Regulation of temporary agency work and contracts for work II
what companies can expect under the new draft bill
5. End of the “anticipatory licence”
Up to now it has been common practice to obtain a licence for temporary agency workers as a “back-up” when using external staff on the basis of contracts for work or service agreements. If the assignment actually turns out to involve the supply of temporary agency staff because the workers used are integrated into the operation of the party ordering the services or benefitting from them (known as “hidden agency work”), those involved have been able to protect themselves from the consequences of illegally employing temporary staff. In particular, it was possible to prevent the creation of an employment relationship between the employees used and the user company.
It will no longer be possible to uphold this practice from 1 January 2017. Anyone who supplies employees to carry out work for third parties will have to explicitly designate this as supply of temporary agency workers in the contract in the future. Before each assignment, the agency will have to inform employees that they are being deployed as temporary agency workers.
If use of external staff occurs on the basis of a service agreement or contract for work but this actually qualifies as agency work, then it is lacking in the required designation. Then, even if a licence for temporary agency work exists, this will no longer be able to prevent the consequences of illegally employing agency workers. The licence will only apply to “open” supply of agency workers and not to “concealed” supply of workers any more.
The consequence is that an employment relationship will result between the assigned employees and the party ordering the services or work, meaning that they will be responsible for paying social security contributions and remitting wage taxes.
Due to the frequent difficulties when determining what type of contract is suitable, companies will be exposed to even greater risk when making use of external staff in the future. These are especially apparent in complex project work where a large number of work steps are carried out by outside staff. This is not because the parties are interested in wage dumping; instead, they are driven by the challenge of bringing people with specific know-how together for a limited time period. New forms of cooperation such as “scrum” also pose real challenges for legal practitioners when deciding what type of contract should be taken as a basis.
6. Prohibition of “chain hiring”
The draft makes clear that employees can only be hired out by their contractual employer. In line with the administrative practice of the German Employment Agency, it confirms that “chain”, “intermediate” or “sub-hiring” is prohibited. A new administrative offence is being introduced to safeguard against this. Moreover, an employment relationship with the ultimate hirer is established if the interim lender does not have a licence for hiring out temporary employees. Chain hiring can also have legal consequences related to the licence.
In practice, chain hiring occurs more frequently than is presumed. One example of this is a situation where a wide range of external staff is required and an agency has no way of providing these with its own contracted agency workers and therefore has to obtain them from third parties. Projects are often staffed from a single source for the sake of simplicity. However, in many cases multiple employee assignments may be hidden behind this concentration of resources.
In this context, involving contractors and subcontractors on the basis of service agreements or contracts for work may also be especially precarious in future if the subcontractor’s employees are integrated into the operation of the party originally ordering the services or benefitting from them. Based on the discussion draft, such hidden chain hiring could have serious consequences since employment relationships with the party ordering the services or work will now be established. Holding a licence for hiring out temporary employees will no longer protect against this.
7. Consideration of thresholds
Furthermore, the draft picks up on aspects which in principle had already been decided in the case law of the labour courts (sometimes in marked contradiction to that of the civil courts): temporary workers will have to be taken into account in the thresholds for co-determination unless this conflicts with the objective of the relevant provision. This includes thresholds under works constitution law such as the size of the works council or the existence of an operational change, for example. Temporary agency workers will also be counted in thresholds for corporate co-determination, in marked contradiction to earlier decisions by the civil courts. The Federal Labour Court had recently already decided to take temporary agency workers into account when calculating the threshold for electing employee representatives onto the supervisory board comprising employee representatives (Federal Labour Court decision of 4 November 2015, case no. 7 ABR 42/13) [see also our article Zählen Leiharbeitnehmer für Aufsichtsratswahlen].
Whether this initial draft will actually become law on 1 January 2017 is an open question. It is very likely that changes will be made as a result of the parliamentary consultations, especially since the response from the media is already enormous and ruthless. They describe the draft among other things as “unenforceable”, “lacking in practical relevance” and even “feeble-minded”.
So companies do not have to adjust straight away. At the moment there are no effects on ongoing assignments of external staff. But they should take a critical look at their current practices and question the business model they are based on as a precaution.
Any questions? Please contact: Daniel Happ or Marijke van der Most
Practice Group: Employment & Pensions