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The perils of works agreements: Employment contract with the company despite licensed supplier in the case of fake framework service contracts

When companies lease out workers on the basis of work or service contracts (Werk- oder Dienstverträge), they often also hold a license to supply agency workers in terms of sec. 1 I 1 of the German Act on Regulating Commercial Agency Work (Arbeitnehmerüberlassungsgesetz, AÜG) in order to avoid the establishment of an employment relationship between the agency worker and the company leasing the worker by virtue of law, if the work contract is in fact “covered agency work”. However, this common practice might soon come to an end due to the recent ruling (docket-number: 4 Sa 41/14) of the Higher Labour Court (Landesarbeitsgericht, LAG) Baden-Württemberg.

 

In this case, the plaintiff worked continuously for the defendant in the same department at the same workplace from May 2011. However, during this period of time, he was employed by three different third-party providers, while his assignment to the defendant was based on framework work contracts, so called “Rahmenwerkverträge”, between the third-party providers and the defendant. The plaintiff was completely integrated into the defendant’s business and the defendant had full authority to give instructions to the plaintiff, contrary to the terms of the contracts. The plaintiff was of the opinion that the framework work contracts were actually covered agency work and claimed therefore that he was employed by the defendant. The defendant argued that all third-party providers held licenses to supply agency workers and therefore the plaintiff was only being leased from those companies in compliance with the German Act on Regulating Commercial Agency Work.

 

The court ruled that both the defendant and the third-party providers that leased out the plaintiff acted contradictorily by referring to their licenses to supply agency workers retroactively. Throughout the contract period they had wanted to avoid the application of the German Act on Regulating Commercial Agency Work and therefore knowingly tried to circumvent the plaintiff’s social protection. As the third-party providers could not validly refer to their licenses to supply agency workers, the employment contracts between them and the plaintiff were void. Instead, a valid employment relationship between the plaintiff and the defendant was established.