In Germany, the provision of temporary personnel is strictly regulated by the German Temporary Employment Act (“AÜG”). The principle is straightforward: the agency is the employer and supplies the temporary employees to the hirer. Although the hirer receives the manpower, an employment relationship only exists between the agency and the temporary employee. However, temporary employees have to be treated equally to comparable employees of the hirer in relation to remuneration and any other essential working conditions. Exceptions to this equal treatment principle can only be agreed by means of a collective bargaining agreement (“CBA”). Moreover, the agency must possess a licence to supply temporary employees. If the agency does not possess such a licence, the law deems there to be an employment relationship between the hirer and the temporary employee. The unauthorised supply of temporary employees is also punishable with an administrative fine.

Because of this strict legal framework governing temporary employees, work contracts have been used (and abused) by employers to get around the legal restrictions under the AÜG. In this context, fictitious work contracts have been agreed whereby employers enters into a contract with the contractor for the completion of specific work. However, in fact these “contractors” provide services and, therefore, would have to be seen as employees.

Against this background, the German Government approved a bill on 1 June 2016 to combat the misuse of temporary work and to fundamentally overhaul personnel leasing. The bill has debated in the German Parliament on 22 September 2016 and it is due to come into force on 1 January 2017.

The key changes of the reform are summarised as follows:

Maximum hire period of 18 months

Under the AÜG temporary workers may only be deployed by the same hirer for a maximum duration of 18 months. Exemptions are possible through a CBA. If this maximum duration is exceeded, there will be deemed an employment relationship between the hirer and the temporary worker unless the temporary worker objects in writing.

Any deployment with a hirer prior to 1 January 2017 will be excluded and in the future all periods with the same hirer which are linked by less than a three month period will be linked together in order to calculate the total period of hire. It will be irrelevant whether the temporary worker has been assigned to different tasks by the hirer or deployed by different agencies.

There is no prohibition in the hirer deploying a new temporary worker to undertake the same role as the old temporary worker and as such it is likely to lead to temporary workers having the duration of their deployment limited to 18 months.

Intra-group assignments

Under current legislation a lender is required to hold a licence for "occasional" inter group hiring of workers. This requirement will not change under the AÜG however in the case of intra-group hiring, where a licence is required, the deployment duration of a maximum of 18 months shall apply.

From 1 January 2017 increased caution will be required in group companies whereby workers work for several group companies and/or are assigned to different group companies for assignments or projects. These intra-group assignments are probably already subject to licence requirements and as such group companies are well advised to limit also inter-group assignments in Germany to a maximum period of 18 months and to possess a license to supply temporary workers within the group.

Equality of Pay Working Conditions with Permanent Employees

One of the core elements of the AÜG is the implementation of equal pay and equal treatment for long-term temporary workers: According to the new law, temporary employees would be treated equally to comparable employees of the hirer in relation to essential working conditions including remuneration after 9 months. Exceptions to this equal treatment principle would only be possible through a CBA, which can provide for gradual harmonisation of working conditions up to a maximum of 15 months.

The AÜG is similar to the UK’s Agency Workers Regulations which requires hirers to offer temporary workers who have worked for 12 weeks similar pay and other terms and conditions as apply to comparable permanent employees.

Temporary Workers Cannot be Used to Break Strikes in Labour Disputes

The AÜG prohibits a lender from deploying temporary workers if the hirer is directly affected by industrial action unless a hirer can ensure that no core jobs affected by the strike will be undertaken by a temporary worker. Breach by a hirer of this prohibition is punishable by a fine of up to €500,000.

In the UK the Government has proposed a change to the law to allow an agency to provide temporary workers to cover duties performed by striking employees. Although consultation on the issue closed in September 2015, no further news has been forthcoming about the implementation of such a proposal.

Drawer Licences

The new law seeks to tackle the improper use of work contracts. Up to now, it has become practice for many companies to hold a “precautionary” temporary workers agency licence where there may be uncertainty over the classification of a service contract with their customers. These are known as “Drawer Licences” and are relied upon if it turns out that a supposed service contract is actually classified as temporary employment.

Under the AÜG both a lender and the hirer must refer specifically to the supply of temporary workers in their agreement and as such it will no longer be possible by way of a drawer licence to retroactively classify as a temporary worker those individuals who were provided under a service contract.

Employment Relationship

Under the AÜG an employment relationship must directly exist between the lender and the temporary worker. As such the temporary worker cannot be hired through a chain to third parties and will be prohibited under the new law.

Inclusion of Temporary Workers for calculation purposes

Under the new law if a temporary worker has been deployed for six months or more they are to be included in matters of co-determination. The only exception to this is thresholds for social plans in relation to staff reductions.