Agency and Contractor Compliance in Germany – Are You Ready?

4 minute read | April.10.2017

On April 1 2017, the reform of the German Act on Temporary Agency Work (Arbeitnehmerüberlassungsgesetz) came into force bringing major changes for agencies and their clients. Agencies and their customers have to revisit work processes and agreements. The same is true for the use of external staff based on service or work contracts (e.g., facility management, IT services) The time to act is now, since not all changes are subject to transition periods. In fact, material changes already came into force on April 1,2017, the violation of which may result in severe sanctions up to criminal penalties.

What You Need to Do Now

  • Check Agreements With Agencies

Are agreements with agencies in line with the new requirements?

You should check the following:

√ Disclosure of Supplying Employees – The agreement has to specifically provide for a supply of employees. Only if the supply of employees is unambiguously recognizable as such from the agreement and a permit exists (i.e., the supply is “disclosed”), no employment relationship between host business and agency worker will be established by law.

√ Designation of Agency Workers – The agency workers to be leased have to be designated by name in the contract with the agency prior to every supply of employees. If the agency worker is not designated at all, not designated correctly or not designated in a timely manner in the leasing contract prior to the supply of employees, there is an impending fine of up to EUR 30.000 for every violation.

√ Maximum Hire Term of 18 Months – Check whether the agreement complies with the new maximum hire term of 18 months. In case of exceeding the maximum term, an employment relationship between the host business and the agency worker is created, Violations are subject to a fine of up to EUR 30.000 for every violation.

√ Equal Pay No Later Than After Nine Months – Check whether the agreement either provides for equal pay after nine months or provides for the applicability of special bargaining agreements that allow deviation from equal pay up to 15 months. Violations of equal pay may lead to fines of up to EUR 500,000.

  • Check Service and Work Contracts with External Service Providers

Are service and work contracts with service providers (e.g., cleaning services, facility management, IT) and other externals in line with the new requirements? If such contracts turn out to be in fact “undisclosed” supply of employees this will qualify as illegal personnel leasing with severe consequences. This will even apply if the service provider holds a permit for personnel leasing.

You should check the following:

√ Contractual Terms – Check whether the contract provides for producing or accomplishing a particular work result or successful outcome and any guarantee for the results of their work. Even though it is not the wording of the contract that is decisive, but the way the parties put the agreement into action, it is eminent to check and amend wording where necessary.

√ Practical Implementation – Check whether the practical implementation is (and stays!) in line with the contractual terms. For example, if the external staff receives orders from the host businesses’ executives as to how provide the services and is being supervised by the host businesses’ executives. In addition, providing resources to external staff in order to provide the contractual services (e.g. office room, notebook, mobile, printer etc) indicates employee leasing.

  • Align Your In-House Processes and Procedures

Your in-house processes and procedures should reflect the new requirements.

This will include:

√ Monitoring Deadlines – Put procedures in place, assign responsibilities to monitor the 18 month- and 9 month-deadlines and track any interruptions of the use of individual agency workers.

 √ Training for HR and Executives – HR and executives should be aware of the new requirements and consequences of non-compliance and should have basic knowledge of the distinction between agency work and using external staff on the basis of service and work contracts.

How We Can Help

Orrick’s German Employment Team regularly advises agencies and their clients on the strict regulation of agency work in Germany and regularly conducts risk assessment audits. We have successfully represented companies in more than 100 claims of external employees before local and regional labour courts claiming to be in fact employees of the host business because of alleged violations of the law.