Temporary agency work: Germany’s Federal Labour Court significantly restricts “corporate group privilege” in the German Temporary Agency Work Act

In its decision of 12 November 2024 (case no. 9 AZR 13/24), the German Federal Labour Court (Bundesarbeitsgericht ‒ BAG) addressed a special provision in the Temporary Agency Work Act (Arbeitnehmerüberlassungsgesetz ‒ AÜG) that allows corporate groups to transfer workers between companies within the same group under more relaxed conditions than would apply to transfers between independent companies (referred to as the “corporate group privilege”). The Court clarified, contrary to the express wording of the relevant provision, that the corporate group privilege in the Temporary Agency Work Act does not apply if a worker is hired or employed for the purpose of assignment (Summary of the Federal Labour Court’s press release 30/24 of 12 November 2024; the judgment had not yet been published at the time of writing this Insight article (14 November 2024)).

1. The initial situation

The claimant was employed by a private limited company, S-GmbH, as a seat assembler from 2008 to 2020 and worked for the company on the premises of the defendant, an affiliate of S-GmbH, from the beginning of his employment. The claimant argued that an employment relationship had been established with the defendant in accordance with section 10(1) in conjunction with section 9(1) of the Temporary Agency Work Act, as he had been covertly deployed as a temporary worker. Pursuant to section 10(1) of the Temporary Agency Work Act, an employment relationship is established between a user undertaking and a temporary agency worker if the employment contract between them is invalid pursuant to section 9(1) of the Temporary Agency Work Act because, for example, a worker assignment was not expressly designated as such in the employment contract. However, this does not apply to the transfer of workers between group companies (section 18 of the German Stock Corporation Act (Aktiengesetz – AktG)), unless the worker was “hired and employed for the purpose of the assignment”.

The lower court, namely Lower Saxony Regional Labour Court, dismissed the claim in its judgment of 9 November 2023 – 5 Sa 18078/23 on the grounds that the requirements for applying the corporate group privilege pursuant to section 1(3)(2) of the Temporary Agency Work Act were met. Lower Saxony Regional Labour Court ruled that the privilege only ceased to apply if the requirements for hiring and employment were met cumulatively. It held that a different outcome was not possible even taking into account Union law. In its opinion, an interpretation in conformity with European law, where the conjunction “and” had to be read as “or”, was out of the question, as this would turn a clear national provision into its opposite. Since the claimant had not been hired and employed for the purpose of the assignment, the corporate group privilege continued to apply and there was no covert assignment of workers. Therefore, no employment relationship had been established with the defendant.

2. The Federal Labour Court’s decision

The Federal Labour Court did not follow the opinion of the Regional Labour Court and ruled that the corporate group privilege is also excluded if workers are hired or employed for the purpose of assignment. The Court said that the conjunction “and” was to be understood as an enumeration. This interpretation, i.e. that the requirements do not have to be met cumulatively, corresponded to the legislature’s intention. Employment for the purpose of assignment regularly exists if workers are continuously deployed at an affiliate for years from the start of their employment. The Ninth Senate referred the case back to the Regional Labour Court for a new hearing and decision. The Regional Labour Court will now have to make further findings regarding the integration of the claimant into S-GmbH’s corporate organisation and his obligation to follow the company’s instructions in order to determine whether there was a hidden employee leasing.

3. Is the Federal Labour Court’s interpretation too narrow?

Leasing of employees is one way of responding to staff fluctuations within corporate groups. The Federal Labour Court’s decision further restricts the corporate group privilege. From now on, merely the willingness to assign a worker at the time of hiring or employment is sufficient for the privilege to no longer apply. The court’s interpretation that “and” should be read as “or” and that this aligns with the legislature’s intention is highly questionable, especially considering that legal standards are subject to strict and detailed formal tests. Moreover, the legislature has had seven years to amend the wording in this sense, yet has not done so, despite ongoing legal debate on the issue.

The decision also seems debatable in the light of the latest ECJ case law. The ECJ stated in its judgment of 22 June 2023 - C-427/21 (OJ C 278, 7.8.2023, p. 3-4, para. 55):

“Thus, in order for an employment relationship to fall within the scope of Directive 2008/104, both where the contract of employment concerned is concluded and when each of the assignments is effectively made, an employer must have the intention to assign the worker concerned, temporarily, to a user undertaking.”

Consequently, the ECJ also assumes that, under the Temporary Agency Work Directive, there must be a cumulative intention to make a temporary assignment both at the time of hiring and at the time of assignment. The Federal Labour Court’s interpretation is therefore more restrictive than that of the ECJ and, notably, constitutes a “contra legem” interpretation.

4. Significance in practice

Companies should carefully check whether workers are being hired and employed for the purpose of assigning them to an affiliate. If this is the case, it may be necessary to ensure that all formal requirements for such assignments are properly fulfilled. In particular, a permit is required for the assignment of workers in accordance with sentence 1 of section 1(1) of the Temporary Agency Work Act. If such a permit is not available at the time of assignment, this may be considered an administrative offence under section 16(1)(1) of the Temporary Agency Work Act, which can be punished with a fine of up to €30,000.

In light of this judgment, employers must therefore exercise particular caution in the future when assigning workers within a corporate group.

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Further resources on the topic of external staff deployment

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• in our quarterly webinar series “Quartalsupdate FPE” (only available in German)
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