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Legal Update

Legislative proposal regarding the alteration of the German Employee Leasing Act

24 November 2015
Mayer Brown Legal Update

On November 16, 2015, the Federal Ministry for Labor and Social Affairs has issued the long-awaited legislative proposal regarding the alteration of the German Employee Leasing Act. Changes to such draft legislation still remain possible. A cabinet decision is supposed to be taken until year’s end.

The central aspects, which shall come into force on January 1, 2017, can be summarized as follows:

Maximum Time of Lease of 18 Months
The maximum time for leasing the same employee to the same hirer shall be limited to 18 months. Due to such person- rather than job-related approach, the same job can be permanently performed by different leased employees, whereas the maximum duration of 18 months can be fully exhausted each time. Periods of deployment of the same leased employee, which have taken place less than six months ago, shall be taken into account, whereas times prior to January 1, 2017 shall not be accounted for. For enterprises bound by collective bargaining agreements, deviations can be provided for in collective bargaining agreements of the relevant industry or works council or service agreements based on such collective bargaining agreements. In case of exceeding the permitted maximum duration, an employment relationship with the hirer shall be established, provided that the leased employee does not object.

Equal Pay
In principle, leased employees are already at present entitled to equal pay, i.e. to the same pay as regular employees of the hirer working in comparable positions. Exceptions in or based on collective bargaining agreements shall remain possible, however, only for the first nine months of deployment. A phased raise of salary towards equal pay to be completed within the first twelve months shall remain possible in certain cases. In the absence of collective bargaining agreements, no exception to the principle of equal pay shall apply.

No Strikebreaking by Leased Personnel
In case a business is directly affected by an industrial dispute, the draft would prevent leased personnel from working there, even if such employees had been leased prior to the commencement of the industrial dispute. Hence, under the draft legislation leased employees are not granted a choice to either participate in the strike by relying on their right of refusal and to refrain from work, or to continue to perform work in the business hit by a strike.

Information Rights of the Works Council
The draft legislation provides for certain information rights of the works council regarding the deployment of leased personnel. To the greatest part, this establishes certain effects of the already existing general information duty.

Definition of Employment Contracts, Distinction from Works Contracts
The distinction between employee leasing contracts and work contracts shall remain subject to an evaluation of the overall context of the contract. The respective criteria referred to in the draft legislation and to be implemented into German law comprise a number of aspects applied by German courts already at present.

Disguised Employee Leasing
Where a clear distinction between employee leasing and works or service contracts is not possible, a precautionary application for a labor leasing license will not help to prevent consequences of an illegal employee leasing. The draft legislation provides that in such cases, like in cases of employee leasing without license, an employment relationship shall be established with the client or hirer, unless the employee leasing is explicitly designated as such.

According to the draft legislation, leased employees shall be taken into account with regard to almost all thresholds of co-determination and the German Works Council Act.

The draft contains several additional more detailed proposals, e.g. regarding the existence of an employment relationship between supplier and leased employee or the designation of the leased employee in the contract with the hirer. Despite the fact that the draft legislation may be subject to numerous changes during the legislation process, employers should examine their current practice to see whether any changes need to be made.

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