Federal Labour Court decision
Information duty towards former leased employees
Liability for social security contributions
The Federal Labour Court's CGZP decision of December 2010(1) has already had a considerable impact on Germany's temporary work sector. Among other things, social security associations made substantial claims against employee leasing companies for back-payments of social security contributions. It is feared that the situation will worsen this year for companies which utilise only leased employees. If employee leasing companies become insolvent due to the back-payment obligations, the client companies will be liable for unpaid social security contributions of the leased employees engaged by it.
German companies frequently engage leased employees, since through this form of engagement they are not bound by the strict termination protection regulations and therefore have the necessary flexibility to react to market fluctuations. However, this practice is permissible only if leased employees are offered the same working terms as comparable permanent employees (the equal treatment principle). This, of course, applies primarily to wages. The equal treatment principle can be derogated from only if this is stipulated by a valid collective bargaining agreement which applies to the employment relationship of the leased employee. This was the aim of the collective bargaining agreements entered into by the Collective Bargaining Association of Christian Unions for Temporary Work and Personnel Service Agencies (CGZP), which usually provided for a compensation level below that of the client company.
On December 14 2010 the Federal Labour Court held that the CGZP could not validly enter into any collective bargaining agreements because the necessary collective bargaining requirements had not been fulfilled. This means that the CGZP's collective bargaining agreements must not fall below the standard of working terms offered at the client company; the equal treatment principle has thus been revived. The consequences of the invalid CGZP collective bargaining agreements apply primarily to the leasing companies. However, employers which utilise leased employees must also take into account the risks outlined below.
Information duty towards former leased employees(2)
In 2011 numerous companies received letters from former leased employees in which they were requested to provide information on the main working conditions (in particular on the wages of comparable employees). In such instances, there is generally a statutory duty to provide the requested information.(3)
However, the duty exists only if no valid collective bargaining agreement applies which allows derogation from the client company's standard working terms. Since on December 14 2010 the Federal Labour Court indirectly determined the invalidity of the CGZP collective bargaining agreements, leased employees could thus request information concerning their working terms starting from mid-December 2010. However, it is uncertain whether this also applies for the period prior to December 2010. This will depend on whether the CGZP collective bargaining agreements are also considered to be invalid retroactively for periods prior to December 2010. In this regard, the interpretation of the Federal Labour Court judgment is in dispute and the legal issue has not yet been finally decided. However, it is probable that the Federal Labour Court will decide in that direction.(4)
Liability for social security contributions
If, due to an invalid CGZP collective bargaining agreement, the leased employee has received compensation which was too low, he or she can initially claim the difference from the employee leasing company. The social security associations can also make claims for back-payments of social security contributions applicable to the difference from the employee leasing companies. Thus, individual employee leasing companies may face a substantial back-payment obligation. Corresponding circular letters of the social security associations have already been sent out. Since July 2011, audits are increasingly being carried out at employee leasing companies at which back-payments are to be expected.
In the event that an employee leasing company cannot fulfil the back-payment claims for outstanding social security amounts owed, and for this (or another) reason it becomes insolvent, the client company then becomes liable for the entire social security contributions of both existing leased employees and former leased employees whom it engaged in the last three to four years.
Companies which engage leased employees would be well advised to review applicable contracts with the leasing companies and clarify the basis on which the leased employees are compensated. Otherwise, liability risks could arise.
For further information on this topic please contact Bjoern Gaul, Martina Hidalgo, Bernd Roock or Eckhard Schmid at CMS Hasche Sigle by telephone (+49 89 23807 106), fax (+49 89 23807 40769) or email ([email protected], [email protected], [email protected] or [email protected]).
(2) Section 13 of the Employee Leasing Act.
(4) See Regional Labour Court Rheinland-Pfalz of June 15 2011 (6 Ta 99/11); Regional Labour Court Baden-Württemberg of June 21 2011 (11 Ta 10/11).