On 1 June 2016, the German Federal Cabinet officially adopted a draft legislation containing new regulations on employee leasing. This revision and amendment of the regulations on employee leasing is the last major employment-related project provided for in the Coalition Agreement between the two governing parties, SPD and CDU/CSU. It has been almost two years since the Federal Ministry for Labor and Social Affairs presented its first legislative proposal on 16 November 2015. (For further information, please refer to our previous legal update “Legislative proposal regarding the alteration of the German Employee Leasing Act“, dated 24 November 2015.) Highly disputed within the coalition, this legislative proposal has undergone many changes and amendments before the current Secretary of State for Employment and Social Issues, Andrea Nahles, was able to announce an agreement on 10 May 2016 after a summit meeting of the coalition. Finally, on 1 June 2016, the legislative proposal was discussed and adopted by the Federal Cabinet. The central aspects, which shall come into force by 1 January 2017 according to the draft legislation, can be summarized as follows: 18 Months Maximum Lease As envisaged in last November’s legislative proposal, the maximum time for leasing the same employee to the same hirer shall be restricted to 18 months. With this person-related rather than job-related approach, the same job can be permanently performed by different leased employees, and the maximum duration of 18 months can be fully exhausted each time. Periods of deployment of the same leased employee that have taken place less than three months previously shall be taken into account. In the legislative proposal of 16 November 2015, this grace period amounted to six months. However, times prior to 1 January 2017 shall not be accounted for. For enterprises bound by collective bargaining agreements, deviations from the regulations concerning the maximum leasing period are possible by way of a collective bargaining agreement for the relevant industry or by way of works council or service agreements based on such collective bargaining agreements. Unlike the legislative proposal of 16 November 2016, the draft legislation stipulates that undertakings falling within the scope of a collective bargaining agreement without being bound by it can also deviate from the 18-month-maximum period by way of a works council or service agreement. However, such undertakings will be required to comply with a maximum leasing period of 24 months unless the respective collective bargaining agreement explicitly stipulates another maximum leasing period that can be provided for in works council agreements or service agreements. A failure to observe the respective leasing period will constitute an administrative offence punishable by a fine and will establish an employment relationship between the leased employee and the hirer unless the leased employee objects. If the hirer’s undertaking falls within the scope of several collective bargaining agreements, the regulations contained in the representative collective bargaining agreement for the lender’s industry shall be decisive. This representative collective bargaining agreement is mainly determined by taking into account the number of undertakings and employees bound by the respective collective bargaining agreement. Thus, if a lender is subject to more than one collective bargaining agreement, the hirer should scrutinize carefully which of these collective bargaining agreements will be considered representative. This is important because, if the hirer does not comply with the maximum leasing period stipulated in the representative collective bargaining agreement, an employment relationship between the leased employee and the hirer shall be established in case the permissible maximum leasing period has been exceeded. Equal Pay In principle, under the law in force, leased employees already have a claim to the same remuneration as the hirer’s regular employees working in comparable positions. Pursuant to the draft legislation, a deviation by way or on the basis of collective bargaining agreements shall remain possible. However, as already provided for in the legislative proposal of 16 November 2015, this deviation may only cover the first nine moths of the assignment to a hirer. In certain cases, a phased implementation of the equal pay principle can be provided for by way of a (sector-based) collective bargaining agreement. In these cases, the phased implementation must begin after a familiarization period that may last no longer than six weeks and must be completed within 15 months. Employers and employees falling within the scope of such a (sector-based) collective bargaining agreement without being bound by it can agree on its application. Again, periods of deployment of the same leased employee to the same hirer will be taken into account unless more than three months have passed since the deployment, irrespective of whether the employee has been leased by the same or by different lenders. But in contrast to the provision included in the November 2015 legislative proposal, leasing times before 1 January 2017 will not be taken into account anymore. No Strikebreaking by Leased Personnel The legislative proposal dated 16 November 2016 contained a comprehensive prohibition to employ leased employees in an undertaking directly affected by an industrial action. This regulation has been softened in the draft legislation insofar as the hirer is only prohibited from employing leased personnel in order to break the strike. As a consequence, a hirer may not ask leased employees to perform the tasks hitherto performed by striking employees or the regular duties of other employees who are now performing the duties of striking employees. However, leased employees may still be employed during a strike as long as they do not perform either of those types of duties. The prohibition of using leased employees to break strikes applies also with respect to leased personnel already employed before the beginning of the strike. These employees are granted the choice to either rely on their right to refusal and refrain from work and participate in the strike or to continue to perform their work in the hirer’s undertaking irrespective of the strike. A violation of this strikebreaking prohibition will be considered an administrative offense and can be sanctioned by the imposition of a fine of up to EUR 500,000.Works Councils’ Right to Information As did the legislative proposal of 16 November 2015, the draft legislation provides for several information rights of works councils regarding the deployment of leased personnel. The general information and consultation rights of works councils will be supplemented by a number of additional regulations tailored to the usage of leased employees. Pursuant to these new regulations, a hirer will be obliged to inform the works council of the period that the leased employees will be used for, their place of work and their tasks. The information and documentation to be provided to the works council include the contracts forming the basis of the leased employees’ assignments. Also, within the course of personnel planning, the works council needs to be informed about the intended employment of leased employees. However, to the greatest part, this constitutes a consolidation of certain practical effects of the current general right to information. Definition of Employment Contracts, Distinction from Works Contracts The distinction between leasing employees and using outside staff on the basis of contracts for work and services shall remain subject to an evaluation of the overall context of the contract. The relevant criteria that will, pursuant to the draft legislation, be implemented into German law include many of the criteria currently applied by the courts. Disguised Employee Leasing Under the draft legislation, as under the legislative proposal dated 16 November 2015, a precautionary application for a labor leasing license will not help to prevent the consequences of an illegal employee leasing when the hiring is on the borderline between an employee lease and a contract for work and services. In the future, this will also constitute an administrative offence punishable by a fine and establish an employment relationship between the leased employee and the commissioning party/party entitled to the services or the hirer, respectively, subject to the leased employee’s objection. An exception to this legal consequence is only possible where a labor leasing license has been granted and the employee leasing has explicitly been designated as such. Thus, the conclusion of works and service contracts will entail a higher risk than before. Companies should there fore undertake a comprehensive and careful examination of the works and service contracts they have concluded. Thresholds As already envisaged within the legislative proposal of 16 November 2015, according to the draft legislation, leased employees shall be taken into account with regard to almost all thresholds of codetermination. First and foremost, this concerns not only any thresholds within the framework of codetermination in business establishments and, in particular, the thresholds of the German Works Council Act (Betriebsverfassungsgesetz, “BetrVG”), but also those of the Law on the Establishment of a European Works Council and the related electoral regulations. The only exception will be sec. 112a BetrVG, which regulates the obligation to conclude a social plan. These new regulations are based on the recent case law of the Federal Employment Court and are therefore not surprising. However, the draft legislation also provides for a consideration of leased personnel for the thresholds of corporate codetermination if the total leasing period exceeds six months. Under this precondition, leased employees will need to be taken into account with respect to the thresholds of legislation regulation corporate codetermination as well as the related electoral regulations. The Federal Employment Court has not, until now, decided on the relevance of leased personnel with respect to thresholds of corporate codetermination in general, but only with respect to individual thresholds. The wording of the draft legislation, however, does not leave room for an individual analysis. Further Steps The Federal Cabinet will now submit the draft legislation to the German parliament (“Bundestag”) and the representatives of the German Länder (“Bundesrat”), who will decide whether to adopt the draft. Although minor changes may be made during this upcoming legislative process, employers using leased personnel should now take the time to determine whether adjustments to their employment practices need to be made in light of the legal amendments described above.