Germany’s Federal Labour Court provides welcome clarification on cross-border assignment of temporary agency workers

While assigning temporary agency workers is often very useful from an operational standpoint, it is also quite complicated, if only due to the number of people, entities and legal relationships that must be kept in mind. It becomes even more complex if the assignment is a cross-border one because then various legal systems must be coordinated. Mistakes can have significant consequences:

The possible consequences of a legally noncompliant domestic assignment of a temporary agency worker can include not only penalties on the hirer for failing to deduct and forward social security contributions under section 266a German Criminal Code (Strafgesetzbuch – StGB) and for tax evasion under section 370 German Tax Code (Abgabenordnung – AO), but also claims to remuneration and social security contributions, and the fact that a fictious employment relationship is assumed to exist with the illegally assigned temporary agency worker (section 10(1) first sentence German Act on Temporary Agency Work – Arbeitnehmerüberlassungsgesetz – AÜG).

Especially in the context of IT assignments and large projects, contractors from outside Germany (and sometimes Europe) are often commissioned who assign their own employees to work for their clients. Quite often this constitutes temporary agency work, e.g. because foreign contractors (agencies) and domestic hirers (clients) misinterpret domestic applicable laws or simply do not comply with them in practice. So in the case of temporary agency workers of the foreign agency assigned across borders in Germany, are the domestic clients subject to the same risks or perhaps even greater risks than those in the case of an illegal domestic assignment of temporary agency workers?

In a judgment dated 26 April 2022 (9 AZR 228/21), the German Federal Labour Court (Bundesarbeitsgericht) diverged from the previous decision of Baden-Württemberg Regional Labour Court (12 Sa 15/20) and provided the welcome clarification that, in the case of cross-border assignment of temporary agency workers, no fictious employment relationship with the German client is assumed to exist, but basically, “only” fines are possible.

I. Background

The French plaintiff claimed the existence of a fictious employment relationship with the defendant, a company domiciled in Germany (client), as well as overtime and compensation of the difference in remuneration based on what she argued constituted the illegal assignment of a temporary agency worker.

The plaintiff had been employed as a consultant/engineer by the French company (agency) since 1 October 2014. The agency is a globally operating consulting group with a focus on technology consulting. The two companies concluded a contract for technology consulting services on the basis of which the plaintiff was seconded to work for the German company, which was thus a client. However, both the contractual wording of the legal relationship and its practical implementation revealed that the performance owed was not certain services that could be separated from the client’s operations and that were organised by the external worker herself, but the assignment of the plaintiff. The contract between the two companies – as well as the employment contract between the plaintiff and the agency, which required interpretation – provided for the application of French law. The agency did not have a German temporary worker agency permit.

The plaintiff’s action was dismissed by the first-instance labour court. However, on appeal, the regional labour court partially found in favour of the plaintiff by assuming that an employment relationship had been established with the hirer. The defendant’s (hirer’s) appeal against this was successful.

II. Decision of the German Federal Labour Court

While only the press release has been published so far, the main reasons for the decision can already be found in it. The Federal Labour Court clarified that even a factual assignment of a temporary worker does not constitute a fictious employment relationship with the German client. The decisive arguments are as follows:

• A prerequisite for a fictious employment relationship with the client according to section 10(1) first sentence AÜG is the invalidity of the underlying temporary agency worker contract between the foreign agency and the temporary worker due to the lack of a permit (section 1 AÜG). However, based on the conflict-of-law rules this was not the case If the temporary agency worker contract was subject to the law of another European Member State (here: French law), its validity was governed by the law of that Member State. Neither section 2 no. 4 German Act on Posting Workers (Arbeitnehmer-Entsendegesetz – AEntG) nor the AÜG have the effect of giving precedence to corresponding provisions of the AÜG.

• If and to the extent that the former version of section 2 no. 4 AEntG – that transposed the former version of Article 3.1(d) of Directive 96/71/EC – provides that the “conditions for the outside assignment of workers, in particular by temporary worker agencies” between an employer established abroad and its workers employed in Germany must be applied, then this does not include any provisions on the existence of the employment relationship with the agency. In addition to legal and administrative provisions regulating the working and employment conditions of temporary agency workers, this only refers to the requirements of the law on assigning temporary agency workers under trade, agency and permit law applicable in Germany.
  
  
• Also, section 9 AÜG is not an overriding mandatory provision within the meaning of Article 9(1) Rome I Regulation, i.e. not a mandatory provision under German law from which no deviation is possible. Rather, the public interest in obtaining a permit to operate a temporary worker agency is sufficiently protected via the administrative offences pursuant to section 16(1) no. 1 and (2) AÜG.
  
  

III. Outlook

The Federal Labour Court’s decision, which is welcome for practitioners, alleviates many of the concerns usually associated with cross-border assignment of temporary agency workers. It reduces the risks associated with the implementation of cross-border assignment of temporary agency workers. While German hirers do not have to fear an undesired, fictitious employment relationship, foreign lenders do not have to fear an undesired migration of their employees. German companies are also not threatened with criminal liability for failure to deduct and transfer social security contributions under section 266a of the German Criminal Code or for tax evasion under section 370 of the German Fiscal Code.

Nevertheless, even in this case, an illicit assignment of temporary agency workers is not without consequences: As the Federal Labour Court rightly points out, in this case, too, there is the threat of fines according to section 16 AÜG. Therefore, as in the case of a purely national assignment of temporary agency workers, also in the case of a cross-border assignment of temporary agency workers attention must be paid not only to the proper drafting of the contract, but also to the actual contractual practice in order to avoid fines and bad publicity.

 

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