Temporary work: Bundestag approves reforms to Act on Temporary Agency Work

and outside parliament, the reforms to the Act on the regulation of temporary agency work and contracts for work and services have today been approved by the Bundestag, the German lower house of parliament. Now, only the German upper house of parliament has to give its formal consent. The Bundesrat is due to consult on the matter on 4 November 2016. Surprisingly, amendments to the planned provisions have emerged this week as a result of consultation in the Committee on Labour and Social Affairs (Bundestag document 18/10064). One welcome development is that companies are to be given a longer period for transition and preparation, as the law is only due to come into force on 1 April 2017 after all. On the other hand, the changes to the law have been made even more complicated in other areas.

We have summarised the most important new developments below:

Maximum duration of assignments

The introduction of a maximum period of 18 months for an assignment was originally agreed in the Coalition Agreement and is now to be set down in law. At the same time, a legal consequence will be introduced for use of agency workers that is not just temporary. One noteworthy point in this context is the new legal tool offering an option to appeal against the legal fiction of employment with the user company – a written declaration by the employee that they wish to remain with their existing employer.

For the time being, the maximum assignment period will not have any effect on placements of temporary staff that are currently ongoing because placement periods before 1 April 2017 will not be taken into account when calculating the maximum assignment period.

Current legal situation	Planned changes	Legal consequences
The assignment may only be “temporary”, i.e. not permanent. There are no penalties if the assignment is not just temporary.	"The same agency worker may not be hired to the same user company for more than 18 consecutive months." Deviations as a result of a collective agreement for the sector concerned are possible, both upwards and downwards. Limited scope for deviations for user companies not bound by collective agreements.	Administrative offence: fines of up to €30,000 Employment relationship is created with user company. Exception: Employee states within a period of one month that he wants to keep to the employment contract with the agency.

Equal Pay

The system of gradually adjusting agency workers’ rights is nothing new and is common practice in the world of collective bargaining. Only time will tell whether the absolute nature of the equal-pay rule will achieve the desired aims or create an incentive to swap agency workers after nine months.

Current legal situation	Planned changes	Legal consequences
Compensation is paid based directly on equal pay. Deviations possible by collective agreement.	Agency worker receives same pay as equivalent member of regular workforce at user company after nine months. If a collective agreement provides for top-up wages after a maximum of six weeks, equal pay has to be granted no later than after an assignment of 15 months.	Administrative offence: fines of up to €500,000 Legal action can be taken to claim equal pay if not granted. Licence for hiring out temporary employees can be revoked/is not extended.

Anticipatory licence (Vorratserlaubnis)

Companies will be exposed to even greater risk when making use of external staff due to the difficulties that often exist (even for the courts) when deciding what type of contract is appropriate. These difficulties are especially apparent during complex project work which aims to bring together know-how providers for a limited period of time. Under the planned reforms companies will no longer be able to prevent the legal consequences of illegal supplying temporary agency staff by holding an anticipatory licence (Vorratserlaubnis).

Current legal situation	Planned changes	Legal consequences
Maintaining a licence for hiring out temporary employees prevents employment relationships from being formed with the user company (borrower) if contract for work or services is in fact regarded as supply of temporary agency staff.	Supply of temporary agency staff has to be explicitly described as such in the contract and agency worker’s identity has to be specified. ->This is missing in contracts for work or services that are to be assessed as supply of temporary staff due to the way they are actually carried out. It is irrelevant whether the alleged agency has a licence for hiring out temporary workers (“anticipatory” or “back-up” licence) for the legal consequences on the right to occur.	Administrative offence: fines of up to €30,000 Employment relationship is created with user company. Exception: Employee states within a period of one month that he wants to retain his employment contract with the agency.

Employee declaration confirming continued employment

Up to now, the legal fiction of an employment relationship with the user company has been an inevitable legal consequence of illegally supplying temporary staff if the agency does not have a valid licence for hiring out temporary employees. In future, this legal consequence will be extended to cover cases where the maximum assignment period is exceeded and where the supply of temporary workers is concealed. However, agency workers will then have the option of insisting that their employment with the temping agency should continue by making a declaration that they wish to remain employed by it. For this written declaration to be effective:

• the agency worker has to personally hand in the declaration at an office of the Federal Employment Agency,
• the employment office has to add the date of submission to the declaration and a note that they have checked the agency worker’s identity and
• the declaration must be received by the user company or agency hiring out the worker no later than the third day following submission to the employment office.

This additional path via the employment office is designed to prevent agency workers from simply submitting their declarations in advance by completing a form.

Apart from the unclear practical arrangements as to when a declaration can be submitted in the first place, this additional bureaucratic hurdle requiring the employee to go to the employment office will prevent them from remaining with their previous employment rather than encourage it. On top of this, it means that employment offices are being assigned a new task which they are certainly not ready for at the moment.

Moreover, the declaration does not cure the legal breach itself. User companies, agencies and agency workers continue to be required to create a legally compliant state of affairs as soon as possible. Similarly, the declaration does not affect the user company’s joint liability for social security contributions and wage tax.

Chain hiring

“Chain hiring” takes place in particular – often unintentionally – when contractors and sub-contractors are involved on the basis of service agreements or contracts for work if the subcontractor’s employees are integrated into the operations of the party originally ordering the work or benefiting from the services. If the draft bill is taken as a basis, such hidden chain hiring may now have particularly serious consequences, creating employment relationships with the party ordering the work or benefiting from the services. This can no longer be protected against by maintaining a licence for hiring out temporary employees.

Current legal situation	Planned changes	Legal consequences
Prohibited by the Federal Employment Agency, but no penalty if the original agency at least has a licence for hiring out temporary staff.	Employees may only be hired out by their contractual employer as an agency. -> Thus, chain, intermediate or sub-hiring is prohibited.	Administrative offence: fines of up to €30,000 In case of cumulative breaches (e.g. no licence, only “anticipatory licence”, exceeding maximum assignment period), the legal consequences are cumulative.

Definition of employee

The key aim of setting down the definition developed by case law is to help the authorities responsible for monitoring investigate cases of abuse more easily. The Committee for Employment was also fine-tuning the wording on this matter until the last minute, although this continues to encourage more misunderstandings rather than aid assessments.

Current legal situation	Planned changes	Legal consequences
The assessment of whether the worker qualifies as an employee takes place on the basis of an overall evaluation.	The term employee will have a statutory definition, although the assessment criteria and benchmarks are not to be changed. An overall evaluation will still be used.	Risk of incorrect classification of contractual relationships, especially on the borderline between employee/freelancer.

The new schedule gives you and your company’s organisation lead time to analyse any need for changes in ongoing projects and cooperative ventures and within your compliance structures and to implement any changes needed in good time. We would be happy to help you out with our HR Compliance Healthcheck. If you would like more information on this subject, please contact Daniel Happ.