After a long wait the time has finally come: the draft ministerial bill regarding the reform of the German Act on the Supply of Temporary Employees (Arbeitnehmerüberlassungsgesetz – AÜG) is out. On November 16, 2015, the draft bill entered “early coordination,” i.e. a period of coordination with the Office of the Federal Chancellor prior to coordination between the various ministerial departments. The cabinet decision is due by the end of the year. The law is expected to come into effect on January 1, 2017.

What does this mean for temporary employment agencies and their customers, the host businesses?

Introduction of a maximum hire term of 18 months in relation to the temporary employee

Arguably the most important “innovation” is the introduction of a maximum hire term of 18 months. Upon the introduction of the AÜG in 1972 the maximum hire term was three months; this was then gradually extended to 24 months before being scrapped completely at the end of 2003.

According to the ministerial draft bill, the “new” maximum hire term is to be with reference to the employee: “The same temporary employee must not be supplied to the same hirer for longer than 18 consecutive months.” (section 1(1b) AÜG-draft bill). Hire times prior to January 1, 2017 shall be expressly excluded. Whether, under prevailing law, the term “temporary” is to be construed with reference to the employee or the work place, is controversial. The new maximum term has been designed as a maximum permissible period of hire for the individual temporary employee, i.e. it relates to the employee.

After 18 months, the provider may supply a different temporary employee to the same hirer without the previous supply counting towards the maximum period. He may not, however, supply the same temporary employee even if the employee works for the same host business in a succession of different positions; according to the wording of the draft bill, this is irrelevant.

Similar to the position before 2003, a prior supply of employees by the same or another provider shall count in full towards any maximum term if there has not been a waiting period in excess of six months between each deployment. It is of note that, by including this rule on the prior supply of employees, a demand made by the German Social Democratic Party (Sozialdemokratische Partei – SPD) during the coalition talks which then failed to make its way into the final version of the coalition agreement has been revived.

As agreed in the coalition agreement, it is to be possible to deviate from the maximum hire term by way of collective agreements concluded by the industry hiring employees or by way of works agreements entered into on the basis of such collective agreements. In such case, however, the explanatory memorandum stipulates that a maximum time-limit must be prescribed in order to preserve the temporary nature of the supply of employees. However, this is to apply only to businesses bound by collective agreement. Host businesses that are not bound by a collective agreement are not able to deviate from the maximum hire term, whether by way of clauses referring to collective agreements or by works agreements.

In the case of breach: Employment relationship with host business

The coalition agreement did not specify which consequences would ensue under civil law in the event of the maximum term being exceeded. Here, too, the wording requested by the Social Democratic Party (“automatic employment relationship” with the host business) was deleted in the final version. In the past (until 1997) a legal fiction of an employment relationship with the hirer was created with reference to the deemed employment agency relationship and the old version of section 13 AÜG. The German Federal Labor Court (Bundesarbeitsgericht – BAG) has rightly rejected this under the currently applicable legal position for a supply of employees that is more than temporary (BAG, judgment of December 10, 2013 – 9 AZR 51/13).

In future, the legal fiction is to be revived. According to sections 9 no. 1b, 10(1) sentence 1 AÜG-draft bill, an employment relationship is deemed to arise if the maximum hire term is exceeded, provided the temporary employee does not object to this.

Equal pay no later than after nine months

As agreed in the coalition agreement, the principle of equal pay shall apply no later than after nine months. Insofar as an (industry-specific) collective agreement on supplementary payments applies, which provides for a gradual convergence of the pay of the temporary employee to a level of pay of a comparable employee in the host organization, there shall be a right to equal pay only after a twelve-month period of hire (section 8(4) AÜG-draft bill). The practical scope of application of the provision, however, is likely to remain rather limited as only very few temporary employees remain in one position for nine months. Industry-specific supplementary payments under the relevant collective agreement currently already provide some relief in this regard.

Laying down distinguishing criteria in statute

The draft bill provides, rather unfortunately in terms of legal systematics, that the German Civil Code (Bürgerliches Gesetzbuch – BGB) is to contain criteria to distinguish between the supply of temporary employees (Arbeitnehmerüberlassung) and the deployment of external staff (Fremdpersonaleinsatz) on the basis of contracts for the provision of a work (Werkvertrag; hereinafter “Work Contract”) (section 611a BGB-draft bill). There are also legitimate doubts regarding content: eight criteria are identified that are meant to be key in the overall assessment of whether somebody works in an integrated manner and is subject to instructions (and is thus deemed to be a temporary employee). The draft bill, however, contains alleged key criteria that case law has clearly found not to be key (e.g. the use of third-party resources).

Sanctioning the “hidden” supply of temporary employees

So far it had been common practice, on the threshold between supply of employees and a Work Contract/service contract, to apply for an official permit for the supply of temporary employees by way of precaution in order to avert the consequences of an illegal supply of employees. In future, such “precautionary permit” will no longer work in relation to ostensible Work Contracts and ostensible service contracts (cf. in this regard de lege lata judgments by the State Labor Court of Baden Wuerttemberg of 12/18/2014 – 3 Sa 33/14, 12/03/2014 – 4 Sa 41/14, 04/09/2015 – 3 Sa 53/14 and 05/07/2015 – 6 Sa 78/14). The “hidden” supply of employees via ostensible Work Contracts and ostensible service contracts with a permit is to be treated the same way as a supply of employees without a permit. In future an employment relationship with the supposed party commissioning the work or entitled to a service shall arise in both cases (via sections 9 no. 1a, 10(1) sentence 1 AÜG-draft bill) – and this party shall be liable as an employer for any social security contributions and wage tax.

Only if, in the case of an existing permit, the supply of employees has clearly been designated and identified as such, i.e. if such supply is done “overtly,” then this legal consequence shall not apply. This corresponds to a new duty to provide information to the temporary employee (section 11 AÜG-draft bill); prior to every supply of employees, the provider must inform the temporary employee that he is going to be working as a temporary employee.

Prohibition of work as strikebreaker

Section 11(5) AÜG-draft bill provides for a prohibition of employment for temporary employees if a business is directly affected by a labor dispute. Currently, the temporary employee (merely) has a right to refuse performance; the temporary employment agency is under an obligation to notify the temporary employee of such right. He is then entitled to choose freely whether or not to work in a business that is involved in strike action. The current collective agreements on temporary employment by the German Federation of Trade Unions (Deutscher Gewerkschaftsbund – DGB) already stipulate that temporary employees may not be employed in businesses involved in strike action (e.g. section 12 General Collective Bargaining Agreement of the iGZ[1]-DGB Bargaining Union). Interest Group of German Temporary Employment Agencies (Interessenverband Deutscher Zeitarbeitsunternehmen – iGZ).

The works council’s right to information and notification regarding Work Contracts

The draft bill provides for the general obligation to inform the works council to extend to “the term of the hire of temporary employees, their place of work and their work responsibilities.” The documents to be submitted to the works council shall also include the contracts on which the hire of external temporary staff is based.

As the law currently stands, the works council already has rights to be informed if temporary staff is to be hired. According to case law a works council may, in particular, require the submission of Work Contracts in order to check whether the contracts in question are in fact actual work contracts. It would be more serious for host businesses if a “real” right of co-determination on the part of works councils had been created, as is the case with the supply of temporary employees and as had been envisaged in the form of section 99a of the new version of the German Works Constitution Act (Betriebsverfassungsgesetz – BetrVG n.F.) by the bill of the German Federal Council, the Bundesrat (BR-Drs. 687/13).

Thresholds under the law on works constitutions

Section 14(2) AÜG-draft bill stipulates that, in principle, temporary employees have to be taken into account in determining thresholds for the purposes of co-determination. The coalition agreement had limited this to the thresholds under the law on works constitutions. The extension to the thresholds for co-determination seems logical as recent case-law had clearly been moving in this direction (cf. most recently Federal Labor Court, decision of November 4, 2015 – 7 ABR 42/13).