Temporary hiring-out of employees: what happens now that the new maximum hiring-out period expired at the end of September 2018

Germany

On 1 April 2017, an amendment to the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz or AÜG) took effect. The aim of the amendment – as stated in the explanatory memorandum – is to "shift its focus closer to its core function as an instrument for meeting the need for temporary labour". It also seeks to prevent disguised deployment of temporary workers (verdeckte Arbeitnehmerüberlassung), which runs counter to the intention of the Act (vgl. BT-Drucksache 18/9232, S. 2).

Three core elements of the Reform of the German Temporary Employment Act

The object of the AÜG reform is the following three principal elements:

  1. an obligation to disclose and specify details to prevent the safety net referred to as the "parachute solution", and to prevent bogus contracts for work/services (section 1 (1) sentences 5, 6 AÜG);
  2. mandatory application of the equal pay principle once the ninth month of deployment is over, provided that the contract is not subject to a sector-based collective supplementary pay agreement (Branchenzuschlagstarifvertrag) (section 8 (2), (4) AÜG); and
  3. application of an 18-month maximum hiring-out period, which may be modified by collective agreements in the sector concerned or works agreements triggered by escape clauses in collective agreements (section 1 (1) sentence 4, (1)b AÜG).

The reform does not stipulate a statutory transitional period for the new disclosure and specification requirement. Hence, this new requirement applies to all contracts entered into as of 1 April 2017. The Federal Employment Agency (Bundesagentur für Arbeit, BA) takes the view that it also applies to "old" temporary employment contracts entered into before 1 April 2017. However, the reform allows a transitional adjustment time for calculating the actual deployment periods for the application of the equal pay principle after the ninth month of deployment and expiry of the 18-month maximum hiring-out period. The starting point for these periods was to be 1 April 2017 even if the temporary employee had been hired out to a specific customer years before that date (see section 19 (2) AÜG).

Thus, the transitional period for applying the statutory equal-pay entitlement expired at the end of 2017.

Expiry of the statutory maximum hiring-out period – calculation method not clear

The statutory transition clause (section 19 (2) AÜG) means that there is a now a "risk" the statutory 18-month maximum period that external personnel can be hired out will end shortly (i.e. for external employees deployed as of 1 April 2017, the expiry date may have been the end of September 2018).

Unfortunately, the reform does not make it clear when the period will begin and end, so that the current disagreement on exact timing comes as no surprise. Prevailing opinion is – rightly – that the maximum hiring-out period of 18 months ended on 30 September 2018 (sections 187 (2) sentence 1, 188 (2) German Civil Code (Bürgerliches Gesetzbuch, BGB); see Bissels/Falter, ArbR 2017, 36). The Federal Employment Agency is likely to adopt this view (FW AÜG No 1.2.1 (2), sentence 23). However, some legal commentators disagree, arguing that the period should be calculated according to section 191 BGB (see Pütz, DB 2017, 425) (i.e. each month is deemed to have 30 days even if the actual number of calendar days differs). For example, February and August are both treated as having 30 days, causing a number of days to be "lost" over the 18-month period as opposed to the actual number of days (540 days versus 548 days). Under this system, the maximum period employees can be hired out would have expired earlier (i.e. midnight 22 September 2018).

In other words, personnel services and customers must now consider what they regard as the exact expiry date for the maximum hiring-out period. There are a number of persuasive reasons for regarding the expiry date as 30 September 2018. However, in the absence of case law on this topic an element of legal uncertainty remains and the possibility of the courts taking a different view cannot be ruled out (section 191 BGB), in which case the maximum hiring-out period would have expired earlier. To avoid all possible risk of overstepping the maximum hiring-out period (including a "fictitious" employment relationship between the deploying entity and the temporary employee without the consent and even against the will of the participants) the expiry date should be assumed to be 22 September 2018. The specific risk to the customer concerned should be weighed, taking economic considerations into account.

Possible reaction to expiry of the maximum hiring-out period

The customer can react to expiry of the maximum hiring-out period by terminating the contract between the user company and entity supplying external staff. However, this does not resolve the problem because the need for personnel, which had hitherto been covered by the temporary employee, persists.

The customer can, of course, employ the temporary employee under a regular employment contract, possibly a fixed-term contract without objective reason (sachgrundlos befristet). In practice, headcount requirements mean that this is often not a feasible option.

Alternatively, the current temporary employee could be replaced by another. Rotation is possible even where the position with the customer is long-term. After an interruption of three months and one day the original temporary employee can be rotated back to the position concerned for a further 18 months. During this interruption, the temporary employee may be assigned to a different group company of the same customer. The German Temporary Employment Act does not expressly prohibit this type of rotation arrangement. However, in practice such arrangements raise operative issues, as the newly assigned employee first needs to be trained. For companies that hire a large number of external staff simultaneous replacements may be a source of considerable operational disruption. Thus, advance planning is necessary for rotation to begin early enough to ensure that at any one time there is a significant number of temporary staff with sufficient experience and knowledge of the customer's operations.

There are other models, which would make it possible to deploy temporary employees de facto with the same customer for more than 18 months [e.g. joint establishment (Gemeinschaftsbetrieb); genuine contracts for work/services]. These do, however, entail a number of uncertainties as they have not yet been safeguarded by case law. Please don't hesitate to contact us if would like further information on this issue.