In a recent judgement, the Baden-Württemberg State Labor Court (LAG) decided that an employment relationship is established between a foreign temporary worker and a German hirer if the foreign lender does not have a German permit to supply temporary workers (Case No.: 12 Sa 15/20). The relevant provisions of the German Personnel Leasing Act (Arbeitnehmerüberlassungsgesetz – AÜG) also apply in the case of personnel leasing with a foreign connection.
In the case to be decided by the LAG, a French citizen claimed against a German company on what she alleged to be an illegal transfer of employees, inter alia, the existence of an employment relationship with the defendant German company as well as compensation for overtime worked and travel time and the differential remuneration.
In 2014, the plaintiff concluded an employment contract with a globally operating French consulting company (F). She was hired as a specialist consultant/engineer. The employment contract stipulated that French law was to apply. In the same year, F concluded an agreement with the defendant company (D), which is based in Germany, on sales and administrative support for the defendant. Based on this agreement, F seconded the plaintiff to D for work in Germany from October 2014 to the end of April 2016.
In the period from October 2014 to May 2016, F was not in possession of a permit to hire out employees.
In contrast to the Karlsruhe Labor Court of First Instance, the LAG largely upheld the plaintiff’s claim. In particular, the court ruled that a fictitious employment relationship came into existence between the parties pursuant to Section 10 para (1) AÜG when the plaintiff started working in Germany in 2014. This is because the plaintiff worked for D as a temporary employee and the hiring company F did not possess an effective permit to hire out employees. The plaintiff had been integrated into the company organization of D and had been illegally leased to it as an employee.
The LAG based its decision on the fact that F, as a French temporary employment agency, was also subject to the legal obligation to obtain a permit in Germany due to the principle of territoriality (cf. also Sec. 3 IV AÜG). Accordingly, F should have obtained an official permit from the Federal Employment Agency before sending the plaintiff to Germany. F did not comply with this obligation, so that it was an illegal transfer of employees from F to D.
Pursuant to Sec. 9 (1) AÜG, this therefore leads to the employment contract between the plaintiff and F being invalid within the scope of application of the norm, i.e. within the territory of the Federal Republic of Germany. However, the validity of the employment contract in France remains unaffected by the illegal transfer of employees in Germany.
As a result of the invalidity of the employment contract in Germany, a de facto employment relationship between the plaintiff and D comes into existence upon commencement of work pursuant to Section 10 (1) AÜG. Solely German law governs the legal relationship of the parties, since the parties have not made a choice of law and the plaintiff has usually performed her work in Germany.
The LAG states in its decision that a privileged treatment of a German hirer cooperating with a foreign lender contradicts the system of sanctions to combat illegal hiring out of employees.
The plaintiff’s claims to overtime pay and differential pay also result from this fictitious employment relationship of the parties. Only the claim for compensation for her commuting time was rejected by the LAG.
The LAG allowed the appeal to the Federal Labor Court (BAG). It justified this by stating that the legal question as to whether Sections 9 (1) and 10 (1) AÜG apply in the case of illegal employee leasing with a foreign connection is of fundamental importance.
The admitted appeal is already pending at the BAG (9 AZR 228/21).
3. Practical Advice
The decision of the LAG is of considerable practical relevance. Prior to any deployment of external personnel in the company, it is mandatory to verify the existence of an employee leasing. If external personnel is provided by way of employee leasing, the contractual partner (= lender) must have a valid permit. This also applies to the supply of temporary workers from foreign suppliers.