Germany: Compromise struck on new temporary agency work legislation

A revised bill on temporary agency work and service work, set to be passed by the German Federal Government in early March 2016, was finally passed by Parliament in October and awaits approval by the Federal Council. It contains limitations on the use of temporary agency work, but also provides room for deviations via collective agreements.

Main points

After years of heated public debates, the Federal Parliament finally passed amendments to the legislation on temporary agency work in October. The new law:

  • defines the length of hiring time;
  • clarifies rules for equal pay;
  • sets a legal distinction between the status of a dependent worker and a self-employed person.

The amendments also provide broad room for deviations via collective agreements. The amendments were passed despite objections from the opposition parties. The social partners, for different reasons, see the legislation as a compromise. Previous demands by the trade unions for more regulation of contracted work were not met, as employers' representatives succeeded in keeping this subject off the agenda.

Background

According to the trade unions, since the end of the 2008–2009 economic crisis there has been an increase in temporary agency work and in enterprises using contractors. Germany’s leading metalworkers’ union, IG Metall, says more companies use contracted companies and self-employed workers to get core tasks done. The Trade Union of Food, Beverages, Tobacco, Hotel and Catering and Allied Workers (NGG) highlights the increase of contracted foreign companies and posted workers working at German meat processors. The Construction Workers Union (IG BAU) also points out the growing complexity of subcontracting chains and the use of various legal and bogus forms of contracted work and self-employment at construction sites.

In summer 2013, the issue made it to the top of the public policy agenda with the deaths of two contracted posted workers employed by a German shipbuilder. The tragedy attracted national attention, with the states of Lower Saxony and North-Rhine Westphalia campaigning for the amendment of the Temporary Agency Work Act (AÜG) and the Works Constitution Act (BetrVG) to counteract the spread of temporary agency work and to prevent bogus forms of contracting.

Legal background to call for amendment of regulation

The call for binding legal regulation addressed several issues.

  • In 2003, the need for time limits on the hiring of a temporary agency worker were abolished. Paragraph 1 of the AÜG states that the hiring shall be of a ‘preliminary nature’ without defining the time frame. Trade unions feared that this would lead to the long-term employment of temporary agency workers.
  • In 2002, it had  been stipulated that temporary agency workers should receive equal pay after 12 months of employment. A 2003 amendment to the AÜG allowed this to be changed through collective bargaining, if the long-term aim was to provide equal pay. As of autumn 2016, a sectoral collective agreement in the steel sector provides for hired temporary agency workers to receive top-up payments bringing them almost to the level of standard workers. Another nine sectoral agreements provide for equal pay in the future. For example, the metal and electrical industry concluded an agreement for temporary agency workers in 2012. Workers not covered by these sectoral agreements are still entitled to equal pay after 12 months, as set out by the 2002 regulation.
  • Work and service contracts can be concluded with either a company or a self-employed person and are an established form of business operation. The rights and obligations of the contractor and the client are regulated by the Civil Code (BGB, paragraphs 631–651), which leaves it to the contractor's discretion whether they perform the work themselves, hire a worker or use a temporary work agency. The trade unions claim that there are grey areas in the current legislation, making it difficult to distinguish between temporary agency work and bogus forms of contracted work, as well as between workers and contracted self-employed workers.

Public policy debate

In autumn 2013, the new government coalition of the Christian Democratic Union (CDU), the Christian Social Union (CSU) and the Social Democratic Party (SPD) proposed a number of measures:

  • equal pay for temporary agency workers after nine months of employment;
  • prohibition on hiring temporary agency workers for strike-breaking;
  • counting temporary agency workers when determining the number of worker representatives;
  • combating the misuse of service contracts and temporary agency work;
  • strengthening the co-determination rights of worker representatives (for preventing contracted or temporary work and for representing temporary workers);
  • strengthening inspection and better prosecution of hidden and irregular forms of temporary agency work;
  • improving occupational safety and health coverage of contracted workers.

However, the plans faced strong opposition. The German Confederation of Employers’ Associations (BDA) said that:

  • service contracts are a common feature of the German economy and constitute a fair form of contracting work;
  • work and service contracts improve productivity and help safeguard jobs in client and contracting companies;
  • any legislation (be it the Collective Bargaining Act, the Works Constitution Act or the Protection Against Dismissal Act) also therefore applies to contract workers.

BDA said new legislation was unnecessary to define or prove self-employment, or to distinguish service contract workers from temporary agency workers. Legislation already existed to penalise any bogus self-employment or the wrongful hiring out of workers. BDA also pointed out that there is no empirical evidence that the use of service contracts has increased in recent years.

Nevertheless, the trade unions argued that, because of the nature of the problem, there was no administrative data or survey data on the misuse of given legal forms of contracting. Drawing on works councils’ information and on qualitative research studies, the trade unions campaigned for better regulation aimed at limiting contracting chains and addressed the issue at May Day parades, and by publishing statements and videos.

On 16 November 2015, the Federal Minister of Labour and Social Affairs, Andrea Nahles (SPD) presented the long-awaited bill for amending the AÜG and other acts which aimed at ‘restricting temporary agency work to its core function’ and to ‘battle the misuse of contract work’. In an immediate response, BDA stated that the draft went far beyond the intentions of the government’s coalition paper and affected the autonomy of the collective bargaining partners. On 2 December 2015, the Chancellery stopped the draft before it reached the Federal Cabinet and told the Ministry for Labour and Social Affairs (BMAS) to meet with the collective bargaining partners again before introducing a revised proposal.

The revision was presented on 16 February 2016. It differed from the November draft by providing for more flexibility via collective bargaining or works agreements (PDF), thus reacting to the employers’ demands. However, opposition by the CSU, the Bavarian sister party of the CDU, led to another delay.

On 1 June 2016, the Federal Cabinet finally passed the revised bill. On 17 October, the expert hearing in Parliament highlighted the opposition by the trade unions, but also by the employer organisations in the temporary agency sector. The amendments passed Parliament on 21 October against the objections of the opposition parties, but still need approval by the Federal Council.

Contents of the amendments

The amendments to the AÜG and to other acts make several stipulations.

  • The hiring time of temporary agency workers is restricted to a maximum of 18 months. However, the duration can be extended via collective agreements. If the agreement contains an opening clause, companies not applying the agreement may extend the duration via a works agreement concluded with the works council (maximum of 24 months).
  • Companies shall give temporary agency workers equal pay after 9 months’ employment (rather than 12). However, the stipulations of any collective agreements in place, which aim at gradually raising the wages to the level of standard workers, take precedence. (Although this only applies if the collective agreement provides for equal pay after 15 months, at the latest, after start of a person’s employment.)
  • Temporary agency workers must not be employed to take the place of striking regular workers.
  • Hired temporary agency workers shall be counted as staff for determining the number of worker representatives at establishment and company level (Works Constitution, European Works Council) and on the supervisory boards of large companies (Co-Determination Acts).
  • In the Works Constitution, existing articles shall be clarified with regard to the worker representatives’ rights to information on workers not employed with their employer.
  • Temporary work agencies applying bogus forms of temporary agency work shall face similar sanctions as unlicensed temporary work agencies.
  • Legal grey areas between bogus self-employment and worker status shall be clarified in legislation following the jurisdiction of the Federal Labour Court. A new definition was not given.

Comments by the social partners

The employer organisations are split on the legislation. BDA has called the amendments a justifiable compromise and expects them to end the long dispute on contracted and temporary agency work and to reduce  controversy at company level. It also appreciates the fact that the Federal government decided not to put any restrictions on work and service contracts. The Federation of German Employers’ Associations in the Metal and Electrical Engineering Industries (Gesamtmetall) has also stated there was no need for any amendments, but accepts the compromise reached, because it leaves sufficient room for flexibility. The employer organisations of the temporary agency sector are more critical. The Association of German Temporary Employment Agencies (iGZ) has said  that the amendments are not worth being called a ‘reform’ because they entail more bureaucracy without introducing definite improvements for temporary agency workers. However, the organisation appreciates that the given role of the collective bargaining partners is stabilised. The Federal Employer Association for Personnel Service Companies and Private Employment Agencies (BAP) has said it does not see how small and medium-sized companies will be able to apply the equal pay principle because of the bureaucracy involved. BAP expects the amendment to result in hiring times shorter than nine months and also fears unfair sanctions against leading temporary work agencies.

The reaction by DGB is ambivalent. The confederation appreciates that a decision was taken and agrees to the new regulations on temporary agency work. But the trade unions also say that the employers managed to stop legislation on work and service contracts and that these amendments should be seen as a step forward, but not as the end to the dispute.

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