Assignment of Employees

Assignment Business in Germany

The German Loan of Employees Act 

(law updated 2004/2012)

The Arbeitnehmerüberlassungsgesetz (AÜG) lays down that loaning of employees between employers is lawful but subject to the granting of a permit (also known as licence). The Act came into force in 1972, at a time when there was a great need for labour but when it was becoming clear to legislators that certain key provisions of employment law, such as protection against dismissal and the payment of social contributions, were being violated. Loaning labour between companies was known to have been used as a vehicle for facilitating or obscuring these violations.

The AÜG is clearly restrictive in essence, and tends to be draconian or to be overzealously applied where there is doubt. This approach resulted in a the complete ban on the loaning of workers on building sites following repeated abuses in the seventies. This still stands. The AÜG assumes that loaned-out employees are permanent members of the lessor’s workforce. At its outset, the AÜG allowed employees to be loaned out for a maximum of three months. This has progressively been raised, and as of January 1st, 2004, allows for an unlimited period of time. Most of the former restrictions will cease to be in force, such as the ban on time limitations, the ban on re-employment, the ban on synchronisation and the restriction on the duration of the transfer of the leased worker. On the other hand, the employer will have to pay the same hire and grant the same conditions for the assigned employee as they are usually granted in the company the employee is actually assigned too. Here there are inherent risks, and discussions with the lessee may be advisable. One possibility to deviate from this ruling would be to reach a wage agreement, which must be part of the contract with your employee. We can provide such agreements in English language.

This brief explanation of the AÜG above cannot cover all aspects of the Act. Nevertheless, the reader will inevitably feel that it is a minefield of difficult and deliberate restrictions which will entrap loaning companies. With few exceptions, this has proven not to be the case. More than 8000 German companies hold and operate profitably under AÜG permits, as do more than 250 non-German companies, including more than 50 from the UK, having grown from 26 in 1994. Although there are infringements, prosecutions and fines are rare, and difficulties can be avoided completely by good forward planning and by the diligent implementation of specialised legal advice.

The AÜG has now been liberalised as described above. It is anticipated that this trend will continue. New regulations are in force since Jan 1st, 2004 (f.e.: equal pay). What is perhaps more relevant is that, due to personnel and other changes, the authorities responsible for its enforcement now adopt a more benign approach to both permit applications and the interpretation of the Act’s operation after permits are granted. Further, there is now a vast pool of legal and enforcement-practice knowledge available to the applicant, which allows effort to be centred on the aspects most likely to be closely scrutinised by the authorities, thus reducing the overall cost and effort to those applying for or operating under permits. Earlier applicants did not have the benefit of this experience.

Liberalisation is at least partly due to the fact that factions within the ruling SPD/Green parliamentary coalition, citing Dutch and British experience, are beginning to recognise that temporary employment can create jobs. This enlightenment admittedly comes very late, and is reached by many only reluctantly in the face of the complete failure of all other measures to stem the tide of ever-rising unemployment in Germany. It nevertheless underscores the fact that now is a good time for permit applications. Changes in the enforcement of the AÜG, on the other hand, will take time to implement, especially by the new government, so that it is reasonable to assume that the next few years will continue to be benign to those companies operating under the AÜG.

The AÜG is firmly ensconced on the Statute Book and has withstood legal challenge at a European level, i.e. it is here to stay.

How to obtain a Permit

Application for an AÜG permit will entail the submission of the following:

The completed application form.

The above form will require the nomination of a company director, who is the authorised officer of the company for this purpose. He will be named on the permit (liability nevertheless rests with the company). This officer will need to demonstrate his good repute by presenting a ……

Certificate by both the Inland Revenue Inspector and the IR Collector of Taxes that …………

No-objection certificate by DHSS, confirming that, to their knowledge, all ……………………….

Companies House registration.

Form 260, Nomination of Directors

A certificate by the company’s chartered accountant that ……………………

A statement by the company’s bankers that ………………………………………..

Euro 750,00 will be charged by the authorities

NB: All the above documents not submitted as originals will need to be authenticated or notarised in the UK as true copies. Most will need to be translated. The difficulty of the above should not be overestimated; average time to obtain the permit is under three months.

As we are specialists in this field since more than 20 years and well known by the authorities we can provide specimens of the wording required and the further necessary advice in each case. In urgent cases, permits have been granted in under four weeks from submission of documents.

Having been granted a permit, the permit holder is subject to a number of recurring administrative procedures when loaning out employees, such as registration with the authorities of the loaned employee on a specified form and, on demand, the provision of proof of compliance with such stipulations as the payment of social contributions, the granting of holidays, etc. The authorities are empowered to demand of permit holders and permit applicants a level of proof which will appear unnecessary to U.K. firms and somewhat alien to those accustomed to the virtually unregulated British system. This is because the German authorities would have great difficulty in auditing documents at the premises of the permit holder or permit applicant, an activity which is relatively easy within Germany. However, experience has shown that these checks inevitably occur very infrequently. If the permit holder’s or permit applicant’s response is co-operative, comprehensive and punctual, there is seldom any second scrutiny or follow-up. Further, the amount of information, its form and depth can inevitably be mitigated by an approach by us as specialised lawyers who know the system.

Validity of Permit

Permits are initially granted for one year, and are renewable by payment of the charge and submission of updated documents as shown above. After three years, an indefinite permit can be obtained. Current legal advice does not recommend this in general, since annual permit issue is virtually routine by the third year and the scrutiny by the authorities involved in obtaining an indefinite permit is very far-reaching, and usually means that UK government agencies have to carry out audits on firms’ premises on behalf of the German authorities. Discrepancies, however minor, will then be revisited at each subsequent renewal. Most permit holders thus tend to stay on the one-year cycle (”sleeping-dog philosophy”).

Licensing Charges and Legal Fees

In addition to the Euro 750,00 official permit charge shown above, we can offer a virtually ‘fixed fee’ service of under Euro 2.500 for initial consultation in Germany, advice on documentation, a draft of a employment contract and final check prior to submission, with the possible addition of Euro 220 to 250 per hour for legal fees to respond to queries (by the authorities and/or the applicant) or requests for further documents during or after the granting of the permit. Such queries and further requests for documents will normally not occur where the applicant’s response to the authorities’ questions has been comprehensive and appropriate. Translation costs will normally not exceed Euro 500. In general Lawyers’ fees for the renewal of the licence and translation costs will be lower in subsequent years. It is thus realistic for an applicant company to expect the outside costs involved in obtaining a permit to be under Euro 3.500 or even less in the subsequent years.

For further details please contact me:

Harald H. Zier
Specialist in Labour Law
Tel: +49-(0)89-3838 715
Fax +49-(0)89-338 308