On April 1st 2017, new regulations on employee leasing and working contracts came into force in Germany. The changes introduced maximum lease periods and stronger rights to equal pay as well as new definitions of temporary employment. But what do these significant changes mean for workers, employers and recruitment consultants? The SR Group finds out.
Following pressure from trade unions over what they believed was the nation’s misuse of temporary workers, the German government has as of April 1st introduced a new bill fundamentally overhauling the system of personnel leasing.
According to Thomas Barth, senior associate employment at Eversheds Sutherland, the German government wants to raise awareness of the “benefits of temporary work as being an established instrument of flexible personnel deployment to cover peak periods and short-term personnel needs, prevent abuse of temporary work and strengthen the position of temporary workers. There will be significant changes and temporary employment agencies and their customers should quickly adapt”.
So, what do workers, businesses and recruitment consultants need to be aware of?
The first major alteration is the introduction of a maximum lease period. Temporary workers may be leased for 18 months at the most with the hirer required to terminate the deployment of the employee after this date. Exemptions, either a longer or shorter lease period, are only possible through an applicable collective bargaining agreement. However, a re-use of the same worker is possible after a break of 3 months with the use of various temporary workers on the same job, as a rotation system, still being permitted.
According to Sebastian Maiss, partner at Vangard, the consequences of exceeding the 18-month period are significant for all parties. “An employment relationship between the client and the temporary worker is instituted from the first day after exceeding 18 months. In addition, a fine can be imposed against the client and the temporary work agency,” he explains. “Of utmost importance for the work agency is the threat that the permit to supply temporary workers may be revoked.”
As such he says it is imperative for agencies to clarify in the contract with the client that the service must end after 18 months – if a longer lease does not apply.
“Thus, the agency and the client have to check whether there is a collective bargaining agreement which will allow for shorter or longer lease periods and come to a conclusion over how long the client will want the temporary employer for,” he adds. “That has to be checked very carefully.”
Thomas Leister, partner at Osborne Clarke, says this verification will add costs and legal uncertainty for agencies but is confident that there are enough exemptions to enable the 18-month period to be over-ridden.
“German industries will set their own limits through collective bargaining with some looking at 48 month limits,” he states. “Further, different work limit periods can be agreed with local work councils under certain conditions. There will be more administration but the practical consequences of this 18-month period will not be as hard as they first seem to be.”
He returns to the issue of rotation of workers and the likelihood that this will be a growing tactic of agencies and business. “Businesses are complaining that when it comes to specialist IT, legal, HR or marketing professionals that replacing a temporary worker after 18 months will be too difficult. They claim it is too hard to keep finding workers for specific positions, that there isn’t the depth of quality out there. What we could see is the use of one worker, worker A, for 18 months, then worker B for 18 months and then back to A again and so on. This would also suit temporary workers who by their nature don’t want the same day to day office routines and are instead seeking a wider range of employment experiences.”
Matt Walters of Capital GES says agencies will look to replace workers after the 18-month period with another of their candidates whilst placing the first worker with a new company. “Agencies will not want to have to bench their candidates even for a 3-month break period,” he states. “There will be higher turnover and more administration but perhaps a more consistent need for their services.”
The second major change resulting from the legislation is that workers can look forward to receiving equal treatment in relation to pay after a period of nine months. “Work agencies, not the clients, must grant the temporary workers equal pay compared to the compensation paid to the permanent employees by the client,” explains Maiss. “However, a legal definition of salary components regarding equal pay is missing from the legislation. It is very difficult therefore to decide who is a comparable employee and will lead to an unreasonably high bureaucratic burden for the temporary work agency. It is a critical point because any violation of these rights may have serious legal consequences for the agency with claims for payment of the temporary workers of up to 500,000 euros and the revocation of the lease permit.”
Leister says despite the legislation pushing agencies and businesses to working closer together to find solutions, pay could be a sticking point. “The recruitment consultant will have to ask the client for information on basic salary plus bonuses etc for a comparable employee. The client may not be willing to share such confidential information,” he states.
The third significant change is the elimination of the so-called licence in reserve. According to Eversheds this will tackle the improper usage of work contracts.
Barth states that up to now it has been possible to have a “precautionary” licence to supply temporary employees making it possible to use the cloak of a work contract even if, in fact, the supply of a temporary employee occurs.
“If it subsequently turned out that a supposed service contract was actually practised as a temporary employment contract, due to the fact that the customer gave labour-law related instructions to the temporary worker on site then the companies involved were able to refer to the licence in reserve in order to avoid sanctions,” he explains.
The new bill now states that the lender and the hirer both refer to the use of temporary workers expressly in the personnel leasing agreement as “supply of temporary workers”. Temporary employment is permissible only if the deployment is formulated as such and the deployed employees are named.
If the agency and the hirer violate this then an employment relationship between hirer and temporary worker is deemed to have occurred and a fine of up to EUR 30,000 can be imposed.
“If you are a temporary legal advisor then your time of deployment such as May 12 to May 30 would have to be specified in the employment contract between agency and client and you would have to be named,” explains Maiss. “There is no indication yet as to whether this naming can be done through email or has to be handwritten. My clients believe I am kidding when I explain this but I tell them this is just a typical German style of administration! The idea behind this legislation is to prevent a misuse of the precautionary lease permit. The lease of employees will now only be legal if the arrangement is designated as temporary work from the outset. Agencies should work more closely with businesses from the outset asking them what their exact business needs are in terms of service or leased employees.”
Lack of Awareness
Maiss warns that too many German businesses and agencies have yet to fully grasp the full impact of the changes announced in April despite the high fines that could be sanctioned against those failing to comply.
“They are not aware and need a lot of advice,” he states. “Many international clients also don’t know anything about these changes. That’s frustrating because if they want to deploy temporary workers from anywhere in the world to Germany they need to understand that these regulations apply to all temporary workers here.”
Walters of Capital GES says agencies have a crucial role to play here in informing their clients and candidates, through more marketing and education, on what the changes mean. “There may be some fear and misunderstanding so agencies have to show their candidates that they will find a way through this. I don’t see as fundamental change to the nature of German business. Germany does not want to put itself at any great economic disadvantage,” he says.