Federal Labour Court decision under focus: European Court of Justice is to rule on the privileged treatment of hiring out employees in the public sector

Potential consequences that may affect (public) employers

In the public sector, hiring out employees is considered as a common practice to permanently assign employees to third parties. However, this could change in future. We provide an overview of the facts and possible consequences.

So far the public sector has been considered to be privileged with regard to the hiring out of employees. Pursuant to sec. 1 (3) no. 2b of the Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG), in terms of a shift of work duties from the contractual employer to another employer a sectoral exemption applies to the hiring out of employees within the scope of a collective agreement of the public service (in particular Tarifvertrag des öffentlichen Dienstes, TVöD). This allows for a hiring out of employees under sec. 4 (3) of the TVöD without being bound by the fundamental provisions of the AÜG. However, the regulation - which is not only controversial since today - is now under review at the European Court of Justice (ECJ).

ECJ to review compatibility of hiring out of employees with EU law

The German Federal Labour Court (Bundesarbeitsgericht - BAG) has referred two questions to the European Court of Justice (ECJ) for review. On the one hand, it is to be clarified whether the hiring out of employees pursuant to sec. 4 (3) TVöD falls within the scope of the Temporary Agency Workers Directive (2008/104/EC). If this is the case, it must also be clarified to what extent the exemption from the scope of application according to sec. 1 (3) no. 2b AÜG is permissible despite the Directive and thus complies with EU law.

The appeal to the ECJ by the BAG is based on the following facts: The parties dispute the plaintiff's obligation to perform his contractually owed work on a permanent basis by way of the hiring out of employees to a third party company after his area of responsibility has been transferred to the latter. The defendant, whose sponsor and sole shareholder is a public entity, operates a hospital. The plaintiff is now employed by the same. The TVöD governs the employment relationship of the parties. The defendant does not have a permit to hire out employees.

Plaintiff complains of infringement of the European Directive on Temporary Agency Work

In the course of a restructuring, the defendant founded a service company in 2018 in order to subsequently outsource various areas. The plaintiff's employment relationship was to be transferred to the service company as part of a partial transfer of operations. The plaintiff objected in accordance with section 613a (6) of the German Civil Code (Bürgerliches Gesetzbuch - BGB), with the result that the employment relationship between the previous parties to the employment contract remained unchanged. The defendant reacted by permanently assigning the plaintiff to the Service GmbH by way of hiring out employees in accordance with sec. 4 (3) TVöD. The previous employment relationship continues unchanged between the previous parties to the employment contract. The hirer, i.e. Service GmbH, only has the right to issue technical and organizational instructions.

The plaintiff argues that the assignment of personnel according to sec. 4 (3) TVöD is a permanent hiring out of employees. This violated the Directive 2008/104/EC of the European Parliament and the Council of November 19, 2008 on temporary agency work and was therefore considered a violation of the law. The defendant, on the other hand, argues that the provision of personnel is permissible based on the exception in sec. 1 (3) no. 2b AÜG. The plaintiff's claim was dismissed at first instance.

Consequences of a potential infringement

Should the ECJ actually consider the provision of personnel to be contrary to European law, this could have far-reaching consequences for national law. The abolition of the privileged status of the public sector would make the privatization of public tasks much more difficult. For instance, employers would henceforth need permits for hiring out employees. Such a hiring-out was subject to the time limitation of the AÜG. Moreover, in the case of hiring out workers without a permit, the sanctions of the AÜG would apply, i.e. administrative offences according to sec. 16 (1) no.1 AÜG and the associated high fines.

Employees may also face problems due to the omission of an area exemption. Pursuant to sec. 10 (1) AÜG, in the case of an (unlawful) hiring-out of employees without a permit, a fictitious employment relationship would arise between the employee and the "hirer". Thus, in cases where the employee has objected to a transfer of a business undertaking (TUPE), due to a privatization or comparable, and is to be assigned to a third party by way of personnel leasing, the unintended result is a dismissal from the public service.

The admissibility with regard to such an exception has been disputed in the literature for some time. The ECJ's decision could therefore also be groundbreaking for other regulations such as the exemption privilege for groups of companies pursuant to sec. 1 (3) no. 2 AÜG.

Conclusion: swift action could be required

The outcome of the appeal to the ECJ is eagerly expected not only by the employment and labour law community, but also by the public sector. In particular, a large number of public hospitals would be affected. It is already advisable for employers in the public sector who hire out employees to third parties to obtain an overview of the personnel structure, organization and use of service companies and, above all, to be prepared for a possible termination of temporary hiring or to examine alternative approaches at an early stage.

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