Contracts for work and services and the temporary hiring-out of employees are to be regulated more strictly in Germany again. On 16 November 2015, a draft bill of the Federal Ministry of Labour and Social Affairs (BMAS) was presented which is supposed to pave the way to a solution to this last major employment law project of the “Grand Coalition” of the CDU/CSU and SPD parties.

In future, the contract concluded between the personnel service provider and the customer is to state explicitly that its subject matter is the temporary hiring-out of (an) employee(s).

Maximum Hiring-Out Period of 18 months

A statutory maximum hiring-out period of 18 months will be set out in the statute, with a flexibility clause in favour of a collective bargaining agreement between the collective bargaining parties of the respective sector using external staff or of a works or service agreement entered into on the basis of such a collective bargaining agreement. In particular, the flexibility clause has been drafted too “narrowly” in two respects: On the one hand, it is limited to businesses bound to a collective bargaining agreement. This means: If no collective bargaining agreement binding both parties and providing for a longer deployment period applies to the customer’s business, the hiring-out is to be ended after 18 months.

Equal Pay Principle must be observed

The equal pay principle shall apply obligatorily; however, during the first 9 months of the hiring-out to the customer, this can be disregarded by applying or referring to a pertinent collective bargaining agreement. This period will be extended to 12 months if a collective bargaining agreement valid for temporary employment agencies and providing for branch-specific supplementary payments is applied. Quite correctly, the draft gives a collective bargaining solution precedence to a statutory one; however, this raises the question why the legislator wants this to no longer apply after a period of 12 months. In addition, it should be critical under European law to add a maximum hiring-out period to the equal pay requirement after 9 or 12 months.

Temporary Agency Licence required

If an employee is hired out without the personnel service provider having a temporary agency licence, the contract on temporary employment and the employment contract become void - as is the case hitherto; instead, an employment relationship with the customer is deemed to exist. However, a regulation is to be inserted in the German Temporary Employment Act (AÜG), providing that invalidity is avoided if the temporary employee declares in writing until the expiry of one month after the intended starting date of their hiring-out that they adhere to the employment contract with the personnel service provider.

No industrial action for temporary employees

In future, the customer will not be allowed to have temporary employees work for it if the operation to which they are assigned is directly affected by industrial action. Ultimately, this prohibition requires a compulsory solidarity with the own striking staff although a collective bargaining agreement won will not apply to the employment relationship with the temporary employee, as a rule. While permanent employees of the operation deploying external staff may freely choose whether or not to take part in the industrial action, this is ruled out for a temporary employee. A big question mark may be put on whether this is in compliance with the negative freedom of association protected by the German Basic Law.

Temporary employee count for thresholds

In future, temporary employees have to be counted when determining any thresholds provided for by the German Works Constitution Act and regarding corporate co-determination issues (German Co-Determination Act/MitbestG and others). There is a “trend” in labour case law that temporary employees “should not only elect, but also count”. In this context, the German government announced in the coalition agreement that temporary employees are to be considered in connection with the thresholds provided for in the German Works Constitution Act.

Defined catalogue of criteria to be set out in statutory law

To better distinguish the employment contract from other kinds of contractual relationships, in particular contracts for work and services and service contracts, a section newly inserted in the German Civil Code defines a catalogue of criteria on which to base the assessment whether or not a person is subject to instructions and integrated into the work organisation of a third party - as is typical of an employment contract. The decisive criterion is supposed to be the (lack of) freedom of the respective person to choose their working hours or their way of performing the services owed or their place of work. The good news is that the ministerial draft bill does not provide for a binding model prescribing that the fulfilment of a certain amount of predefined criteria gives rise to the assumption that an employment contract has been concluded or not. Rather, the ministerial draft bill explicitly recognises that an overall assessment is to be made. It is important that the statutory catalogue is not exhaustive but that the entirety of circumstances of an individual case is to be taken into account when deciding whether or not a contractual relationship qualifies as employment contract. Nevertheless, the proposal made in the ministerial draft bill is objectionable, because the selected facts and features lack practical relevance and are hidebound especially with a view to the performance of technical services.

Co-Determination rights of the Works Council

With regard to the general information rights of the works council, it is made clear that it must also be notified of personnel measures relating to persons not having an employment relationship with the employer. In respect of such persons, the works council is to be informed about the period and place of deployment as well as about the tasks assigned. In addition, the contracts forming the basis for this external staffing are to be submitted to the works council. A positive aspect is that the conclusion of contracts for work and services/service contracts will not be subject to co-determination also in future. This means that the employer will not be obligated to obtain the works council’s consent prior to assigning tasks to external staff. This would be highly critical under constitutional law aspects. Instead, the draft bill essentially provides for a more detailed specification of the works council’s rights of involvement and information developed by case law.

Outlook: Bill to be introduced in 2017

The regulatory amendments are due to enter into force on 1 January 2017. It is explicitly made clear that hiring-out periods prior to 1 January 2017 will not be considered for calculating the future maximum hiring-out periods. This raises the question why this has not been ordered for the periods relevant to the compulsory application of the equal pay principle as well.

Criticism from Employer Association

It is to be hoped that the project of the German Federal Ministry of Labour and Social Affairs will be reduced - before the German federal parliament discusses the draft - to what has always been announced by the Ministry: i.e. that there will be a literal implementation of the arrangements made in the coalition agreement. At the moment, however, the ministerial draft bill prepared by the department of the Minister of Labour and Social Affairs, Andrea Nahles, is miles away from hitting that mark. The President of the Confederation of German Employers' Associations, Kramer, summarises that the draft bill “lacks practical relevance, is highly bureaucratic and impossible to implement” - there is nothing more to add to this.