Germany: Federal Labour Court Restricts the Corporate Group Privilege for Temporary Agency Work

The German Federal Labour Court clarified that the corporate group privilege under the German Temporary Employment Act does not apply if an employee is either hired or employed for the purpose of employee leasing, even though this interpretation deviates from the explicit wording of the law.

Background

The plaintiff in the case before the Federal Labour Court was employed as a seat assembler by the “S-GmbH” from July 2008 to the end of April 2020 but performed his work exclusively on the premises of the defendant, another legal entity within the same corporate group. The plaintiff argued that his deployment to this company constituted covert temporary agency work in violation of Section 9(1) of the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, “AÜG”), and that under Section 10(1) AÜG, he has to be considered an employee of the defendant.

The Regional Labour Court of Lower Saxony had dismissed the claim, reasoning that the so-called corporate group privilege under Section 1(3) no. 2 AÜG applied. This privilege allows for more flexible handling of temporary agency work within corporate groups. According to the wording of the law, employee leasing between group companies is exempt from most restrictions under the AÜG, provided the employee was not expressly hired and employed for the purpose of employee leasing. The Regional Labour Court found that the conditions of being “hired” and “employed” for employee leasing purposes must both be met cumulatively for the privilege to be invalidated.

However, the Federal Labour Court overturned this decision of the Regional Labour Court decision and referred the case back for further examination. It emphasized the need to closely evaluate the circumstances of the plaintiff’s hiring and employment to determine whether the corporate group privilege was applicable. The Regional Labour Court must now determine whether the plaintiff was integrated into the defendant’s organisational structure and subject to its instructions, which would indicate covert temporary agency work.

Key Issues

The Federal Labour Court found that the corporate group privilege under Section 1(3) no. AÜG does not apply if an employee is either hired or employed for the purpose of employee leasing. The deviating conjunction “and” written in the law has to be understood as an enumeration, meaning that the presence of only one of these conditions (hired or employed for the purpose of employee leasing) is sufficient to exclude the corporate group privilege.

Practical Point

• Companies should carefully assess whether the hiring or employment of employees is intended for assignment to an affiliated group company. If this is the case, compliance with all formal requirements for temporary agency work must be considered, including obtaining a permit for employee leasing under Section 1(1) of the AÜG. Failure to obtain such permit may be considered an administrative offense under Section 16(1) AÜG, punishable by a fine of up to EUR 30,000.
• Employers intending to deploy employees flexibly within a corporate group should decide, even before advertising job openings, which group entity will act as the contractual employer.
• If companies wish to rely on the corporate group privilege under Section 1(3) no. 2 AÜG, it is strongly recommended that employees are not assigned to an affiliated company from the start of their employment. Furthermore, assignments within the group should be limited in both duration and scope, for example, by linking them to a specific project.