No all-clear given despite renewed confirmation of "anticipatory licences"

The Baden-Württemberg Higher Labour Court has once again confirmed the permissibility of “anticipatory labour leasing licences” for contracts for work, although temporary employees are hired from employment agencies (judgement of 18 June 2015 – 6 Sa 52/14); those affected by this issue can therefore once again breathe a sigh of relief. But this could soon change: The Minister for Employment, Andrea Nahles, recently announced that a long-expected draft bill on the stricter regulation of labour leasing and contracts for work is to be tabled this autumn. “Anticipatory labour leasing licences” will then at the latest be back on the agenda.

Decision of the Baden-Württemberg Higher Labour Court

The plaintiff was employed from the year 2000 to 30 June 2014 at company R. and under this employment contract was deployed at the defendant’s company permanently until 31 December 2013. Whether the deployment was qualified as a contract for work or labour leasing was disputed between the parties. The contractual employer R. had permanently held a labour leasing licence since 1 April 1976. The plaintiff was at least temporarily integrated into the defendant’s business operations and was subject there to the instructions of the defendant. He therefore argued that he was employed by the defendant.

The Baden-Württemberg Higher Labour Court rejected the application for a declaration that the plaintiff was employed by the defendant, stating that such an employment contract had not resulted either analogously via Section 9 No. 1 and 10 (1) sentence 1 of the German Labour Leasing Act or via Section 242 of the German Civil Code. The Court held that the contractual basis on which the plaintiff had worked for the defendant was irrelevant because a labour leasing licence had at least existed for the overall duration of his deployment. Furthermore, the existence of a labour leasing licence not only legalised the openly practiced labour leasing, but also prevented the establishment of an employment contract if an ostensible contract for work was in place. Even the employer’s intention of only using the licence as a “last resort” did not in the assessment of the Court lead to the invalidity of the issued licence.

The Court refers in its rejection of an analogous application of Section 9 No. 1, 19(1) sentence 1 of the German Labour Leasing Act to the case law of the Federal Labour Court regarding “not only temporary” labour leasing (most recently Federal Labour Court, judgement of 29 April 2015, 9 AZR 883/13) and held that this was not an unintended oversight on the part of the legislator because it had deliberately not included such a provision in the Act. The Court also ruled that any conduct in bad faith – for example pursuant to Section 242 of the German Civil Code (good faith principle) – did not trigger the legal consequences of Sections 9 No. 1, 10 (1) sentence 1 of the German Labour Leasing Act either. In accordance with the principle of good faith, the plaintiff, according to the Court, (only) had to be put in a contractual and economic position that could have enabled him to exercise his rights as temporary agency worker from the outset.

Context of the decision

This judgement of the Baden-Württemberg Higher Labour Court is already its fifth ruling on “anticipatory labour leasing licences”. Since the second ruling, there has rightly been agreement on the permissibility of this form of avoiding a fictitious employment relationship between the employee providing the work and the customer (most recently Baden-Württemberg Higher Labour Court judgement of 07 May 2015 – 6 Sa 78/14 and of 9 April 2015 – 3 Sa 53/14). The Court correctly states that the only consequence of bad faith is the equal treatment of the employee and the leased worker due to the principle of equal pay. The legislator has not provided for any further legal consequences. In fact, these are not necessary either to achieve the protective intent of the German Labour Leasing Act either. It was only the 3rd Division of the Baden-Württemberg Higher Labour Court that affirmed an employment contract with the customer due to conduct in bad faith (Section 242 German Civil Code) (cf. News of 27.01.2015).

With this judgement, the Court is again respecting the legislator’s deliberate decision not to address the issue of fictional employment contracts in the case of undisclosed employee leasing. Appeals have already been filed in several cases at the Federal Labour Court. It remains to be seen whether the Federal Labour Court will rule on this matter before the Federal Ministry of Labour presents its new legislative proposal.

Practical impact

Whilst the decision of the Baden-Württemberg Higher Labour Court is convincing and upholds the permissibility of “anticipatory labour leasing licences”, which is very widespread practice in the business community and is rightly recommended due to the fact that modern forms of cooperation (such as “scrum”, i.e. the project methodology of “agile development”) are difficult to classify legally, the announced change in the law means that the situation remains uncertain. If the Federal Ministry of Labour – as intended by the Minister – adheres closely to the Coalition Agreement, this could mean an end to this practice. The Coalition Agreement states that if a labour leasing licence has been obtained, work contractors and labour leasing companies may not be put in a better position than if illegal labour leasing were practised (Coalition Agreement, page 49). In view of the stricter regulations which have been announced, companies are therefore well advised to critically review the contracts used for deploying external staff and to raise the awareness for this issue in all affected areas of the company, i.e. from purchasing and human resources to compliance and operational units. We would be happy to explain to you how you can successfully address this issue and prepare your company for current and potential future risks with our external staff health check.