Temporary employment without borders?

The Federal Employment Agency (Bundesagentur für Arbeit) has published its updated Instructions for Applying the Temporary Employment Act (Fachliche Weisungen zum AÜG – FW AÜG) as of 15 October 2024. These contain a particularly critical amendment: the Federal Employment Agency now presumes that a risk of (illegal) temporary employment also exists if the contractor’s employees work exclusively abroad.

Companies must therefore urgently review their contracts abroad, as they may now face the legal consequences of illegal temporary employment in these cases, too.

I. Instructions

Although the Instructions for Applying the Temporary Employment Act (the “Instructions”) are actually only internal instructions to be observed within the Federal Employment Agency, they are very important in practice. This is because the Federal Employment Agency, alongside the customs authorities, is responsible for monitoring compliance with the German Temporary Employment Act (AÜG). The Instructions provide information on how the Federal Employment Agency interprets key provisions of the Act. This standard will also be applied in social security audits.

II. Overstepping the principle of territoriality

1. Interpretation to date

Previously, collaboration with contractors and their employees, temping agencies and employers of record (EOR) did not fall within the scope of the German Temporary Employment Act if the employees worked exclusively abroad and the contractual partner was also based abroad. This was based on what is known as the principle of territoriality, which states that the German Temporary Employment Act is only applicable where the German legislature also has the sovereign power to set the law. This power is limited to German territory.

This means that the German Temporary Employment Act only applies if there is a sufficient connection to Germany. Until now, this required that the employees of the contractual partner at least worked in Germany, i.e. set foot on German soil.

2. Virtual connection to Germany is sufficient for location-independent work

According to the Federal Employment Agency’s new assessment, this will only apply if the work requires a physical presence in a specific location.

For location-independent work, such as working from home, a virtual connection to Germany is now considered sufficient. Physical presence at the company’s premises is therefore no longer required.

The Federal Employment Agency justifies this departure from the principle of physical presence in a territory by stating that it is necessary to protect the temporary employment sub-market, which, in the opinion of the Federal Employment Agency, would be jeopardised if companies based in Germany were to commission contractors abroad rather than in Germany.

Example: A programmer working in India, for example, who collaborates virtually with the German company’s employees, would therefore also require a permit to engage in temporary employment.

The absurdity of this position is obvious from the fact that contractors outside the EU/EEA cannot even apply for such a permit.

3. Overstepping the principle of territoriality

By issuing the new Instructions, the Federal Employment Agency grants the German Temporary Employment Act global application. There is no legal basis for this. As far as the Federal Employment Agency justifies this by claiming it is protecting the temporary employment sub-market, this instead suggests that the Agency fears a loss of control, rather than that there is any legal mandate or practical need.

III. Practical implications

In any event, at least for the time being, the Federal Employment Agency’s new position poses a risk to the companies involved even in cases that have been legally secure so far. Entire business models such as the employer of record are being significantly called into question as a result. In fact, if temporary employment covered by German law is carried out without the necessary permit, the user company may be fined up to €30,000 per individual case. Furthermore, an employment relationship may be presumed to exist between the German user company and the foreign employee.

On the other hand, the legal consequences for the foreign contractual partners of German user companies are likely to be minor. It is fairly unlikely that the German authorities will take action against foreign contractual partners in practice.

IV. Conclusion

The Federal Employment Agency is clearly overstepping the mark with its new Instructions. It appears that, especially in economically challenging times and given the huge shortage of skilled workers, ill-conceived strategic goals are being pursued without a sufficient legal basis.

For companies to take advantage of the considerable opportunities of employing skilled workers abroad in a legally compliant manner in future, they will now have to conduct a more detailed examination of the commissioning of external contractors, especially those abroad. The fact that an external contractor is not physically present in Germany will no longer be sufficient for user companies to be on the legally secure side, at least for the time being.

Security can only be achieved with an efficient compliance system that also significantly reduces liability risks. Our legal tech solution, the Noerr Contractor Compliance Check, which supports companies in commissioning and deploying external contractors, is one component of this. This tool integrates all the necessary processes for the efficient and legally compliant procurement of external contractors in a single platform. For further information, please go to our website.

If you are interested in this topic, please register for our quarterly update on the deployment of external contractors, a webinar on 30 October 2024 (in German only). We look forward to your participation.

Do you employ skilled workers abroad and want to avoid the risk of unintentional unlawful temporary employment? Feel free to get in touch.