In Germany, companies can employ freelancers or temporary workers if they do not wish to establish an employment relationship. The employment of part-time and fixed-term employees or work on call are additional options. Companies that participate in the gig economy make extensive use of these opportunities, but the gig economy isn’t without legal risks.
Employment of Freelancers
Many companies that are active in the gig economy employ freelancers who provide services independently based on a service or work contract. Essentially, freelancers freely organize and determine their activities and working hours. As they are not employers, companies are not obliged to pay unemployment, health, or long-term care and pension insurance contributions for these workers. Nor do freelancers have the rights and benefits enjoyed by employees, such as paid leave, sick pay, or minimum wages and protection from dismissal.
Placements are regularly made via agencies or by using online platforms and apps, which can act as contractual partners (e.g., Clickworker, Textbroker, Testbirds) or as intermediaries (e.g., Airbnb, MyHammer, Uber).
Nevertheless, working with freelancers can be risky. If it turns out that a contractual relationship with a freelancer was in fact an employment relationship, all employee protection regulations will apply. The employer is liable under tax law and is obliged to pay additional social security contributions.
Therefore, it is important to check thoroughly whether there is actually an employment relationship in place between the freelancer and the agency or client. Indications of such employment include, for example, providing work equipment, detailed instructions relating to work, means of production, or directives regarding the place and time of employment.
Employment of Temporary Agency Workers
A further possibility for companies is the employment of temporary agency workers. According to German law, a temporary employee is an employee of the “lender” (the agency) who is assigned to a third party (lessor) to perform work. He or she is part of the lessor’s work organization and is subject to the lessor’s instructions.
Hiring temporary workers should be a means of covering a temporary demand. Recently, further legislative changes were introduced in Germany with the aim of preventing the misuse of temporary agency work and improving the position of temporary agency workers. A fixed, maximum time limit for temporary workers and a right to equal treatment and disclosure obligations have been introduced. The possible sanctions in the event that statutory provisions are violated have been strengthened.
Maximum Duration of Employee Leasing
Germany has set a maximum duration of 18 months for employee leasing arrangements. After this period has expired, the same lessor cannot continue to hire the same temporary worker. Only after a break in employment of at least three months and one day is the same lessor allowed to rehire the same temporary worker. The maximum duration of temporary employment is not affected by the transfer of a temporary worker to another job within the same company or by a change of lender. Rotation models, in which the lender leases another temporary worker to the lessor after the maximum duration period, remain possible.
Equal Pay and Equal Treatment
Since 2003, companies have been obliged to pay temporary workers, from their first day of employment with the lessor, the same wages as those earned by employees with comparable activities in the lessor’s company. The principle of equal treatment, partially redrafted and partially newly introduced in April 2017 in an update to the German Temporary Employment Act, contains this principle of equal pay and extends it to include the principle of equal treatment. Equal treatment encompasses overtime, breaks, rest periods, remuneration for night work, holidays and days off.
The lessor and lender are also subject to disclosure obligations. The hiring out of employees must be expressly referred to as “leasing of employees” in the contract between the lessor and the lender. The lessor and the lender must name the temporary worker with reference to the temporary work contract and must always inform the temporary worker that he or she is acting as a temporary worker.
Sanctions for breaches of the Temporary Employment Act have been strengthened. Possible fines for lenders and lessors for violations of the act have been increased to between EUR 1,000 and EUR 500,000 (approximately USD 1,148 to USD 573,905).
Part-Time and Fixed-Term Employment Contracts
The gig economy employs part-time and temporary employees.
From a company’s perspective, temporary employment is advantageous because the work relationship ends automatically on the agreed end date or on achievement of the stated purpose. An employment relationship may be limited in time for a period of up to two years without giving reasons for the time limitation.
It is important for companies in the gig economy not to exceed the maximum limit; otherwise, the temporary employment relationship is automatically converted into an employment relationship for an indefinite period. The employment relationship can then be terminated by the employer only in compliance with the employment protection regulations, which, among other things, requires a reason for termination within the meaning of the Employment Protection Act.
Work on Call
With regard to agreements according to which the employee must perform his or her work in accordance with the workload (“work on call”), Germany has created a protective framework. The requirements have been tightened as of January 2019.
Agreements between employers and employees must now stipulate a certain duration of weekly and daily working hours. In the absence of such regulations, a weekly working time of 20 hours and a daily working time of at least three consecutive hours will be deemed to have been agreed upon. Furthermore, the employee is obliged to perform work only if the employer notifies him or her at least four days in advance of his or her working hours.