Personnel leasing

Personnel leasing / Arbeitnehmerüberlassung

March 22, 2023

Personnel leasing offers employers the opportunity to react flexibly to a changing workload by hiring out employees. For employees, this has the advantage that they can get to know different industries and companies and thus expand their professional experience. However, Personnel leasing must be carefully planned and comply with legal regulations. The German Temporary Employment Act (AÜG) is the relevant starting point here*.

Definition of Personnel leasing and requirement for a permit

Personnel leasing exists when an employer (lender) assigns its employees (temporary workers) to third parties (hirers) to perform work, they are integrated into the hirer's work organisation and are subject to the hirer's instructions (see Section 1 (1) sentence 2 AÜG). The lender requires a licence from the Federal Employment Agency for Personnel leasing, Section 1 (1) sentence 1 AÜG. Under certain conditions, small companies are exempt from the authorisation requirement in accordance with Section 1a (1) AÜG. There is no integration into the hirer's work organisation if the employee acts as a vicarious agent of the employer and the instructions are only factual and result-related. This is because the employee is then working for his original Employer within the framework of the latter's business, which is not subject to the AÜG. In contrast, instructions under labour law are person-related and process- and procedure-oriented (see BAG ruling of 05.07.2022 - 9 AZR 324/21).

Personnel leasing is restricted in the construction industry in accordance with Section 1b AÜG. Authorisation is granted upon written application and can be refused if certain reasons are given, Sections 2 (1), 3 AÜG.

Legal relationships between the parties in Personnel leasing

An employee leasing agreement must be concluded between the lender and the hirer. This must expressly designate Personnel leasing as such. In case of doubt, however, the actual implementation is decisive for the legal categorisation. The contract must be in writing in accordance with Section 12 (1) AÜG. If this is not complied with or if the lender is not authorised to assign the employee, the contract is invalid in accordance with Section 125 BGB or Section 9 (1) No. 1a AÜG. In addition, the lender must inform the hirer immediately if the licence is not extended, is withdrawn or is revoked. The lender has fulfilled its contractual obligations when it has selected the employee and provided them to the hirer.

A temporary employment contract must be concluded between the lender and the employee. This is done by means of a signed document or a written employment contract that is handed over to the employee. The content of the contract is governed by § 11 Para. 1 AÜG and § 2 Para. 1 NachwG. Written form is not required. § Section 9 (1) AÜG regulates when the temporary employment contract is invalid. If this is the case, an employment contract is concluded between the hirer and the employee in accordance with Section 10 (1) AÜG. However, the employee can prevent this by adhering to the employment contract with the hirer by means of a so-called declaration of adherence.

No legal relationship is created between the employee and the hirer.

Legal status of the employee

In principle, the employee may not be assigned to the same hirer for longer than 18 consecutive months, Section 1 (1b) AÜG. However, deviating regulations can be agreed in collective labour agreements.

In terms of works constitution law, temporary workers are largely treated the same as permanent employees, § 14 AÜG. The hirer must notify the competent health insurance fund of the employee, the Employer and the start and end of the assignment. According to Section 8 (1) sentence 1 AÜG, the employee must be granted the working conditions applicable to a comparable employee at the hirer's company for the duration of the assignment. This also includes the remuneration. However, a collective labour agreement may deviate from this for the first nine months of the assignment, Section 8 (4) AÜG. In this case, the employee must be granted compensatory benefits that are suitable to compensate for the lower remuneration, e.g. more days of holiday. This was last decided by the European Court of Justice (ECJ) in its judgement of 15 December 2022 (case C-311/21).

Other forms of temporary personnel placement

In addition to traditional Personnel leasing, there are other forms in which employees of one company can work for another company.

It is conceivable that a service or work contract could be concluded between an entrepreneur (Employer - in the case of Personnel leasing, this would be the hirer) and a third party (in the case of Personnel leasing, this would be the hirer). In this contract, it is agreed that the entrepreneur XYZ is to provide services for the third party and for this purpose provides employees to the third party. It is important here that the entrepreneur organises all actions/services necessary to achieve the economic success himself and is and remains responsible to the third party for the fulfilment of the contract. In order to fulfil his obligations under the contract, he uses his personnel, who are exclusively subject to his instructions. This should be regulated accordingly in the service or work contract. If the employees are not employees but freelancers, the company's right to issue instructions is limited. It is crucial that the third party does not assume an employer-like position and issue instructions to the company's employees working for them. The employer controls the work results of its employees and determines their working hours. The latter should be clearly regulated in a contract between the employer and the third party.

The boundaries between Personnel leasing and other forms are not rigid. The mere existence of a service or work contract as the legal framework for the cooperation between the employer and the third party cannot rule out the existence of Personnel leasing requiring a licence. Protection against this is only possible to the extent that the criteria outlined above are observed in the best possible way and implemented in daily practice.

It is not possible to obtain a licence for Personnel leasing in advance, i.e. in the event that the model is classified as Personnel leasing. This was possible before the amendment to the Temporary Employment Act until 2017. The only real protection against unauthorised, unintentional Personnel leasing is therefore the establishment of planned and permitted Personnel leasing. If this is not an option because the company's employees are self-employed and/or it does not fit into the overall concept, the cornerstones already outlined must be observed.

Legal relationships for other Personnel leasing to third parties

In the case of other personnel leasing, employees or other workers (hereinafter referred to as employees) of a company are employed by a third party on the basis of a contract for work or a contract for services. In addition to this contract between the company and the third party, the legal relationship between the company and the employees must be regulated. This is done through employment contracts or freelance contracts. In addition, the company can give the third-party company separate instructions on how to deal and communicate with employees in order to enable best practice. It is also conceivable that the company could issue instructions to employees in the form of a leaflet in which they are requested to inform the company immediately of any circumstances that could be interpreted as indications of Personnel leasing.

What are the indications Personnel leasing?

  • Providing employees for work
  • Integration of the employees into the business of the hirer
  • The employees work exclusively according to the instructions of the hirer and in the interests of the hirer.
  • The instructions can be both process- and procedure-oriented (classic labour law components: what, when, how, where). Examples of such instructions that have been recognised in case law as instructions under employment law are
  1. A third-party company sends emails to employees asking them to tidy up their workplace, cupboard, office, etc.
  2. A third-party company determines the options for working overtime and sets the time for this.
  3. A third-party company communicates on the issue of holiday planning and instructs employees to coordinate with the employees of the third-party company or other external workers.
  4. A third-party company determines that employees must contact a specific employee in the event of absence due to health or other reasons in order to be able to plan accordingly.
  5. A third-party company or its employees communicate to employees about responsibilities for tasks, projects or activities.
  6. A third-party company does not differentiate between employees and its own employees in its communications.
  • Problem: Company communication - emails to employees in which both employees of the third-party company and employees of the hirer are addressed and they are also used together to issue standardised work instructions to this group.

What speaks in favour of the existence of other personnel transfers that do not constitute temporary employment?

  • Employees work for a third party under a work or service contract.
  • The employee's employer/principal provides services for the third-party contractor and organises the necessary actions according to its own operational requirements. He remains responsible for the fulfilment of the contract with the third-party company.
  • The employees are subject to the instructions of the Employer/Principal and are its vicarious agents.
  • Pursuant to Section 645 (1) sentence 1 BGB, the customer may issue instructions to the contractor or its vicarious agents for the execution of the work. The same applies to service contracts (see BAG of 15 April 2014 - 3 AZR 395/11 - para. 20).
  • The instructions are only factual and result-related.
  • The employer can prove the agreements with the third-party company by means of a written contract for work or service.
  • The employer monitors the work results of its employees and determines the working hours.

Do the principles of Personnel leasing also apply to managing directors?

The AÜG is unlikely to apply to managing directors, as the application of the AÜG under Section 1 I AÜG presupposes that the leased person is an employee of the lender. However, a managing director or employee of the alleged hirer who works for another company as an employee or managing director is no longer an employee of the lender when he starts working for the other company, as he is no longer subject to the lender's right to issue instructions. Furthermore, there is likely to be no Personnel leasing if a managing director works as an employee or an employee works as a managing director. Finally, the protective purpose of the AÜG speaks against its application.

*In the future, we will only use the generic feminine or masculine for the sake of readability.