Latest developments in temporary employment (agency or leased workers)

In Germany, the provision of temporary personnel is strictly regulated by the German Law on Labour Leasing 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. Moreover, the agency must possess a license to supply temporary employees. If the agency does not possess such a license, 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” or “Werkverträge” have been used (and abused) by employers to get around the legal restrictions under the Law on Labour Leasing Act. 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 trade unions have urged legislation to curb the abuse of fictitious work contracts. In response, Germany’s Federal Minister of Labour introduced draft legislation to reform temporary employment, as well as contracts for work and labour. Although amendments to this draft are likely and a final version will not come into force before 1st January 2017, the key changes are summarised below:

  • A maximum hiring (loan) period: The hirer of temporary employees will be required to terminate the deployment of the temporary employee after 18 months. Exemptions are only possible through an applicable collective bargaining agreement. This means that companies not bound by collective bargaining agreements do not have the option of greater flexibility.
  • Equal treatment after nine months: according to the draft legislation, temporary employees would be treated equally to comparable employees of the hirer in relation to essential working conditions including remuneration after nine months. Exceptions to this equal treatment principle would only be possible through a collective bargaining agreement within the first nine months.
  • Reducing the abuse of contracts for work and services: The draft legislation seeks to tackle the improper usage of work contracts. Up to now, it has been possible to have a “precautionary” license to supply temporary employees, making it possible to use the cloak of a work contract even if, in fact, the supply of a temporary employee occurs. According to the draft legislation, temporary employment is permissible only if the deployment is formulated as such and the deployed employees are named.
  • Definition of legal terms: the draft legislation sets out key criteria identifying temporary employment (to distinguish it from a works contract), for example, being unable to decide on working time; using third party resources when providing services; working exclusively for a party; not guaranteeing the result of his/her work, etc.

Even if the draft legislation will not come into force before 1st January 2017 employers are advised to plan for the expected amendments. Employers are well advised to review which positions temporary employees are required in future. Moreover, existing agreements and business relationships with outside personnel should be reviewed with the planned amendments in mind.