The intra group hiring out of temporary workers is used quite often in practice to respond to changing demand for staff within a corporate group or to implement intra group cross company organisational structures (such as when designing matrix organisations or filling positions in newly formed group companies).
In accordance with section 1 (3) no. 2 of the German Personnel Leasing Act (Arbeitnehmerüberlassungsgesetz, AÜG), hiring out temporary workers between group companies is subject to an exemption in certain circumstances whereby a number of the provisions of the AÜG do not apply. One requirement for the intra group exemption is that the companies involved must be group companies in accordance with section 18 of the German Companies Act (Aktiengesetz, AktG) (it should be noted that this requirement has been relatively well understood until now) and that the employee has not been hired and employed for the purpose of the assignment.
On 12 November 2024 the German Federal Labour Court (Bundesarbeitsgericht, BAG) (case no.: BAG 12/11/2024 – 9 AZR 13/24, previously only published as a press release) held that invoking the intra group exemption in the AÜG is generally ruled out when an employee has been lent to work for another company from the same group from the beginning of their employment contract over several years.
Facts of the matter
The claimant was employed for a period of nearly 12 years (from 2008 to 2020) at S-GmbH as a seat assembler. However, the claimant exclusively carried out his work on the premises of the respondent, which belonged to the same corporate group as S-GmbH.
The claimant and the respondent were in dispute over the specifics of the cooperation between S-GmbH and the respondent.
While the claimant was of the opinion that he had been illegally hired out by S-GmbH to the respondent, which in accordance with section 10 (1) AÜG in conjunction with section 9 (1) AÜG had caused an employment contract to come into existence between him and the respondent, the respondent referred to the intra group exemption in section 1 (3) no. 2 AÜG.
Ruling
The Niedersachsen Regional Labour Court (Landesarbeitsgericht, LAG) ruled that the requirements for an intra group exemption in accordance with section 1 (3) no. 2 AÜG had been met and rejected the claim in its judgment dated 9 November 2023 (case no.: 5 Sa 180/23). The Niedersachsen LAG's grounds for this were that the AÜG provisions only did not apply to the temporary hiring out of an employee to another group company if the employee was both hired and employed for the purpose of the assignment, meaning both requirements were met at the same time.
The BAG rejected this interpretation and stated that the intra group exception in section 1 (3) no. 2 AÜG does not apply if even one of the two requirements has been fulfilled.The BAG explained that the 'and' in section 1 (3) no. 2 AÜG is not cumulative, but rather is to be seen as an alternative and justified this with the objective of the legislature, according to which the intra group exception in the AÜG should not be applicable if the employee had been hired "or" employed for the purpose of the assignment.
Within the scope of the press release the BAG left open the question of when the hiring or employment was supposed to be carried out for the "purpose of assignment". However, in the BAG's opinion, an ongoing assignment for several years since the beginning of the employment contract does indicate that the claimant was employed for the purpose of assignment.
Comments
The BAG's decision has been met with criticism in practice, where it has predominantly been asked why the BAG interpreted the wording of section 1 (3) no. 2 AÜG ("or" instead of "and") differently.
It is currently unclear what specific practical conclusions can be derived from the judgment of the BAG until the reasons for the decision have been published.
The following conclusions for companies, however, can be drawn at this stage:
Based on the press release, this judgment restricts companies' drafting freedom for the intra group hiring out of temporary workers. Companies should scrutinise any current intra group hiring of out temporary workers taking the BAG's interpretation into account and then end these, if necessary, in the event of legal uncertainties.
Companies who act as agencies and do not hold a permit to hire out temporary workers should consider applying for such a permit. This process is complicated and takes a certain amount of time.
In the future when hiring out temporary workers, employees should not be placed with a group company right at the beginning of their employment but rather should first work for their (own) contractual employer.
Companies should refrain from assigning temporary workers to another (or if applicable, several) group companies for years at a time. Therefore such assignments should be restricted to a limited period from the outset (ideally without the option to extend) and/or combined with a certain intended purpose of the assignment (such as in relation to a project). In addition, companies should implement a corresponding monitoring system that tracks whether the assignments have actually ended upon the expiry of the specified time period or the purpose of the assignment has finished.
It should also be noted that in cases where the intra group exemption does not apply, the provisions of the AÜG must be adhered to in full. Among other things, this means that agencies require a permit to hire out temporary workers, a maximum transfer period must be adhered to and the assignment must be expressly described as the hiring out of a temporary worker.
If an intra group exemption in terms of section 1 (3) no. 2 AÜG has been assumed, without the requirements for an intra group exemption being actually met, the assignment will be deemed to be a false hiring out of a temporary worker. In this case, the hiring out of the temporary worker is invalid as per section 9 AÜG and as a result an employment contract is deemed to have come into force between the employee who was hired out and the hiring company from the agreed commencement of the assignment as per section 10 (1) AÜG.
This also means that the hiring company would have to have paid income tax and social insurance contributions, which they generally do not have to do due to the intra group exemption. Please see section 266a of the German Criminal Code (Strafgesetzbuch, StGB) and the corresponding provisions of fiscal law. In addition, hiring out a temporary worker without the required permit is an administrative offence under section 16 (1) no. 1 AÜG and may be punished with a fine of up to EUR 30,000.00.
