It has now become quite common for companies to outsource project-based work or to address short-term staffing shortages. To do so, they often rely on contracts for work or service agreements. Some companies deliberately or even unknowingly circumvent legally mandated regulations in the process. In such cases, this is referred to as disguised temporary staffing. This is not only legally prohibited but can also entail significant financial risks.
What is meant by "disguised temporary employment"?
If a company employs workers and does not classify them as Temporary Employment If this is not explicitly stated, it is referred to as disguised temporary employment. This is often the case when a client and a contractor enter into a contract for work or services. It is important that these contracts explicitly state that the contractor is self-employed. However, it is often the case that the workers employed by these companies are deployed in a manner consistent with traditional temporary staffing. This means that they work within the company under the direction of their employer and are also integrated into their client’s operational processes.
In the case of disguised temporary employment, the difference lies in the fact that the contracting party does not have a license to provide temporary employment. The arrangement is not identified as such and is in violation of the Temporary Employment Act (AÜG).
What is the distinction between a contract for work, a service contract, and temporary employment?
At the Contract for Work and Materials The contractor bears full responsibility for a specific work product or result. This could be, for example, the completion of a software project. The contractor is not bound by instructions—he decides for himself how to achieve the agreed-upon result.
The service contract specifies certain activities or a service that the contractor will perform for the client. In this case, the contractor also bears full responsibility for the work. Here, too, the contractor is not bound by the client’s instructions.
Temporary staffing is generally provided by a staffing agency. The agency assigns workers to a company for a specific period of time. The workers remain employed by the staffing agency but are subject to the hiring company’s direction during their assignment.
Disguised temporary staffing occurs when a contract for work or services has been entered into, but the workers are subject to the company’s instructions and are also organizationally integrated into its operations—even though the contract states otherwise.
Characteristics of Disguised Labor Dispatch
- The workers receive instructions directly from the client (not from the contractor)
- You are integrated into the client's operational processes and daily routine
- You use the client's equipment and tools
- The contractor bears no responsibility for the success of the work
- There is no defined scope of services or no clearly delineated work product
What are the legal foundations of temporary employment?
1. Temporary Employment Act (AÜG)
The Temporary Employment Act The (AÜG) regulates temporary employment in Germany. The purpose of this law is to protect the rights of the affected employees. It is also intended to establish a clear distinction from other types of contracts, such as contracts for work or service contracts.
2. Temporary Employment Permit
A prerequisite for obtaining a temporary employment license is that the staffing agency demonstrate that it possesses the necessary reliability and also has the financial resources to fulfill its obligations as an employer. The agency must also ensure that minimum labor law standards are met—for example, the payment of minimum wages. If an agency does not have this permit, the employment relationship with the employee may automatically transfer to the client company (§ 10 of the Temporary Employment Act (AÜG)).
3. Temporary Employment Contract
When a staffing agency and a client company enter into a temporary staffing agreement, it must be clearly identified as such. The employee being assigned must be named specifically in the temporary staffing agreement. These clear specifications ensure transparency between the client and the staffing agency and protect the employee’s rights.
4. Equal Pay
A temporary employee is entitled to the same wages as permanent staff, provided they perform comparable duties. Exceptions may be stipulated in collective bargaining agreements, but may only be applied during the first nine months of the assignment—after that, the Equal Pay-Principle. In addition to equal pay, employees have the right to equal treatment: use of company facilities, access to social benefits, and the same working hours and vacation days as regular staff.
5. Maximum Assignment Period
The AÜG also clearly stipulates the maximum assignment period for an employee: 18 months. Collective bargaining agreements may provide for different provisions that allow for longer assignments. This provision is intended to prevent temporary agency workers from working permanently at a company without entering into a regular employment relationship.
What are the legal consequences of disguised temporary employment?
If there is a case of disguised temporary employment, this has serious legal consequences for the companies involved, as well as for the affected employee. In such cases, the law presumes that an employment relationship is automatically established between the user company and the affected employee.
Legal Consequences for the Borrower
- The borrowing company must retroactively pay all social security contributions for the employee—both the employee’s and the employer’s shares in full.
- The employer is required to pay the employee the wage prescribed by collective bargaining agreements or by law. Violations of the principle of equal treatment can result in substantial back pay claims.
- The borrowing company must make special payments, such as Christmas bonuses or vacation pay, and compensate employees for any unused vacation days.
- He is liable for all claims under labor law arising from the employment relationship—for example, violations of working hour regulations or claims for damages resulting from wrongful termination.
- In cases of disguised temporary employment, the user company faces fines of up to 500,000 euros.
Legal Consequences for the Lender
- A violation of the Temporary Employment Act (AÜG) may result in the temporary employment agency losing its license to provide temporary workers, either permanently or temporarily.
- He can be sued for damages by both the hiring company and the employee—for example, for costs resulting from back pay or fines.
- In cases of particularly serious violations or repeat offenses, substantial fines or imprisonment may result.
Protection of Employees Under the Temporary Employment Act (AÜG)
The employee is comprehensively protected under the Temporary Employment Act (AÜG). In the case of disguised temporary employment, this means that an employment relationship is established between the employee and the user company—the employee is retroactively considered an employee of the user company and can assert his or her claims against it. They receive better collective bargaining or company-specific terms, are entitled to equal pay and treatment as comparable permanent employees, and are entitled to retroactive back pay.
However, the process of actually enforcing one’s claims involves significant effort—both in terms of time and cost. That is why it is so important that contracts for work and contracts for services be clearly distinguished and transparently worded.
What preventive measures can companies take?
Affected companies should proceed with caution to minimize the risk of disguised labor leasing.
- You must make sure that the legal requirements must be observed. This applies above all to clear and precise contract drafting: contracts for work and services must be worded in such a way that there is no possibility of confusion or overlap in content with a temporary employment arrangement.
- It is important for companies to clearly define the chain of command and the organizational structure of external personnel.
- Managers and HR professionals must receive regular training so that they are clear on these distinctions.
- If a company is unsure about how to draft a contract, it should seek legal advice. An attorney specializing in labor law can provide specific guidance on how to comply with the AÜG.
Affected companies should be aware that disguised temporary employment is a sensitive issue. It is important for companies to always ensure that they comply with the legal framework—this way, legal problems can be avoided from the outset.
Do you have questions about temporary staffing? We at Zeitarbeit International are happy to help! For over 35 years, we have been specializing in Temporary Staffing from the EU and Eastern Europe and can assist you with any questions you may have regarding temporary staffing. Contact Us
Frequently Asked Questions About Disguised Temporary Employment
The term “disguised temporary staffing” is used when a company effectively employs workers as if they were temporary agency workers—that is, integrates them into its operations under the company’s direction—without declaring the arrangement as temporary staffing. Typically, a contract for work or services is entered into instead, even though the actual practice corresponds to temporary staffing.
Typical characteristics include: The workers receive direct instructions from the client (not from the contractor); they are integrated into the client’s daily routine and operational organization; they use the client’s equipment; and the contractor bears no responsibility for the success of the work. The absence of a clearly definable scope of work or services is another red flag.
The user of temporary workers faces fines of up to 500,000 euros, as well as a retroactive obligation to pay all social security contributions, back wages, and special payments. The staffing agency may lose its AÜG license and faces claims for damages and—in the case of serious violations—even prison sentences.
If there is a case of disguised temporary employment, the law automatically establishes an employment relationship between the employee and the user company. The employee is retroactively considered an employee of the user company and may demand that the user company apply its collective bargaining agreements, provide equal pay, ensure equal treatment, and make retroactive payments of any pay differences. However, enforcing these rights involves considerable time and expense.
In a contract for services, the contractor is obligated to deliver a specific, definable result (the „work") and is not bound by instructions. The contractor decides for themselves how to achieve the desired result. In temporary staffing, workers are assigned to the client company, which then exercises the right to issue instructions. This distinction is crucial: if a contract for work and services is handled in practice like a temporary staffing arrangement, it constitutes a sham contract for work and services.
Through clear, unambiguous contract drafting that does not allow for any overlap with temporary staffing; through a clear distinction between the authority to issue instructions and the organizational integration of external personnel; by providing regular training for managers and HR personnel, and, in cases of doubt, by seeking legal advice from an attorney specializing in labor law.