Germany: how will new laws affect staffing companies?

Written on 23 Aug 2018

After a tough struggle, the coalition partners in the German government (CDU, CSU and SPD) have reached a coalition agreement about new legislation affecting staffing companies.

Major restrictions on fixed-term employment

One common way to limit exposure to employment claims in Germany has been to issue fixed-term contracts. The new legislation will impose significant restrictions on this. So, what are those restrictions?

Time limits

Short term contracts may only be issued (without objectively justifiable reason) for a period of 18 months, instead of the previous 24 months. Within that 18 months, only one extension to a contract will be possible, instead of three (as is currently the case).

Where objectively justifiable reasons are established, there is currently no limit on the length of fixed-term employment . However in the future, save for certain exceptional cases, there will be a limit of five years. And chain fixed term em-ployment will no longer be permitted.

In such exceptional cases, an exemption will be permitted where the specific nature of the employment relationship re-quires it (for example in relation to artists or professional football players).

The limit of five years with objective justification (and 18 months without) will also include the engagement (as a way of attempting to limit employment liabilities) of a temporary worker on a fixed term contract via a recruitment company. There are proposals to prevent "churn" (termination and re-hire on a new fixed term contract) – the clock will only restart after a three-year waiting period.

Limiting the proportion of fixed-term contracts

Employers with more than 75 employees will only be allowed to offer a maximum of 2.5 per cent of their workforce fixed term contracts, unless special grounds are established. An employer with fewer employees should in principle be able to agree an unlimited number of fixed-term contracts. On the other hand, a company with, for example, 80 employees that wishes to use fixed-term contracts will have serious issues.

In the short term, these rules may make employee leasing attractive, with employer organisations passing to staffing companies all risk of employment claims. But obviously staffing companies will face greater liabilities.

Right to move to part-time work

A right to request temporary part-time work will be introduced. The following changes to part-time working rights have been agreed in principle:

  • There will be no entitlement to an extension or reduction of working hours or early return to the previous working hours during temporary part-time work.
  • The new entitlement to part-time work under this law only applies to companies that generally employ a total of more than 45 employees.
  • For companies with between 46 and 200 employees, a ‘reasonableness limit’ will be introduced.
  • The employer may reject a request for temporary part-time work if it is for less than one year or exceeds five years. The parties to a collective bargaining agreement have the option of agreeing to a different provision.
  • At the end of the temporary part-time work, the employee may demand a further reduction in working hours, after a period of at least one year has elapsed.

Changes to employee leasing and staffing regulation (AUG)?

The Employee Leasing Act (AUG) was a major part of the previous coalition agreement and was amended on 1 April 2017 The current version of the AUG will not to be considered for amendment until 2020. What will happen then remains to be seen.

On-call work/zero hours

Work “on-call” continues to grow in Germany.

The coalition agreement proposes that the proportion of additional work carried out and paid for “on-call” in respect of a particular worker may now only fall short of the agreed minimum working hours by a maximum of 20 per cent or exceed the same figure by 25 per cent. In the absence of an agreement on weekly working hours, weekly working hours of 20 hours will apply.

Procedure to determine employment social security status

To minimize false self-employment, the law allows for the carrying out of a so-called ‘procedure to determine social se-curity status’ before the German Pension Insurance Association (Deutsche Rentenversicherung Bund).

The procedure for self-employed individuals will be simplified and consistently applied across the various branches of social security.

Protection of self-employed individuals

It has long been suggested that self-employed individuals should receive better social security rights, with discussions about how best that could be achieved. In order to improve the social protection of self-employed individuals, the coali-tion agreement proposes introducing an entrepreneur-friendly pension plan obligation for all self-employed individuals who are not already otherwise mandatorily insured (for example, through professional pension insurance schemes).

In principle, self-employed people should be able to choose between the legal pension insurance scheme and – as an opt-out solution – other appropriate means of provision which are protected from insolvency. These must be fully pro-tected against bankruptcy and seizure of assets and provide a pension above the level of the basic security benefits.

It is also being proposed that the minimum health insurance contributions for small business owners should be reduced, and that the pension and health insurance contributions should be developed in a founder-friendly manner.

Summary and outlook

Some commentators would say that the coalition parties have not really recognised that the world of work is changing. In particular, the changes to fixed term employment will significantly restrict employer flexibility. It remains to be seen what will actually be implemented.

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