Temporary work or employee leasing (“Arbeitnehmerüberlassung”) means that an employee is assigned by their employer to another company for a limited period of time, in return for payment. The employer becomes the lender company (“Verleiher”), the third party the hirer company (“Entleiher”).

Between these parties, there are three contractual relationships:

1. Between the lender and the temporary worker

A temporary employment contract must be concluded between the lender and the temporary employee, obliging the temporary employee to perform their work for a third party (the hirer). Between the temporary worker and the hirer, however, no employment relationship arises. Only partial competences are transferred to the hirer (especially the authority to employ the temporary worker according to their instructions and their business operations).

The employee must expressly agree to work for another employer. Further obligations are provided for in § 11 AÜG.

2. Between the hirer and the temporary worker

There is generally no employment relationship between the hirer and the temporary worker. Nevertheless, the hirer’s right of direction takes precedence over that of the lender – although the lender remains the employer. If the temporary employee causes damage while performing the tasks assigned to him, he is liable for damages to the hirer.

3. Between the lender and the hirer

Lender and hirer conclude a temporary employment contract. The content is determined in accordance with the Germany Law on Temporary Employments (“Arbeitnehmerüberlassungsgesetz”, or “AÜG”). The contract must be concluded in writing. It must be expressly referred to as a “temporary employment agency agreement”. The employee who is being loaned out must be specified before they begin to work. The contract must also state that the lender has a permit to hire out employees.

1. Maximum duration

According to § 1 para. 1b AÜG, the hiring of employees is only permitted up to a maximum period of 18 months. The lender may therefore not allow one and the same employee to work for the same hirer for more than 18 consecutive months.

A longer maximum duration can only be agreed by collective agreement – but a maximum loan period must always be regulated.

2. Permit requirement

According to §§ 1, 17 AÜG, companies wishing to hire out workers need a permit from the employment agency. The employment agency at the location of the company’s headquarters is responsible for issuing the permit.

In the construction industry, the supply of temporary workers is largely restricted, § 1b AÜG. An exception applies within the scope of the so-called “colleague assistance”. This means that the lender must also offer construction services of their own, as the major part of their business operations. The lender must have operated under the same framework and social security fund collective agreements as the hirer, for at least three years. A pure temporary employment agency or a company from outside the construction industry is not allowed to lend employees to a construction company.

Without permission, the hiring out of employees is only permitted in exceptional cases, for example if this is provided for in a collective agreement or in cases of an intra-group hiring out.

3. The principle of equal treatment and equal pay

The lender must grant the employee substantially the same working conditions, including remuneration, as the comparable employees of the hirer. This must also result from the contract with the hirer. Otherwise the contract is invalid according to § 9 AÜG and the employment agency is entitled to withdraw or revoke the permission. Therefore, the salaries must be compared for each assignment period. Under certain conditions, it is possible to deviate from this by applying the temporary employment collective agreements, § 8 AÜG.

In the event of a violation of the principle of equality, the temporary worker may, in accordance with to § 8 (1) AÜG, demand the working conditions applicable in the hirer’s business from the lender, who is their employer.

Any exceptions from the principle of equal treatment require a collective agreement, and can only be implied during the first nine months of a temporary assignment.

In the case of unauthorized hiring of temporary employees, the employment contract concluded between the temporary employee and the lender is generally invalid. This follows from § 9 AÜG.

Instead, an employment relationship between the hirer and the temporary worker is fictitiously established in accordance with § 10 AÜG. This fiction occurs regardless of the will or knowledge of the parties involved, for example, even in the case of a sham contract. The hirer will have to treat the leased workers as if they had an employment contract with them, this includes payment in case of sickness, protection against unfair dismissal, holiday entitlements, and social security obligations, including to some extent for the past. Both the lender and hirer can be held accountable for financial claims resulting from this.

There is also a risk of fines of up to EUR 30.000 under § 16 AÜG, and a possible criminal offence under § 266a StGB.

A delimitation can be difficult. In the case of temporary employment, the hirer is provided with manpower that they can deploy in their own company according to their own ideas, just like htheir own employees. Temporary workers are typically also involved in the hirer’s vacation and illness replacement planning, and use the work equipment provided by the hirer. In the case of a contract for work and services, the employer acts on behalf of their client – often providing services on the client’s property or construction site. The employer uses their own employees to perform their services for the third party and is usually liable for damages caused by them. The employee remains fully integrated into the employer’s business and is not subject to the personal instructions of the client.

Temporary workers can be dismissed in the same way as normal employees, either with or without notice. The Dismissal Protection Act is applicable. If the employment of a temporary worker with the hirer ends, without the employee being able to be reassigned to other hirers or to the company of the lender for the foreseeable future, this can in some cases justify a  termination for operational reasons. However, it is usually not sufficient for the lender to point out that a contract of the hirer expires and that there is no follow-up contract.

Often the employee leasing contracts provide for a commission in the event that the hirer takes over the temporary worker as their own employee, after termination of the employment relationship with the lender. Such an agreement is generally permissible. However, the amount of the agency commission must be graded according to the duration of the previous temporary employment contract. The agreement of a commission may not lead to the hirer being de facto prohibited from hiring the temporary worker after termination of the employment relationship with the lender. Such agreements are prohibited and lead to the invalidity of the temporary employment contract according to § 9 para. 1 No. 3 and 4 AÜG.

The works council of the company lending out the workers is responsible, whenever the rights of the works council require an employment relationship. The works agreements in the lender’s company also apply to the temporary workers deployed to the hirer.

The works council of the hirer is responsible for matters related to the workers’ performance. It would be much more complicated and often pointless to assert such rights in front of the lender, as the work is performed only for the hirer.

MAYR Kanzlei für Arbeitsrecht provides this article as an orientation guide. For an individual consultation, advice should always be obtained from a specialist lawyer for labor law. We would like to draw your attention to the fact that we therefore cannot assume any liability for the correctness and completeness of this contribution.