News regarding hiring of employees from temp agencies - Legal consequences of hiring temps on a permanent basis

17.04.2014

Headnote

If an employer (temp agency) is authorized to hire out employees, no employment relationship results between the clients of the temp agency and the personnel provided by the agency - despite § 1(1) sent. 2 of the Temporary Employment Act (Arbeitnehmerüberlassungsgesetz - AÜG) - even if such employment is not only temporary.

Facts

The defendant is the operator of several hospitals that use the services of such personnel. It outsources its services, e.g., IT services, to a wholly owned subsidiary. The plaintiff, an IT clerk, was employed by this subsidiary, which is authorized to hire out temporary employees. The plaintiff was assigned by the service company, i.e., the agency, to work for the hospital, i.e., the defendant and the agency’s client, from 2008 to August 2012 without interruption.

This assignment was arranged for an indefinite period. The plaintiff was hired by the service company exclusively for the purposes of being assigned to the defendant on a permanent basis. The plaintiff’s action is based on a change in the law in the year 2011 that made it illegal to hire out manpower on an other than temporary basis (§ 1(1) sent. 2 of the Temporary Employment Act). Relying on § 10(1) sent. 2 of the Temporary Employment Act, the plaintiff argued that this therefore meant that an employment relationship had been established with the defendant, i.e., the hospital, which was the client of the temp agency.

Decision

In its judgment of 10 December 2013 (9 AZR 51/13), the Federal Labor Court dismissed the IT worker’s action, finding that no employment relationship had come into being between the plaintiff and the client of the temp agency. The court ruled that the plaintiff’s employment relationship did not fall under § 10(1) sent. 1 of the Temporary Employment Act, arguing that this provision, according to which an employment relationship exists between the temporary employee, applies only if the previous employer, i.e., the temporary agency, is not authorized to hire out personnel. In the present case, however, the service company did have such authorization, and the court found that the agreement between the hospital and the service company was therefore not invalid under § 9 no. 1 of the Temporary Employment Act.

In its decision, the Federal Labor Court provided an exhaustive explanation of the fact that § 10(1) sent. 1 of the Temporary Employment Act also cannot be applied by analogy. The court reasoned that the legislature deliberately avoided inferring a constructive employment relationship in the case of employees hired out on a non-temporary basis. and that no unintentional legislative omission was involved here. As a result, the Federal Labor Court concluded, it was therefore also not possible to infer a constructive employment relationship not intended by the legislature, adding also that no other conclusion would suggest itself under European law. The court also pointed out that it would be constitutionally objectionable to allow another company, i.e., the client of the temp agency, to assume the role of employer with no legal basis. The court pointed out that such a change of employers could also be disadvantageous for employees in many cases, and concluded that the IT clerk did not therefore have a new employer. Finally, it is, according to the court, up to the legislature to decide whether to adopt any sanctions for violation of § 1(1) sent. 2 of the Temporary Employment Act, and the courts cannot preempt this.

Comments

After the liberalization of legislation governing companies that hire out temporary employees, which occurred in connection with "Agenda 2010", it even became possible to hire out employees on a permanent basis, and somewhat less was heard from the courts on the subject of the hiring out employees. This changed in the fall of 2011 with what is referred to as the “lex Schlecker”. According to the amended Temporary Employment Act, employees still may be hired out only on a temporary basis. Since then, it has also been illegal to engage personnel within corporations exclusively for the purposes of hiring them out. This “revolving door effect” had existed earlier – as also in the case described above - in the case of Schlecker. According to § 1(1) sent. 2 of the Temporary Employment Act, it is now, as it was up to the year 2002, again necessary to ensure that it is agreed from the very beginning that employment is temporary. It does indeed follow from the law and the judgment discussed above that it is at least not possible to infer a constructive employment relationship between an employee and a company to which that employee is hired out by an agency if the agency is in possession of the required official authorization. This obviously encouraging judgment should, however, not tempt companies to blindly use the services of employees hired out by agencies on a permanent basis, for the Federal Labor Court has already referred to the consequences at the level of collective bargaining law in its decision of 10 July 2013 (7 ABR 91/11). The court made it clear that a works council can contest the deployment of an employee hired out by another company if such employment is not only temporary. Pursuant to § 99(2) no. 1 of the Works Constitution Act (Betriebsverfassungsgesetz - BetrVG), a works council can refuse to give its consent to such employment. As a result, it is advisable to stipulate and document that the deployment of personnel supplied by agencies is only temporary from the very beginning.

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