New law passed on temporary agency work

In November 2002, the German parliament passed a package of laws to implement the recent proposals of the Hartz Commission on increased flexibility of the labour market. A key element in the reform is new measures to promote an expansion of temporary agency work in order to create new jobs. Temporary agency workers will be entitled to equal pay with permanent workers in user companies, and collective bargaining over their terms and conditions will be promoted, while publicly-funded personnel service agencies will be created throughout the country to employ unemployed people and hire them out on a short-term basis.

On 15 November 2002, the German parliament (Bundestag) passed a package of bills entitled 'Modern services on the labour market', which partly implements the proposals of the Hartz Commission, issued in August 2002. The Hartz Commission was established by Chancellor Gerhard Schröder to recommend reforms aimed at a modernisation of Germany’s labour market policy and thus a reduction in the high level of unemployment (DE0209205F). Through the new legislation, Wolfgang Clement, the minister for employment and economic policy (DE0211205F), aims to create up to 50,000 jobs by the expansion of temporary agency work in 2004.

Under the new legislation, temporary agency workers have to be paid the same wages as permanent employees, and deviations from equal pay are possible only through the provisions of collective agreements. At present, the remuneration of workers hired out by commercial temporary work agencies in Germany is on average 30% below the level paid in the user company. At the end of 2001, some 341,000 people were employed at one of the country's 3,645 temporary work agencies, amounting to 0.9% of all employees.

A key point of the new labour market legislation is the creation of 'personnel service agencies' (Personal-Service-Agenturen, PSAs) throughout the country. These PSAs will employ unemployed people and hire them out on a short-term basis, in accordance with existing collective agreements or agreements which will be negotiated between employers and trade unions by the end of 2003. The PSAs are to be established on the basis of public tenders in which private employment agencies are to be given priority. The regional offices of the Federal Employment Service (Bundesanstalt für Arbeit, BA) will conclude 'free agent' agreements with PSAs to cooperate in the placement of unemployed people.

To ensure a smooth transition to the regulation of temporary agency work by collective agreements, the protective provisions of the Loan Worker Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG) which governs the permanent employment relationship between agency and temporary agency worker, will continue to be in effect until 31 December 2003, unless collective agreements are reached before that time. From 1 January 2004, the AÜG will no longer be valid.

The new law, which applies to the new PSAs as well as to existing commercial temporary work agencies, seeks to extend the use temporary agency work and provides for the principles of equal pay and equal treatment between agency workers and permanent employees. After a transition period of one year, from January 2004 onwards all temporary agency workers will receive the same pay as is usually paid to permanent employees in the user company. Thus, the new law applies to all temporary agency workers and not only to those who are hired out by the new PSAs.

A single deviation from the principle of equal pay is allowed for workers during their first six weeks of temporary employment. During this time, temporary agency workers must be paid a net wage which is as least equivalent to what they would receive in unemployment benefits. This measure should improve the labour market entry prospects of unemployed people who have difficulties finding job placements, and will apply to all formerly unemployed people - irrespective of the length of their unemployment and their qualifications. PSAs are not allowed to hire out their employees to their former employers.

If the collective bargaining parties rapidly reach agreements providing for new regulations on the conditions of employment of temporary agency workers, the principle of equal pay will take effect from the date of such agreements and, furthermore, several restrictions imposed by the AÜG legislation will no longer apply when these agreements take effect. These include:

  • the prohibition on hiring out a temporary agency worker several times to the same employer;
  • the provision whereby temporary work agencies are not allowed to employ temporary agency workers only for the duration of their job at the user company; and
  • the 24-month limit on placements.

This abolition of the protective regulations of the AÜG, which was not planned in the draft bill, changes the general conditions for temporary agency work. According to Minister Clement, this 'basic reorientation' of agency work will take it out of the 'scruffy corner'.

The German Federation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) welcomed the new legislation as a promising means of reorientating temporary agency work. Michael Sommer, the DGB president, stated that 'flexibility cannot be punished with lower pay' and demanded that employers' associations and companies start immediate negotiations with the trade unions. All DGB-affiliated trade unions have already agreed to act jointly to conclude collective agreements in the temporary agency work sector.

Arnim Schild, a collective bargaining expert at the IG Metall metalworkers’ trade union, emphasised that the unions had achieved their 'core objective' of equal pay for agency workers, but remarked that the provision allowing possible deviations from equal pay though collective agreements runs the risk that some temporary work agencies could seek 'dumping collective agreements'- ie agreements setting pay rates below the sectoral level.

Temporary agency work employers have differing opinions on the new equal pay rule, and the possibility of deviations through collective agreements. While the temporary work agency grouping Interessengemeinschaft Deutscher Zeitarbeitsunternehmen (iGZ) and Germans largest temporary agency, Adecco, have accepted the new regulations, they have been strongly criticised by the Association of Temporary Employment Agencies (Bundesverband Zeitarbeit, BZA). Elmar Hoff, a member of the management board of Adecco, described equal pay as 'a step in the right direction' and referred to similar regulations in other European countries. By contrast, BZA commented that, particularly for low-qualified unemployed people, the new rules reduce the chances of entering the labour market by way of temporary agency work. BZA predicts that the demand for temporary agency work will decline and that agencies will thus have to dismiss employees. Nevertheless, a meeting of temporary agency work employers was due to take place on 5 December 2002, in order to set up a collective bargaining commission (Tarifkommission).

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