New risks when using outside personnel

LAG Baden-Württemberg, judgment dated 3.12.2014, file ref. 4 Sa 41/14 and judgment dated 18.12.2014, file ref. 3 Sa 33/14

Contracts of employment or contracts for work and services are frequently concluded with external parties when using outside personnel. For the purpose of safeguarding the construction, the external party has a license for the hiring out of temporary employees. Precisely this safeguard now appears to be under threat.

The State Labour Court (LAG) Baden-Württemberg disturbed the pre-Christmas calm in 2014 with a dispute between two of its Divisions. The 4th Division declared that a construction commonly used in business constitutes an abuse of law. In cases in which outside personnel is used via contracts of employment or contracts for work and services, the external service provider/ party to the contract for work and services normally also has a license for the hiring out of temporary employees in accordance with Section 1 AÜG (Law on Temporary Employment). This is a precaution against cases in which one of the employees concerned, a social insurance carrier or even the Employment Office is of the opinion that the specific deployment does not constitute a contract of employment/contract for work and services, but by its nature the hiring out of temporary employees. The license as per Section 1 AÜG then ensures that the employee concerned does not by law become an employee of the principal as per Section 9 Subsection 1 AÜG.

Bombshell in Stuttgart – institutional abuse of law?

In a decision dated 3 December 2014 (4 Sa 41/14), the 4th Division of the LAG saw this construction, which not least takes account of the legal uncertainties in terms of the treatment by the social insurance carriers and the Employment Office of the definition of contracts of employment and contracts for work and services as (unlawful) hiring out of temporary employees, as constituting an “institutional abuse of law”. In its opinion, a party can only invoke the protection under Section 1 AÜG if the contract with the principal expressly describes the contractual relationship as the hiring out of temporary employees, and this is reflected in the contract formulation with both the principal as well as with the employee. This institutional abuse of law does not in itself justify analogous application of the exception ruling of Section 9 AÜG, which results in the creation of an employment relationship with the hirer/principal. However, the 4th Division of the LAG Baden-Württemberg is of the opinion that – given the lack of transparency with respect to the em- ployee concerned – disloyal conduct is given, which prevents both companies involved from invoking the license for the hiring out of temporary employees.

Disloyal conduct

The 4th Division of the LAG Baden-Württemberg considered the disloyalty as lying in the fact that, although the contractual employer (hirer) had drawn attention in the contract of employment to the applicability of a collective wage agreement for temporary employees, he had however avoided the unambiguous use of the term “hiring out of temporary employees”. The agreements between the principal (hirer) and the service provider/party to the contract for work and services (party hiring out) also failed to take account of the formal aspects and requirements of Section 12 AUG. Finally, the principal (hirer) had always paid strict attention in his internal organisation to differentiating between own core personnel and outside staff. These had been identified accordingly during meetings and at the place of work. Furthermore, the principal had, by his own accounts, covered approximately half of his work volume through external partners.

Contrary opinion of the 3rd Division

The 3rd Division of the LAG Baden-Württemberg took the opposite view on 18 December 2014 (3 Sa 33/14). Based on the case law of the BAG from 2013, the 3rd Division is of the appropriate opinion that direct application of Section 9 AÜG is excluded due to the existence of a license for the hiring out   of temporary employees, and that analogous application is inadmissible due to a loophole in the regulations. Such an opinion can likewise not be justified via the principles of abuse of law or disloyalty as per Section 242 BGB (German Civil Code). The 4th Division of the LAG Baden-Württemberg nevertheless allowed an appeal on a point of law against its own decision.

It therefore remains to be seen whether the BAG stands by its previous view or agrees with the opinion of the 4th Division of the LAG Baden-Württemberg.

Summary

The use of outside personnel is increasingly becoming a “danger-prone activity” for employers. The Federal Ministry of Labour and Social Affairs is constantly putting forward new draft legislation for combating the hiring out of temporary workers and contracts for work and services. The State Labour Courts are also increasingly finding ways of curbing the existing options. This is being accompanied by decisions of the social insurance carriers and Employment Offices which are also aimed at encouraging employees back into the “primary job market”. The situation remains interesting and we will continue to keep you up to date.