Federal Labor Court on Employee Leasing: End of the Group Privilege?

Background

The AÜG contains several pitfalls for employers. For instance, an employment relationship between the hirer and the leased employee is established by law if the contract between the lender and the leased employee is invalid under § 9 (1) AÜG (§ 10 (1) sentence 1 AÜG). However, the employer is exempt from such pitfalls if the employee leasing occurs within a corporate group and the so-called group privilege under § 1 (3) No. 2 AÜG applies. This exemption from the strict requirements of the AÜG through the group privilege requires, according to the wording of law, that the employee is “not hired and employed for the purpose of leasing.”

Facts of the case and decisions of the previous court instances

In the case decided by the BAG an employee was hired by one group company approximately 12 years ago but performed his work on the premises of another group company. The employee argued that his deployment on the premises of the other group company constituted employee leasing in violation of § 9 (1) AÜG with the consequence that an employment relationship between him and the other group company was established by law according to § 10 (1) sentence 1 AÜG.

The labor court (first instance) dismissed the employee’s claim and also the Regional Labor Court of Lower Saxony (Landesarbeitsgericht, LAG Niedersachsen) (second instance) rejected the employee’s appeal. The LAG found the group privilege applicable with the consequence that the deployment of the employee did not have to comply with the strict requirements of the AÜG and that no employment relationship with the other group company was established by law. According to the LAG, the group privilege does not apply if the employee is hired and employed for the purpose of leasing. The employee had not sufficiently proven that he was hired for the purpose of leasing.

The BAG’s decision

The BAG had a different opinion. According to the BAG the group privilege does not apply if the employee is hired or employed for the purpose of leasing.

The BAG has thus – contrary to numerous criticism – adhered to the wording of the law. § 1 (3) No. 2 AÜG requires two conditions for the group privilege to apply – meaning that both of them must be met. This is expressed in the wording of the law by using the word “and.”

Thus, the group privilege only applies if the employee is

(1) not hired for the purpose of leasing (at the time the employment contract is concluded)

and

(2) not employed for the purpose of leasing (during the course of the employment relationship).

As the applicability of the AÜG was not excluded by the group privilege in the case at hand, the BAG referred the case back to the LAG to determine whether the deployment is to be considered employee leasing.

Key Takeaways

The BAG’s decision of November 12, 2024 has made it clear that the group privilege only applies under strict conditions and both of them must be met.

As a result, there is significant legal uncertainty for employers. The immediate question is: How can an employee be deployed at another group company without being considered “employed for the purpose of leasing”? Hopefully, the BAG will clarify the term “employment for the purpose of leasing” and establish strict requirements for this. In particular, the BAG will have to take into account the purpose of the group privilege. The group privilege creates an exception to the strict requirements of the AÜG in order to enable corporate groups to react flexibly, for example, to peak workloads by leasing employees within the corporate group. In these cases only the internal labor market of the corporate group is affected and the social protection of the leased employee is not compromised. The BAG has already indicated in the press release on its decision of November 12, 2024 that an employment is in general to be considered “for the purpose of leasing” when the employee has been continuously deployed as a leased employee at another group company for several years since the beginning of the employment. Employers should avoid such long-term deployments of employees at another company of a corporate group in the future.

The controversial question of whether the group privilege complies with EU law remains unresolved. However, the BAG did not initiate a preliminary ruling procedure to the European Court of Justice (ECJ) on this matter. This chapter is still not closed.

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