Employers seeking to assign their employees to customers who intend to employ them within the framework of a service contract must make all contractual agreements clear in advance in order to avoid unintentionally slipping into unauthorized employee leasing. As it is, the contractual agreement for such assignments can determine whether the employee assignment takes place within the framework of a service or work contract or as an employee leasing.
When is this employee leasing?
Employee leasing occurs if the employee is assigned by the employer to a hirer, integrated into the hirer’s operations, and thereby subject to the directives of the hirer. Whether or not such a right to issue directives is transferred to the hirer shall be determined on the basis of the contractual agreements – whereby the practical implementation of the assignment is also considered. This is because, in the event of a discrepancy between the contract and the practice, the actual execution of the contract alone is decisive. In doing so, the courts rely on a number of indications, which they assess in the context of an overall weighing of all circumstances.
Leasing employees is only legal if the hirer has the necessary permission to do so and strict formal requirements are met. Violations may result in heavy fines and the revocation of the employee leasing permit.
Federal Labor Court: Contractual agreement sets the standard
In its decision on September 27, 2022, the Federal Labor Court (BAG) confirmed that employee leasing is primarily characterized by the contractual agreement on the right to issue directives.
Airline without permission to lease employees
The plaintiff was employed as a flight attendant by the lessor – an airline that did not have an employee leasing permit. The lessor had “made the plaintiff available” to the defendant under a wet lease agreement. A wet lease agreement is a contractual agreement for the transfer of an aircraft together with its flight crew. The agreements also included detailed provisions on maintenance, insurance, and operating costs for the machine. The plaintiff unsuccessfully sought a declaration that an employment relationship existed between them and the lessee. In the opinion of the Federal Labor Court, however, the use of the company’s own personnel was only for the purpose of fulfilling the leasing contract.
Contractual transfer of the right to issue directives required
The court based its decision on the fact that the lessor had the decisive right to issue directives to the plaintiff. This already follows from the structure of the leasing agreement, which, in terms of its content, referred predominantly to the aircraft and did not contain any direct provision on the lessee’s personnel competences. However, the decisive factor for a right to issue directives under labor law – in contrast to a result-oriented and service-related right to issue directives – is that a hirer may unilaterally impose regulations on the employee regarding the procedure, time, place, and content of the work performance.
If there is a contract in which the parties regulate their legal positions in detail, the absence of an agreement on the transfer of the right to issue directives suggests, in case of doubt, that it is to remain with the party with whom it originated – i.e., the employer.
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If you have questions regarding the drafting of your employment and customer contracts, want to avoid employee leasing, or are interested in effective employee leasing, we will gladly provide you with support in drafting your contracts.