Overview of the Final Amendments

On 1 April 2017, following nearly two years of consultation and negotiation, the Reform of the Labour Leasing Act (“AÜG“) (as well as various ancillary statutes) came into force. Similarities can be drawn between labour leasing and the agency worker relationship in the UK: an agency “leases” employees to third parties but the individual remains employed by the agency. The amendments aim to place greater restrictions on the law relating to labour leasing and include the following:

  1. (Re-)Introduction of a maximum term of leasing

The previous AÜG provided that the leasing of an employee should be temporary. The amendment has now gone one step further by introducing a maximum leasing term of 18 months (§ 1 para 1b AÜG n.F.), which would be based on the specific employee as opposed to the workplace. This means that a company can only lease the same employee for a maximum period of 18 months. Upon the expiry of this term, the company can replace the employee with another one.

When calculating the 18 month maximum term of leasing, preceding periods with the respective company are now to be taken into account (even if the employee was leased through another agency for part of this period). However, the 18 month period can start afresh, if the employee is not leased to the company for an uninterrupted period of three months or more. It is therefore important for companies to clearly record (in writing) the end of any leasing relationship. This should provide certainty when determining whether or not earlier periods need to be considered in respect of the 18-month maximum term.

Surprisingly, there is no provision in the AÜG to account for periods where an employee is leased to a company which is affiliated with the current hiring company. Accordingly, an employee can now switch between an affiliated or parent/subsidiary company and in each case the 18 month maximum term of leasing begins again.

  • Consequences of exceeding the maximum leasing term

Failure to comply with the maximum leasing term comes with a possible fine of €30,000 for both the agency and the respective company. The AÜG amendments also provide that if an individual’s lease period exceeds 18 months, the respective individual then becomes an employee of the company to which he or she is leased. This would mean that the company would become liable to pay the social insurance contributions for the period of the individual’s employment which exceeds the permitted term of leasing (§ 28e para 2 sentence 3 SGB IV), failure of which constitutes a criminal offence (see § 266a StGB).

An employee does have the right to object to the transfer of the employment relationship and this should be made to the Federal Employment Agency in the month following the maximum leasing term being reached. This is designed to prevent the employee from being shifted from a solvent agency to an insolvent hirer.

  • Client escape clause for collective bargaining agreements and employer/works council agreements

The new legislation provides that a collective bargaining agreement can provide for a shorter or longer maximum leasing term. The statute further provides two options for the company temporarily leasing the employee: a collective bargaining agreement can (1) set out a maximum leasing term in the agreement itself; or (2) allow this to be extended by way of an employer/works council agreement.

  • Legal consequences as from 1 October 2018

Pursuant to § 19 para. 2 AÜG n.F., the calculation of the 18-month maximum term of leasing should only include periods of leasing from 1 April 2017. Therefore the earliest that the consequences of this restriction of temporary work will come into effect is 1 October 2018, unless company collective bargaining agreements shorten the maximum term of leasing to less than 18 months.

2. Equal pay after a nine month term of deployment at the latest

After nine uninterrupted months (or after 15 months in some cases) the new § 8 para 4 AÜG n.F. places the agency under an obligation to pay the employee the same remuneration that a comparable employee of the respective company is paid. If the period is interrupted by three months elsewhere, the calculation period reverts to zero. Similarly, they must be paid for any benefits in kind (such as subsidised canteen food) that their comparators receive.

This calculation of the equal pay deadline will only apply to periods after 1 April 2017.

  • Greater scope if a sector specific collective bargaining agreement is applicable

If a sector specific collective bargaining agreement for temporary work is applicable to the leasing company, the equal pay principle may not be effective after a nine-month deployment period. The collective bargaining agreement can specify that the individual being leased will receive the salary of a comparable employee after 15 months instead.

3. Obligation for the express designation as a temporary employee lease

The AÜG now provides that a valid contract for the leasing of an employee only exists if the arrangement is expressly designated as a “temporary employee leasing agreement”. It is not the contract with the client which must be designated as this but rather that with the agency which must be deemed to be a “temporary employee lease”. This statutory regulation aims to prevent sham contracts and is particularly designed to cover situations in which the personnel of an agency are firmly integrated in the operational procedures of the client. § 1 para 1 sentence 5 AÜG n.F., provides that the (written) temporary employee lease must have been concluded before the temporary employee begins working.

  • Right of the temporary worker to object

A temporary lease that does not expressly name the person to be supplied, shall be invalid pursuant to § 9 no. 1a AÜG n.F., meaning that an employment relationship will arise directly between the hiring company and the leased employee (§ 10 para. 1 AÜG n.F.). However, as mentioned above, the leased employee has the right to object to this transfer. Crucially, the one month deadline begins to run, irrespective of knowledge, from the time at which the employee joins the hiring company, and a declaration given prior to the commencement of the respective one month deadline would be invalid.

4. Obligation to provide information

Prior to entering a lease, the individual in question must be informed “that he will be working as a temporary worker” (using the exact wording of the statute), according to § 11 para. 2 AÜG n.F.. A breach of this will be punishable by a fine of €1,000 (§ 16 para. 1 no. 8, para. 2 AÜG n.F.). This obligation to provide information is aimed once more at so-called sham contracts for work and services.

5. Express prohibition on chain leases (Kettenverleih)

For the first time, the new legislation regulates the prohibition on so-called chain leasing. From now on, it is expressly provided in § 1 para 1 sentence 3 AÜG n.F. that the lease of employees should only be permissible if a relationship of employment exists between the agency and the respective employee. A breach of this prohibition on chain leases shall be punishable with a fine of up to €30,000 in each individual case pursuant to § 16 para. 1 no. 1b AÜG n.F.

6. Prohibition on the deployment of strike-breakers

Temporary employment companies which apply the iGZ or BAP collective bargaining agreements are prohibited from placing employees in client operations where a strike is taking place and where those employees are covered by the relevant collective bargaining agreements.

The new legislation now ensures that it will be prohibited for clients to allow a temporary worker to be used as a direct or indirect replacement for striking employees and temporary employment companies are prohibited from applying the iGZ or BAP collective bargaining agreements to deploy employees to a client operation where a strike is taking place. The prohibition applies as long as a strike is taking place “somewhere” within the operation. The strike need not be taking place in the department in which the employee is working.

That said, the client is not compelled to send all leased employees working in its striking operation home. The individual can remain working, provided it is ensured that the respective individual does not carry out the work of a striking employee of the client or the work of the client’s employee who, in turn, is carrying out the work of a striking employee.

For every individual breach of the strike-breaker prohibition, an administrative offence fine of €500,000 shall be payable (§ 16 para. 1 no. 8a AÜG n.F.).

7. Involvement of temporary workers in the framework of company co-determination

The new legislation clearly provides (under § 14 para 2 AÜG n.F.) that temporary workers who have been deployed to the respective client operation or client company for over 6 months will be taken into account in the calculation of any measured values and threshold levels. This applies in the context of the Works Constitution Act, for which it is necessary to ascertain the size of the works council, in order to determine whether employee representatives should be elected to the supervisory board. Of paramount importance here is the threshold level for the Protection against Unfair Dismissal Act which is only applicable in companies with more than ten employees.

8. Differentiation of contracts for work and services

Originally, the new legislation was supposed to clearly differentiate between contracts for work and services on the one hand, and the leasing of employees on the other. However, the only mention of this differentiation is a new statutory definition of employee, which simply repeats the principles of long standing case-law.

Additionally, works councils are now granted considerably greater rights of information (§§ 80 para. 2, 92 para. 1 Works Constitution Act), and must be notified in advance of any proposed personnel changes. This includes information about persons who are not in a relationship of employment with the employer. In relation to such persons, works councils must be informed in advance of the anticipated working duties, the time and the place of deployment and the relevant contractual basis of their employment.

9. Conclusion

Whilst established deployments of temporary labour and those secured by collective bargaining agreements will be greatly limited, contracts for work concluded outside collective bargaining agreements will remain unchanged. Consequently, the legislation is limited to the tightening of the rules and consequences around the differentiation between contracts for work and services on the one hand and a lease of individuals on the other. An incorrect arrangement is ultimately punishable and aims to ensure compliance with the law in respect of labour leasing.