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Temporary workers – The German Federal Labour Court clears a “temporary” problem

According to the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG) temporary employment agencies need to hold a license in order to lease out employees. If the temporary employment agency does not hold a license and temporary workers are supplied nonetheless, an employment relationship is deemed to have been established between the agency worker and the company leasing this worker.

Since a change to the law in 2011, the German Temporary Employment Act further provides that temporary workers must not be leased out permanently, but only on a temporary basis. The German Temporary Employment Act does not specify the difference between permanently and temporarily leasing out employees. Also, the German Temporary Employment Act does not provide for sanctions which would apply if a temporary employment agency in fact leases out employees permanently. 

Since there is no clear case law from the Federal Labour Court, both of these questions ((i) the difference between permanently and temporarily leasing out employees and (ii) sanctions for violating the prohibition to lease out employees permanently) have been subject to controversial discussion in German legal literature and among the regional labour courts. According to a recent ruling of the Regional Labour Court (Landesarbeitsgericht, LAG) of Baden-Wuerttemberg dated November 22, 2012 (docket number 11 Sa 84/12) an employment relationship is concluded with the company hiring the temporary workers in case of a permanent lease. The Regional Labour Court argues that the license of the temporary employment agency does not cover permanent leasing and, therefore, the temporary employment agency does not hold a valid license. Under the ruling of the Regional Labour Court the temporary employment agency needs to be treated as if it possesses no license at all. The ruling of the Regional Labour Court may lead to severe consequences of companies who frequently and permanently use temporary workers. If it prevails, these companies would have had several additional employees on their payroll.

However, the German Federal Labour Court (Bundesarbeitsgericht, BAG) did not share this opinion. In its ruling dated December 10, 2013 (docket number 9 AZR 51/13) the German Federal Labour Court argued that an employment relationship is only concluded with the company leasing the temporary workers in case the temporary employment agency does not hold a license for leasing out employees at all. If the company leasing out employees in fact holds a license and leases out employees permanently, no employment relationship would be established between the company leasing the employees and the respective temporary worker.

This ruling creates more legal certainty for the temporary work industry. Nonetheless, a prudent company should still pay close attention to the length of the lease term and opt for short periods of time because the ruling does not provide further clarification regarding the definition of a “temporary” lease. However, as the parties planning to form the new administration have agreed in their coalition agreement to adopt a statutory maximum lease period of 18 months, this question may lose much of its importance in the near future.