overall value judgement must be made regarding whether integration into the business occurs (Parliamentary Print Item 18/10064, page 13).

Sector exception

Section 1(1)(3) of the act previously stipulated, among other things, that an employee assignment (particularly between corporate group companies) does not require a permit if the employee is not hired or engaged for the purpose of the assignment. In this case, only a few of the act's provisions are applicable. The legislature has expanded the exceptions provided for in Section 1(1)(3) to include public authorities, in that the provision of personnel pursuant to Section 4(3) of the Collective Bargaining Agreement for the Public Sector is also exempt from a permit – although in this case there is an ongoing engagement of the assigned employee by the customer. Section 1(3)(2b) of the act will in future state that the act's provisions are not applicable if an employee assignment is carried out among employers where the tasks are transferred from the previous employer to a different one. On the basis of a collective bargaining agreement with the public service, the employment relationship continues to exist with the previous employer and the work will in future be performed for a different employer.

In addition, an employee assignment is given privileged treatment pursuant to Section 1(3)(2c) of the act if the employee assignment is carried out between legal persons established under public law and they apply the collective bargaining agreements of the public civil service or the provisions of the public law religious communities.

The extension of the permit exemption and the associated privileged treatment of the public sector are not provided for in the government coalition agreement. Sections 1(3)(2b) and (2c) are subject to considerable constitutional concerns. It is difficult to understand why the provision of personnel on the basis of the Collective Bargaining Agreement for the Public Service does not fall within the scope of the act. No objectively comprehensible reason (Article 3 of the Constitution) for this unequal treatment in favour of the primarily public law employers exists, since the question arises of why government employees assigned for the purpose of the provision of personnel apparently need less protection than those in the private sector who perform work in a classic employee assignment. Legitimate doubts are also raised concerning the compliance of the exemption provisions with European law. The EU Temporary Agency Work Directive (2008/104/EC) does not provide for any privileged treatment of the public sector, but pursuant to Article 1(2) it applies equally "to public and private undertakings which are temporary work agencies or user undertakings engaged in economic activities whether or not they are operating for gain".

Maximum assignment duration

A general statutory maximum assignment duration of 18 months applies (Section 1(1)(4)(1b) of the Employee Assignment Act). The duration is to be determined on an individual basis and thereby allows "revolving door employees". This means that after 18 months an employee can be removed at the customer's request and replaced by a different external employee. Permanent employment positions against this background can also be permanently filled with (changing) temporary employees.

A de facto extension of the statutory maximum assignment duration cannot be achieved by assigning the relevant temporary employee to a different workplace (if applicable in a different business unit). According to the wording of the legislative provision ("the same hiring company"), this is not determinative. It refers to the customer who as an individual or legal person can be a contractual partner of the temporary work agency without it being relevant to which position or business unit the temporary employee is assigned. The term 'hiring company' is therefore to be understood to refer to a legal entity (see Bissels/Falter, ArbR 2017, 5; Parliamentary Print Item 18/9232, October 2016, S 6; and Procedural Directive of the Employee Assignment Act, status: January 2016, Section 1 Nr 1.1.2 paragraph 4).

In the case of an interruption of the assignment for more than three months, the maximum assignment duration begins to run again from the start and can again be fully exhausted for the respective temporary employee (Section 1(1b)(2)). In such a case, there is no adding together of previous work periods which may have been performed by the temporary employee with a different personnel agency. In this context, it has not yet been conclusively clarified which requirements should be applied to an interruption. It is likely to be decisive that a temporary employee can no longer be assigned by the personnel agency within the meaning of Section 1(1b)(1), or the customer can no longer "have the employee work" for the customer. It is irrelevant whether the work hindrance originates from the temporary work agency, customer or temporary employee. This includes not only the termination of the employee assignment contract, de-registration of the temporary employee by the customer or withdrawal (in breach of contract) by the personnel agency in the case of a continuing employee assignment contract, but also:

  • the work of the temporary employee for another customer;
  • his or her illness;
  • vacation or holiday-related absence;
  • the reduction of credit hours on the working time account;
  • parental leave;
  • unpaid vacation; or
  • unexcused absence.

The legal definition in Section 1(1)(2) speaks in favour of this, according to which an assignment requires that the employee be integrated into the work organisation of the customer and be subject to its instructions. However, this is not the case in any of the abovementioned situations. Thus, a substantive concept of 'interruption' must be applied. It cannot be predicted with certainty whether jurisprudence will follow. In order to minimise risk against the background of the existing legal uncertainty, more conservative temporary work agencies could proceed on the basis of a formal concept of a work engagement, according to which the assignment of the temporary employee ends only on his or her withdrawal and a simultaneous termination of the employee assignment contract.

Companies bound by a collective bargaining agreement may also deviate from the maximum assignment duration through a collective bargaining agreement for the sector in which the temporary employee is engaged (Section 1(1)(3)). In company collective bargaining agreements, the maximum assignment duration may also be stipulated in a deviation from the 18 months provided for in the legislation. Companies not bound by collective bargaining agreements may adopt such deviating collective bargaining provisions through a works agreement (Section 1(1)(2)). However, this is possible only if the particular collective bargaining agreement is applicable in terms of territory, subject matter and time. Companies bound by collective bargaining agreements may stipulate a deviating maximum assignment duration in a works agreement if in the particular collective bargaining agreement there is a related opening clause (Section 1(1)(5)). Companies not bound by collective bargaining agreements may also have recourse and enter into works agreements which deviate from the statutory maximum assignment duration. If the collective bargaining agreement does not stipulate a limitation for a maximum assignment duration to be set in a works agreement, it will be capped at 24 months for companies not bound by collective bargaining agreements (Section 1(1b)(6)).

The infringement of the maximum assignment duration is an administrative offence for the temporary work agency (Section 16(1)(1e)(2)), with a fine of up to €30,000. In addition, permit law related consequences may arise. Under individual contract law, if the maximum assignment duration is exceeded, an employment relationship is established between the customer and the temporary employee, without or even against the will of the parties (Sections 9(1)(1b) and 10(1)(1)).

Equal pay principle

The equal pay principle can be abrogated through a collective bargaining agreement of the temporary employment industry or a reference thereto for the first nine months of an assignment. Subsequently, equal pay is compulsory (Section 8(4)(1)). A longer deviation is permissible only if:

  • on the basis of a collective bargaining agreement for sector-based supplemental pay, at the latest after 15 months, a remuneration is achieved (which a comparable permanent employee in the company receives); and
  • after a training period of up to six weeks, a stage-wise convergence with such remuneration occurs (Section 8(4)(2)).

If the temporary employee receives the remuneration owed under a collective bargaining agreement for a comparable employee in the business unit where the temporary employee is engaged or, in the absence of such remuneration applicable under a collective bargaining agreement, for a comparable employee in the industry where the temporary employee is engaged, the presumption applies that the temporary employee is treated equally with respect to remuneration (Section 8(1)(2)).

It thus remains the case that a deviation from the equal pay principle required by law is generally possible only for a nine-month period. An exception exists only if a collective bargaining agreement for sector-based supplemented pay is applicable, which after a six-week assignment leads to a convergence of the remuneration of the temporary employee towards the remuneration of the permanent employee engaged in the business and which reaches it no later than after 15 months. Such collective bargaining agreements entered into by employer associations in the temporary employment industry with the DGB unions already apply in numerous industries (eg, the metal and electronics industry). However, they must still be adjusted to the new statutory requirements. These statutory provisions are likely to also make it possible that through the application of the sector-based supplemental pay in the last stage of the collective bargaining convergence with the statutory equal pay (ie, after 15 months) no complete wage equalisation can occur. It remains up to the collective bargaining parties to define a remuneration which is viewed as 'equivalent' with the collective bargaining wage of comparable employees in the industry in which the temporary employee is engaged. However, this can also be an amount which – as stipulated in the applicable collective bargaining agreements for sector-based supplemental pay – is below 100% of the comparison wage (as a rule up to 90%). 'Equivalent' does not necessarily mean 'equal'.

In the case of an interruption of the engagement of more than three months and subsequent renewed assignment, the prior work periods performed by the employee are not counted towards the nine-month time limit which is determinative for mandatory equal pay. The temporary employee begins again at zero.

The problem which is material in practice in connection with mandatory equal pay is not solved through legislation. The mandatory equal treatment of temporary employees and permanent employees in connection with remuneration after a nine-month engagement will lead to substantial organisational and administrative challenges for the personnel agencies. This starts with the question of which elements are to be taken into account when determining equal pay and continues with the procurement of the relevant information from the customer and the appropriate internal documentation. In the determination of correct equal pay, the legislature failed to make clear specifications (possibly through a generalisation) which could have provided suitable orientation for the implementation in practice. In addition, the legislation maintains the (unfortunate) combination of a maximum assignment duration and mandatory equal pay, although it may give rise to disadvantages for temporary employees if the employees must be treated equally at a monetary level with permanent employees in the business unit where they are engaged after nine months, but after 18 months must be de-registered in order to be further employed with a different customer of the personnel agency for less pay. It is evident that this concept does not make sense.

The violation of granting equal pay is an administrative offence for the personnel agency, with monetary fines up to €500,000 (see Section 16, paragraph 1(7a)(7b) and paragraph 2). In addition, permit law-related consequences may arise.

Disclosure, specification and information duties

The assignment of employees must be expressly referred to as an employee assignment in the contract between the personnel agency and the customer (Section 1(1)(5)). This disclosure duty is supplemented by a further obligation of the personnel agency to inform the temporary employee before the assignment (possibly without any requirement of form) that he or she will work at the third party (Section 11(2)(4)). Before the assignment, the temporary work agency and customer must specify the identity of the temporary employee with reference to the employee assignment agreement (Section 1(1)(6)). Through these provisions it is intended to prevent the 'parachute solution'.

It is not clearly stipulated whether the specification of temporary employees pursuant to Section 1(1)(6) – such as the disclosure pursuant to Section 1(1)(5) – must be made in writing (Section 12(1), and Sections 126 and 126a of the Civil Code). However, the predominant view confirms this without providing a reason (see Bertram, AIP 12/2015, 6; Bauer BD 2016, 10; Zimmermann, BB 2016, 55). While in Section 1(1)(5), with respect to the employee assignment, it is clearly required that this be disclosed "in their agreement". Here the employee assignment agreement is meant, which pursuant to Section 12(1) without doubt be made in writing. Section 1(1)(6) provides only that the specification must be made "with reference to such agreement". However, such a specification can – based on the wording – also occur orally or in textual form such that the provision, based on its structure, does not necessarily require compliance with written form. At most, the reasons provided for the legislation where a reference to frame agreements is made – in which as a matter of course the name of the temporary employee who is ultimately to be specifically assigned cannot yet be finally stated – can provide a basis for also requiring specification in writing with which a frame agreement must also comply. Thus, it could be argued that the individual agreement or request specifying the names of the temporary workers to be assigned must have the same form as the agreement on which it is based. However, this is not necessarily compelling, such that the position can convincingly be taken that the specification pursuant to Section 1(1)(6) need not be in writing, but rather that this is possible without any formal requirement (see Bissels/Falter, ArbR 2017, 34). Until this issue has been clarified conclusively, for practical implementation purposes strict compliance with written form is recommended with regard to operational requirements.

If the duty of disclosure and specification is violated (eg, in the case of a fictional contract for work and services), the employment contracts between the personnel agency and the temporary employee are invalid. Instead, an employment relationship with the customer is deemed to exist (Sections 9(1nr)(1a) and 10(1)(1)). The wording of Section 9(1nr)(1a) relies on the 'and' links between the disclosure and specification duty to be understood to the effect that both Section 1(1)(5) and (6) must be violated in order to trigger the invalidity of the employment contract entered into between the personnel agency and temporary employee, otherwise the legislature could and should have clearly used 'or' to link the two duties. The non-compliance with the disclosure or the specification duty is insufficient for this purpose. This is confirmed through the reasons provided for the legislation, in which cumulatively a reference is made to the violation of Section 1(1)(5) and (6) (see Parliamentary Print Item 18/9232, page 23). This means that the violation of only the disclosure duty while fulfilling the specification duty is just as insufficient as the reverse case, in order to give rise to the invalidity of the employment contract existing between the personnel agency and the temporary employee (Bisels/Falter, ArbR 2017, 34 et seq). However, in practice these two breaches of duty will as a rule be fulfilled in parallel. If the parties both presume that they are entering into and carrying out a contract for work and services, there is no need to disclose an employee assignment (which is not intended) or to specify the assigned employees before the engagement. There may be a divergence if the parties have openly stipulated an employee assignment in a frame agreement and have disclosed this pursuant to Section 1(1)(5), but in daily implementation there is a failure, particularly after an illness-related absence on short notice of an assigned employee (who has been specified in advance), to specify the replacement requested by the customer in a timely manner and provided by the temporary work agency in proper form within the meaning of Section 1(1)(6), assuming that written form must be complied with. The same also applies in the case of contracting models in which a contract for work and services is entered into between the customer and a contractor and the contractor utilises a (supposed) freelancer to fulfil its duties in relation to the customer. If the freelancer is designated by name in the agreement entered into between the customer and the contractor, the legal consequence in Section 9(1nr)(1a) does not arise if the freelancer is integrated into the business operation of the customer, such that he or she is subject to instructions and is in fact a fictitious freelancer. This applies at least in the case where a contractor has an employee assignment permit pursuant to Section 1. The specification duty in Section 1(1)(6) was fulfilled in the "contract for work and services" entered into between the customer and the contractor. The violation of the disclosure duty pursuant to Section 1(1)(5) remaining between the customer and contractor cannot give rise to the invalidity of the de facto employment contract existing between the contractor and the supposed independent freelancer. The single breach of duty contrary to Section 1(1)(5) or (6) is not sanctioned, such that the parachute solution will still have a limited scope of application (see Bissel, NZA 2017). It remains to be seen whether the jurisprudence will follow this view.

Non-compliance with the disclosure and specification duty is an administrative offence, with a fine of up to €30,000 for the personnel agency and the customer (Section 16(1nr)(1c) and (1d)(2)). Under private individual contract law, an employment relationship is established between the customer and temporary employee if the disclosure and specification duty is simultaneously violated (Sections 9(1)(1a) and 10(1)(1)). The violation of the information duty pursuant to Section 11(2)(4) is also an administrative offence for the temporary work agency (incurring fines of up to €1,000 pursuant to Section 16(1) and (8)(2)). The personnel agency also faces permit law measures.

Maintenance declaration

The employment contract between the personnel agency and the temporary employee is invalid if:

  • an employee is assigned but the personnel agency has no permit pursuant to Section 1;
  • the relevant maximum assignment duration is exceeded; and
  • there is a violation of the disclosure and specification duty.

Instead, an employment relationship is deemed to exist between the temporary employee and the customer. There is no invalidity if the temporary employee declares in writing to the personnel agency or customer by the end of one month after the date specified as the start of the assignment, or after exceeding the permissible maximum assignment duration, that he or she maintains the employment contract with the personnel agency (Section 9(1)(1)(1a) and (1b) in conjunction with Section 10(1)(1)).

Such a maintenance declaration is valid only if, pursuant to Section 9(2), the following requirements are cumulatively fulfilled:

  • the temporary employee must have personally submitted the declaration to an employment agency office before the declaration is made;
  • the employment agency office must issue a note of the submission date that determines the identity of the temporary employee; and
  • the declaration must be received by the personnel agency or customer no later than by the third day following the submission to the employment agency office.

According to legislation, the activity of the employment agency office is limited to the receipt of the written maintenance declaration on which it notes the date of the submission and determination of the identity of the temporary employee who is present at the office (see Parliamentary Print Item 18/10064, page 15). It is intended that the temporary employee no longer signs the declaration of objection in which subsequently (eg, through the personnel agency or customer) a date is entered which does not correspond to the actual date of the declaration. In order to ensure that the declaration is not submitted to the employment agency office at the start of the assignment, the maintenance declaration is valid only if it is subsequently received by the personnel agency or customer within three days. In addition, the temporary employee continues to be responsible for the provision of the declaration to the personnel service provider of the customer. It is thus up to the temporary employee to comply with the one-month time limit through the provision of the declaration within this deadline. The necessary timely receipt is not replaced by the indication of the date by the employment agency office.

In addition, the maintenance declaration may be made only once the relevant one-month time limit has commenced (Section 9(3)). It is intended that for the protection of the employee "declarations for later use" before the assignment are prevented.

An employment contract between the personnel agency and temporary employee is invalid if the (unlawful) assignment is continued after the maintenance declaration. The renewed making of the declaration is invalid. An unlawful assignment cannot be made legal for either the past or future (Parliamentary Print Item 18/10064, page 15). The right of objection contained in the draft legislation permits only the maintenance of the previous employment relationship with the personnel agency and thereby protects the freedom of the temporary employee to choose an occupation which is protected by Article 12 of the Constitution. However, the right of objection does not permit the maintenance of an unlawful assignment practice. Accordingly, the new Section 9(3)(2) and (3) clarifies that in the case of a continuation of the unlawful assignment (eg, after exceeding the maximum assignment duration despite a declared objection), a renewed invalidity of the employment contract between the personnel agency and the temporary employee arises. In these cases (pursuant to Section 10), an employment relationship is established with the customer. Section 9(3)(4) ensures that under social security law a maintenance declaration does not lead to the elimination of the joint and several liability of the personnel agency with the customer for the payment of social security contributions.

Strike breakers

The customer company may not engage temporary employees if its business operation is directly affected by a labour dispute or strike (Section 11(5)). Temporary employees may continue to be assigned if it is ensured that they do not perform tasks (if applicable) that were previously performed by the striking permanent employees.

In addition to the general prohibition against the engagement of temporary employees in labour disputes, for the case of permissible engagement during a strike, the right of the temporary employee to refuse work contained in the previously applicable version of the act can be found once again in the legislation. The temporary employee is accordingly not obliged to work for a customer as far as the customer is directly affected by a labour dispute. The personnel agency must inform the temporary employee.

The violation of the prohibition against engaging temporary employees as strike breakers is an administrative offence for the customer, which can be penalised with a fine of up to €500,000 (Section 16(1nr)(8a)(2)).

Chain assignment

From April 1 2017, Section 1(1)(3) is part of the act as a new provision. Pursuant thereto, the assignment of employees and allowing them to work as temporary employees are permissible only as far as there is an employment relationship between the temporary work agency and the temporary employee. It is intended that it be clarified through the clause that temporary employees may be assigned only by their contractual employers.

The legislature has thereby established legal certainty concerning what the procedure is in case of a chain, interim or onward assignment of employees. This refers to a situation in which the contract employer provides its employee to a company, which in turn assigns (onward) the employee as third party engaged by the company to a final hiring company. Even before the change to the legal situation, the Federal Employment Office traditionally presumed that a chain assignment is impermissible (procedural directive to the act, status: January 2016, re Section 1 nr 1.1.2 paragraphs 11 and 12).

On the basis of the view taken by the permit authority that a chain assignment was impermissible, in practice no models have spread (at least not extensively) which were based on an onward assignment, such that the legislative provision will have only limited practical significance. This can be recognised through the fact that hardly any court decisions exist which address the issue of a deliberate and intentional chain assignment in terms of the law relating to assignments (before April 1 2017).

Through Section 10a it is ensured that the provisions in Sections 9 and 10 concerning the three-person relationship (ie, temporary employee, personnel agency and customer) also apply in a multiple-person relationship (ie, temporary employee, first temporary work agency, second temporary work agency and customer). The provision serves the purpose of avoiding third-party personnel assignment structures that involve an abuse. It is ensured that the legal consequences of Sections 9 and 10 cannot be circumvented in that a different company without an employment contract relationship with the temporary employee is interposed, which in turn assigns the employee. As far as in the case of the (onward) assignment by the interposed temporary work agency, there is no employee assignment permit pursuant to Section 1(1), the maximum assignment duration pursuant to Section 1(1)(4)(1b) is exceeded or a hidden employee assignment occurs in violation of Section 1(5) and (6), the protective provisions of the act apply. The employment relationship of the temporary employee with the first temporary work agency (ie, with the contract employer) is invalid. An employment relationship with the assignment employer for whom the temporary employees actually work (the final hiring company) is deemed to exist. The temporary employee can object to the transfer of the employment relationship pursuant to Section 9 such that the employment relationship remains with the first temporary work agency. However, the violation of the chain assignment provision in Section 1(1)(3) does not by itself trigger the deemed employment effect. Violations of Section 1(1)(3) can also have permit law consequences, including the revocation of the employee assignment permit. Further, in Section 16(1nr)(1b)(2) a new administrative offence was included in the legislation, which provides for a fine of up to €30,000 for non-compliance with Section 1(1)(3).

Threshold values

Temporary employees must in future be included for threshold values in the Works Constitution Act (with the exception of Section 112a – eg, for the size of the works council). This is also intended to apply to the threshold values for the co-determination in companies (the Co-determination Act and the One-Third Participation Act), but for the initial threshold values to apply the relevant legislation and only if the total duration of the assignment exceeds six months (Section 14(4) of the Employee Assignment Act).

It is a trend in labour court jurisprudence that temporary employees "should not only choose, but also count". The coalition government has indicated that temporary employees must be considered for threshold values of the Works Constitution Act. However, there has been no mention of co-determination in companies, such that the new statutory regime goes far beyond the stipulations contained in the government coalition agreement. In addition, the jurisprudence does not presume without differentiation that temporary employees are always to be counted for threshold values (under works constitution law). The courts rather interpret the relevant provision in a particular case and take into account whether it is actually required to include temporary employees in the count. This approach is watered down by the new law in that it throws everything into one pot with the exception of Section 112a of the Works Constitution Act and the limitation that for the initial threshold values concerning co-determination in companies this applies only after an assignment duration of six months.

Works council information rights

The works council must be informed of the engagement of third-party personnel. It must be advised as to the duration of the engagement, the place of engagement and the tasks of such persons. In addition, the contracts on which the engagement of the third-party personnel is based must be submitted to the works council (Section 80(2) of the Works Constitution Act).

The conclusion of contracts for work and services and service contracts must continue to be exempt from co-determination. The customer is therefore not obliged to obtain the consent of the works council before assigning tasks to third parties. This would be seen as a critical point from a constitutional law perspective. Instead, the legislation in essence provides a specification of the participation right already developed by the jurisprudence to be informed in the case of a planned engagement of third-party personnel. Through the information provided to the works council by the employer, the works council can review whether an engagement (requiring consent) exists within the meaning of Section 99(1) of the Works Constitution Act (eg, in the case of an engagement of temporary employees). The works council can then assert the rights arising therefrom against the employer.

Distinction compared to employment contract

The list of criteria originally contained in Section 611a of the draft Civil Code to distinguish an employment relationship from other contractual relationships was not included in the following draft bills. The same applies for the (rebuttable) presumption effect, according to which an employment relationship is to be presumed if the Public Pension Fund in a status proceeding has determined that an employment relationship exists that is subject to social security contributions. Initially the following definition of 'employee' was contained in the subsequent draft:

"An employee is a person who on the basis of a private-law contract is, in the service of another person, obligated to perform, subject to instructions, work determined by a third party in a relationship of personal dependence. The right of instruction can relate to content, implementation, time, duration and place of the activity. An employee is a member of the personnel who is not in essence free to structure his/her tasks and determine his/her working hours. The degree of personal dependence also depends on the nature of the respective activity. For the determination of the quality as an employee an overall consideration of all circumstances must be undertaken. If the actual implementation of the contract relationship shows that an employment relationship is involved, the designation in the contract is not determinative."

In the end phase, Section 611a of the Civil Code was slightly changed, but still provides no practical benefit. The provision now states under the heading 'Employment Contract' as follows:

"(1) Through the employment contract an employee is obligated to perform, in the service of another person, subject to instructions, work determined by a third party in a relationship of personal dependence. The right of instruction can relate to content, implementation, time and place of the activity. A person is subject to instructions if he/she cannot in essence freely structure his/her work and freely determine his/her working hours. The degree of personal dependence also depends on the nature of the respective activity. For the determination whether an employment contract exists, an overall consideration of all circumstances must be undertaken. If the actual implementation of the contract relationship shows that an employment relationship is involved, the designation in the contract is not determinative.

(2) The employer is obligated to pay the agreed remuneration."

The subject matter of the provision is adjusted to the classification approach in the Civil Code. The section sets forth the contract types. The applied criterion is therefore no longer 'employee' but 'employment contract', which is defined as a sub-category of a service contract.

It is intended that there is no change in content compared to the draft version, since the concept of 'employment contract' includes the employee as a contract party. In addition, the provision is streamlined in terms of the wording. The right of instruction in Section 611a(1)(2) of the Civil Code is described in accordance with Section 106 of the Trade Regulation without the element 'duration'. For the purpose of completion and systematic adjustment, a duty to pay remuneration is set forth in Section 611a(2) of the code.

Entry into force

The legislative changes entered into force on April 1 2017.

It is expressly clarified that assignment periods at a customer's workplace before that date are not taken into account for the calculation of the maximum assignment period and the engagement duration for a mandatory equal pay claim (Section 19(2) of the Employee Assignment Act). Accordingly, the maximum assignment duration can be reached at the earliest from October 1 2018. The mandatory claim to equal pay can first arise from January 1 2018.

Some uncertainty concerning these dates results from the fact that it is not conclusively clarified whether Section 191 of the Civil Code is to be applied in the calculation. Pursuant to that provision, a month is calculated with 30 days and a year with 365 days if a period is designated according to months or years in the sense that it must not run continuously. If the provision is relevant – starting from April 1 2017 – the maximum assignment duration of 18 months would expire on September 22 2018 and the nine-month time limit to grant mandatory equal pay would expire on December 26 2017. However, it speaks against the application of Section 191 of the Civil Code that the period of the time limit must be determined such that it must not run continuously. However, Section 1(1b)(1) stipulates an assignment period of 18 consecutive months and thus a continuous period for the assignment. The legislation provides as an additional provision in Section 1(1b)(2) that previous assignments are added to the count. The maximum assignment duration is in principle stipulated as continuous. This also applies in the sense of the assignment definition in Section 1b(2). Additional assignment periods are then added.

In order to rule out with certainty all risks arising from a violation of the maximum assignment duration and the mandatory equal pay principle, as a precaution plans should be based on the above dates and engagement of temporary employees interrupted at the end of September 22 2018 or continued after December 26 2017 applying the equal pay principle.

Comment

Some improvements have been made since the initial proposal of the new legislative regime in November 2015, but there remains a long way to go.

As the legislative process has since been completed, it is now clear that in 2017 the temporary employment industry will face substantial changes. The statutory adjustments must be implemented in the contracts and processes which are applied. Customers must be informed and brought on board, particularly in connection with mandatory equal pay. This will keep the industry busy in 2017, particularly in the first quarter. It is intended that temporary work will become more complicated and expensive (and thereby less attractive). The reform is a challenge and will cause difficulties in its practical implementation, but the industry is expected to overcome this.

For further information on this topic please contact Alexander Bissels at CMSHasche Sigle by telephone (+49 221 7716 0) or email (alexander.bissels@cms-hs.com). The CMSHasche Sigle website can be accessed at www.cms-hs.com.

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