“Temporary Employees” in Germany Need to be Temporary Under New Draft Law

Draft legislation regarding the reform of the German Act on the Supply of Temporary Employees (Arbeitnehmerüberlassungsgesetz – AÜG) has been introduced by Germany’s Federal Minister of Labor. Although further amendments to this draft are likely and a final version will not come into force before January 1, 2017, it is important to know what this means for temporary employment agencies and their customers, the host businesses.

Introduction of a maximum hire term of 18 months

According to the draft bill, the hirer of temporary employees will be required to terminate the deployment of the temporary employee after 18 months. Hire times prior to January 1, 2017 shall be expressly excluded.

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.

A deviation from this maximum hire term up to 24 months is possible by works agreement. Companies bound by collective bargaining agreements even have bigger flexibility, as no maximum term applies for them.

In case of breach: Employment relationship with host business

In case of breach, a legal fiction of an employment relationship with the hirer is created. According to the 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

The principle of equal pay shall, in principle, apply directly and in case of an (industry-specific) collective agreement no later than after nine months. After this period, a temporary employee must not be paid less than a comparable employee in the organization of the hiring company. Under certain circumstances, collective agreements can also provide for equal pay only after 15 months.

Sanctioning the “hidden” supply of temporary employees

The present common practice to apply for a permit for the supply of temporary employees by way of precaution in order to avert the consequences of an illegal supply of employees will no longer work in relation to ostensible Work Contracts and ostensible service contracts. The “hidden” supply of employees with a “precautionary 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 – and this party shall be liable as an employer for any social security contributions and wage tax.

This corresponds to a new duty to provide information to the temporary employee; prior to every supply of employees, the provider must inform the temporary employee that he is going to be working as a temporary employee.

Statutory definition of the term Employee

According to the draft bill, a new section 611a German Civil Code (Bürgerliches Gesetzbuch) is to be implemented, legally defining the term Employee. As the definition corresponds to current case-law of the superior courts, this amendment is not likely to bring any material changes.

New provisions regarding strikebreakers, work council’s right and co-determination

The 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.

A general obligation will be implemented 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.

According to the draft bill, in principle, temporary employees have to be taken into account in determining thresholds for the purposes of co-determination on operational and company level. The extension to the thresholds for co-determination seems logical as recent case-law had clearly been moving in this direction.