Agency work (contract labour) in Germany


Learn about the obligations of an employer engaging agency workers and legal requirements for contractors (agencies) in Germany supplying manpower to clients.

Employers across the world often require to be flexible with their employee head counts owing to the dynamic nature of several business processes. Establishments tend to maintain its on roll staff optimally and manage short term spurts in manpower requirements by engaging agency workers (referred to as contract labor in some parts of the world). In order to balance the interests of the employers together with safeguarding the rights of the workers, Germany regulates the engagement of agency workers through a legal act passed in 1972 called the ‘Act Regulating Commercial Agency Work’ (Arbeitnehmerüberlassungsgesetz, AÜG).

This act permits the engagement of agency workers by clients (the
establishment or principle employer) through an agency (contractor) in all sectors excepting the construction sector as long as the provisions of the act are met.

Organizational Structure of Agency Works

Engagement of agency workers is a triangular relationship between the agency with a valid permit, client and the worker. For legal validity, besides obtaining a permit for agency works, the agency has to conclude:

  1. A commercial contract with the client declared as ‘agency work’ clearly indicating the scope of the work, the number and qualifications of the workers, period of engagement and remuneration for the works. Issues concerning warranty and liability are often covered within its terms.
  2. An employment contract with the workers to determine the employment relationship.

The agency and client must also determine the names of the agency workers who would be leased to the client, prior to the commencement of the agency work.

Need for Permit

The agency (Verleiher) is required to possess a valid permit issued by the Regional Office of the Federal Employment Agency (Regionaldirektion der Bundesagentur für Arbeit) before contracting out employees. The permit is relatively easy to obtain and is issued for a limited period only, initially, against  a fee of 1500€. However after a period of three years the permit can be obtained for an indefinite period against an applicable fee of 2500€.

It is always a best practice for clients to obtain a copy of the permit from the agency before engaging agency workers. Agency workers engaged by agencies without a permit are illegal, and they are liable to be construed as direct workers of the client. The client would then be responsible for the payment of social security contributions (including the employee’s contribution) and taxes on behalf of such illegally employed agency workers in case the same hasn’t been carried out by the agency. For this reason it is also a good practice to obtain a copy of the monthly transaction statements showing the payment of social security contributions by the agency towards the accounts of the agency workers deployed with you, if you are a client. This is because the ultimate responsibility for the social security contributions fall on the client, if the same are not being paid properly by the agency. Additionally both the agency and the client can face fines up to 30000€ for every such case of illegal engagement of a worker through an agency without a valid permit.

The Regional Office of the Federal Employment Agency reserves the right to inspect the functioning of the agency to ascertain that regulations as per the terms of the permit are followed, and withdraw the permit if the requirements are not followed.

Under such circumstances, both the service contract between the client and agency and the employment contract between the agency and worker are void and, instead establishes an employment relation between the worker and the client. The agency worker however, has the right to submit a declaration to remain with the agency, to the Federal Employment Agency within a month of such withdrawal of the permit.

Period of work

The AÜG also restricts the commercial agency work to a period of 24 months with a statutory maximum lease period that a worker can be deployed to a single client to 18 consecutive months. Deployments beyond the statutory limit of 18 months establishes an employment relationship between the client and the agency worker, unless the worker declares to remain being employed by the agency. Periods of break less than and up to three months will continue to be counted towards the maximum lease period of 18 months as if there were no breaks.

The principle of ‘Equal Pay’ and ‘Equal Treatment’ applies to agency workers who are entitled to same remuneration and benefits comparable to client’s permanent employees. And deviations to this principle through collective wage agreements with the agency is only permitted for the first nine months of the agency work.

Sub-contracting of agency work by subleasing agency workers is not permitted as well. This implies agencies have to have to conclude contracts with workers directly and cannot deploy the workers of another agency by concluding commercial contracts between agencies.

Joint Responsibility for Health and Safety

Both the client and the agency are jointly responsible for the adherence to maintaining safe working conditions at the workplace.

The client is responsible under the ‘local responsibility’ for ensuring that the occupational safety regulations are upheld, specifically with regards to training the agency worker on the risks and safe occupational practices in the working environment, prior to commencing the work and before every subsequent changes in the working environment.

The agency on the other hand has ultimate responsibility (Letztverantwortung)  towards ensuring that the safe occupational standards and practices are adhered to by the client.

Right to Collective Bargaining (Co -determination rights)

Agency workers enjoy the same rights with their employer, i.e., the agency, for representation through works council under the relevant provisions of Works Constitution Act (Betriebsverfassungsgesetz). However, due to the brevity of their working periods owing to the short term nature of most of the contracts, the choice of representatives are limited. And collective representation is not often exercised. However, as agency workers serve at the client’s establishment, they have the right to be represented through the works council at their client company, in matters concerning work and performance. Agency workers have access to consultation with the client establishment’s works council, where they are permitted to take part in staff meetings, lodge individual grievances, and even entitled to vote for work council elections where the tenure of assignment exceeds three months.

Meanwhile the works council at the client’s company has the right to be consulted before engaging agency workers and the details like the contracts must be provided to them. The agency workers with assignments longer than three months count as workers towards the thresholds for claiming work council rights.And for co-determination rights agency workers with assignments longer than six months count as workers for determination of the minimum required workers.

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