No employment relationship with the user company even though (foreign) temp agency has no permit for personnel leasing

Judgment of Federal Labour Court of 26 April 2022 in Case No. 9 AZR 228/21

Leasing workers from a foreign temp agency that does not have a permit for personnel leasing does not result in a fictional employment relationship between the user company and the worker when the agency relationship is subject to the law of another EU Member State.

Facts of the case

A French temp agency sent a worker on assignment to a German company to provide consultancy services in relation to the changeover to a new ERP system (Enterprise Resource Planning, software solutions for resource planning). The employment agreement and the agreement on the provision of services were subject to French law. The French company did not have a German permit for personnel leasing. After the end of the assignment, the French worker brought a claim against the German company and asked the Court to determine that an employment relationship existed between the two and sought to enforce various claims for payment. The question of the extent to the worker had been integrated into the operations of the German company remained contentious.

The judgment

The Federal Labour Court (Bundesarbeitsgericht, BAG) rejected the French worker’s claim. Even though the French temp agency did not have a permit for personnel leasing, the Court held that no employment relationship arose between the worker and the German company. Accordingly, there were also no payment entitlements. The lower court assumed that §§ 9 and 10 of the Employee Leasing Act (Arbeitnehmerüberlassungsgesetz, AÜG) were overriding mandatory national law that applies in the case of cross-border employee leasing, even when the underlying contractual relationships are subject to foreign law (in this case French law). Where the temporary employment agency does not have a permit, §§ 9 and 10 of the AÜG provide that the employment contract between the agency and the agency employee will be invalid and a fictional employment relationship will be established with the user of the worker’s services; this fictional relationship formed the possible basis for the worker’s claims in this case. However, the BAG did not follow this approach. It held that §§ 9 and 10 of the AÜG were not overriding mandatory provisions under private international law (Article 9 of the Rome I Regulation). The administrative offence provisions in the AÜG already provides sufficient punishment for breach of the permit requirement in employee leasing cases such as the present one.

Consequences for practice

The judgment significantly reduces the risks in the case of cross-border personnel leasing. Companies using such services will not face the threat of the establishment of a fictitious employment relationship in the circumstances described. Following this logic, the contractual relationship between the temporary employment agency and the user company will remain valid – where this contract is subject to foreign law – and will need to be unwound. In this respect, the contractual provisions agreed between the parties will prevail.

Practical tip

What’s true for purely domestic cases of personnel leasing is also true for cross-border cases: much care must be taken to correctly structure and implement the contractual relationships. In the case of a service contract, the user company should avoid integrating the worker into the company. In the case of personnel leasing, care should be taken to ensure, for example, that the relevant permits have been obtained. In the case of infringements, fines of up to EUR 30,000 can be imposed on both the temporary employment agency and the user company.

Gerald Müller-Machwirth