Using Temp Agencies in Germany: New Restrictions for Companies

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On June 1, 2016, the draft law regarding the reform of the German Act on the Supply of Temporary Employees (Arbeitnehmerüberlassungsgesetz – AÜG) has been adopted by the Federal Cabinet. The German Bundestag will address the draft law after the summer break. However, material changes to the draft are not expected to be made during the parliamentary process. If the time schedule will be observed, the reform will come into force as planned on January 1, 2017.

The new law will bring material changes for both, employment agencies and their customers, the host businesses.

What Agencies and Their Customers Need to Know Now:

  • Maximum hire term of 18 months: In future, the same temporary employee may only work for the same hirer for a period no longer than 18 consecutive months. If this maximum period is exceeded, an employment relationship between the temporary employees and the host business is established by law.
    • Hire times prior to entering into force of the Act shall be expressly excluded.
    • In case of a repeated supply of the same temporary employee to the same hirer, the deployment periods will be added up if the interruption is no longer than three months. Thus, if the deployment is interrupted for at least three months and one day, the maximum period begins to start anew and previous deployments will not be taken into account.
    • A deviation from the maximum hire term is only possible by collective bargaining agreements or via works agreement on the basis of such collective bargaining agreements. If the collective bargaining agreement does not stipulate the extent of permitted deviation by the parties, companies that are not bound by collective bargaining agreements may determine a maximum hire term of up to 24 months via works agreement. There is no time limit for companies bound by collective bargaining agreements.
    • In case of exceeding the maximum term, an employment relationship between the host business and the temporary employee is created, provided the temporary employee does not object to this after the maximum hire term is exceeded. In this case, the employment relationship with the agency persists.
  • Equal pay no later than after nine months: Generally, after nine months temporary employees have to be put on an equal footing with comparable permanent employees of the host business.
    • As with the maximum hire term, deployment times prior to entering into force of the Act shall not be taken into account. This means, if the Act enters into force as planned on January 1, 2017, mandatory equal pay will apply for the very first time as from October 1, 2017.
    • With regard to the calculation of the nine-month period for equal pay, deployment periods will also be added up if the interruption is no longer than three months.
    • In case a collective bargaining agreement providing for surcharges for specific industry sectors (Branchenzuschlagstarifvertrag) applies, equal pay applies only after 15 months. However, the utilization of the longer deviation up to 15 months is only possible if the collective bargaining agreement provides for a gradual accession process to the remuneration of the permanent staff not later than after a training period of six weeks.
  • Bogus Work and Service Contracts: In case of bogus work and service contracts with a permit for the supply of temporary employees, in future an employment relationship between host business and temporary employee will arise.
    • Up to now, it has been possible to have a “precautionary” permit to supply temporary employees, making it possible to use a bogus work and service contracts even if, in fact, the supply of a temporary employee occurs. These are contracts that according to the written contract provide for the construction of a work or the performance of services, however, in practice turn out to be supply of staff. In future, the “precautionary” permit will not prevent the creation of an employment relationship in case of bogus work and service contracts.
    • Only if the supply of temporary employees is unambiguously recognizable as such and a permit exists (i.e., the supply is “disclosed”), no employment relationship between host business and temporary employee will arise.
    • In future, the agency has to inform the temporary employee before each and every hire that he/she is going to be working as a temporary employee.
  • Designation of Temporary Employees in Leasing Contract
    • The temporary employees to be supplied in future have to be designated by name prior to every supply of employees.
    • If the temporary employee is not designated at all, not designated correctly or not designated in a timely manner in the leasing contract prior to the supply of employees, there is an impending fine of up to EUR 30.000.
  • Prohibition of Work of Temporary Employees as Strikebreakers: In future, striking employees of the host business may not be replaced by temporary employees.
    • The prohibition of the use of temporary employees also applies if the temporary employee carries out work of a permanent employee who on his part performs work for a striking permanent employee.
    • In case of breach, a fine of up to EUR 500.000 impends on the host business.
  • New Rights of the Works Council to be Informed Regarding Contracts for Services
    • In future, the host business has to provide the works council with the contracts on which the hire of external temporary staff is based.
  • Consideration of Temporary Employees Regarding Thresholds of Co-determination
    • In future, temporary employees have to be taken into account in the host business when determining thresholds for the purposes of operational co-determination. Some co-determination rights of the works council are subject to certain thresholds. For example, under the Works Constitution Act (Betriebsverfassungsgesetz – BetrVG), the works council in an operation generally having more than 20 employees must be given timely and comprehensive information about any planned operational changes which may result in material detriments to the staff and are entitled to negotiate a reconciliation of interests (Interessenausgleich) and a social plan (Sozialplan) with the employer.
    • With regard to thresholds for the purposes of co-determination on company level in the supervisory board, temporary employees shall only be considered if the hire term exceeds six months. In Germany, companies (e.g. GmbH or AG) with more than 500 or 2,000 permanent employees have to form a supervisory board with up to 50 % of the seats to be filled by employee representatives.
    • The new law may lead to more co-determination rights for the works council and increase the number of works council members. Moreover, some companies may have to form co-determined supervisory boards for the very first time since they reach the statutory thresholds of 500 or 2,000 employees.

Orrick’s Employment Law Team in Germany can guide you through these new requirements and help you align your business with the increasing regulation of temporary agency work.