Risks and consequences of hidden employee leasing
In practice, this is referred to as a concealed temporary employment contract if a contract for work or services has been concluded but the characteristics of a temporary employment contract are actually present. In many cases, companies are very relaxed about the whole thing, but the procedure actually harbors risks for all those affected. Employees often have to wait in a legally uncertain situation and companies risk high fines and damage to their reputation.
Table of contents
- Risks and consequences of hidden employee leasing
- What is temporary employment and when does it become problematic?
- What are the legal consequences of covert employee leasing for companies?
- What are financial burdens and economic risks for the companies concerned?
- What are the effects of covert employee leasing on the employees concerned?
- What are the organizational challenges and internal consequences of covert employee leasing?
- What role do the Federal Employment Agency and the trade unions play in this?
- What is the social dimension of concealed temporary employment?
- What is the importance of transparency and trust?
- What are long-term prospects?
Estimated reading time: 8 minutes
What is temporary employment and when does it become problematic?
The German Temporary Employment Act (AÜG) is the legal basis for temporary employment. This law defines the conditions under which a hirer may supply employees to a borrower. For this purpose, the relevant companies must have a permit from the Federal Employment Agency. This is called the permit requirement.
If this legal requirement is circumvented, it becomes problematic. This is referred to as a covert supply of temporary workers if a contract for work or services has been concluded, but in practice the criteria for a supply of temporary workers are met. There are various factors that can be present here, for example, if it is a case of a concealed supply of temporary workers. This can mean, for example, that the employees are integrated into the company organization or that they are bound by the hirer's instructions. If such deception is present, this can have serious legal and financial consequences.
What are the legal consequences of covert employee leasing for companies?
The German Temporary Employment Act (AÜG) contains clear guidelines on how high the fines are for companies that make use of covert employee leasing. The amount of the fine depends on how serious the violation is and how many employees are affected by this violation. For small and medium-sized companies, such a fine can even threaten their existence.
A further consequence is that the employee concerned can assert a claim to a permanent employment relationship with the company concerned. This entitlement arises retroactively. This means that in such cases, salaries and social security contributions must be paid retrospectively. This naturally affects a company's planning security and can represent an enormous financial burden. Furthermore, the contractual relationship between the temporary employment agency and the hirer can become legally invalid if a concealed temporary employment agency is discovered.
What are financial burdens and economic risks for the companies concerned?
However, anyone who thinks that fines are the only thing a company has to fear is mistaken. Social insurance institutions, for example, are authorized to demand payment of their contributions. If these are not paid, these additional payments can be demanded over several years, which can result in immense sums.
There are also potential damages and claims from employees or third parties. Just think of the case of an accident at work. The employee can now make claims against the company if the insurance company does not want to pay benefits because the contractual relationship is unclear. These are of course further financial risks.
However, affected companies also suffer economic consequences in addition to the financial consequences. If there is a covert supply of temporary workers, the trust of business partners and customers in the company may be lost. It goes without saying that competitiveness is impaired in the long term. The company's reputation can be seriously damaged.
What are the effects of covert employee leasing on the employees concerned?
Employees are often the victims in this scenario. They are often completely unaware of the legal situation and only realize at a late stage that they have been deprived of essential rights as a result of the covert hiring out of employees.
This can also result in serious damage for employees. If the employer has not paid the social security contributions properly, the employee may suffer gaps in their benefits. This means, for example, that pension insurance, unemployment benefits or health insurance are affected. If an employee falls ill or loses their job, this may well threaten their livelihood.
What are the organizational challenges and internal consequences of covert employee leasing?
Once a concealed temporary employment agency has been identified, companies must comprehensively revise their internal processes. For example, contracts must be drafted correctly. It must be clearly stated that these are contracts for work and services. They must also meet the criteria to distinguish them from temporary employment. This means additional work for companies. The HR and legal departments must work well together to ensure that everything runs smoothly.
It is also important that managers and employees are informed about legal requirements in training courses. The difference between contracts for work and services and temporary employment is clearly explained. Of course, this is costly for companies, but it can strengthen compliance and prevent future violations.
It is also important for companies to take preventative measures. They must introduce a compliance management system to ensure that all relevant legal requirements are adhered to. This includes a regular review of existing contractual relationships. It is important for companies to ensure that the contracts for work and services do not contain any elements that could be indicative of temporary employment.
It is important for in-house compliance to also work with external consultants or specialized lawyers. These are specialized in uncovering weaknesses in existing processes and making appropriate recommendations for further action. Companies must also ensure that they regularly update their internal guidelines so that they can react to the current legal situation.
What role do the Federal Employment Agency and the trade unions play in this?
The role of the Federal Employment Agency and trade unions should not be underestimated in this scenario. The Federal Employment Agency is responsible for issuing permits. It is also responsible for monitoring compliance with legal requirements. In practice, this means that they investigate companies and check for violations.
Trade unions can help affected employees to assert their rights. They offer advice and support in clarifying legal issues and can help to publicize grievances.
What is the social dimension of concealed temporary employment?
Hidden hiring out of employees is something that occurs very frequently. However, this is not just an individual problem. There are also social consequences. Employers and employees no longer trust each other and a rift develops between the two parties.
By taking their responsibility seriously and adhering to the legal requirements, companies can contribute to a fairer and more transparent labor market. At the same time, it is the task of politicians to ensure clear and comprehensible regulations that make it more difficult to circumvent the AÜG.
What is the importance of transparency and trust?
One of the key lessons to be learned from the problem of covert employee leasing is the importance of transparency and trust. Companies that base their business models on questionable practices not only risk legal consequences, but also the loss of their credibility. Transparency means that contracts are clearly formulated and employment relationships are clearly regulated. Trust, on the other hand, is created when employees feel that they are treated fairly and can rely on their employer.
What are long-term prospects?
It is important that a rethink takes place at all levels. It must be clear to companies that although they may save money in the short term when they use covert employee leasing, this can result in considerable costs for them in the long term and also damage their reputation. It is therefore important that employees in companies are trained accordingly. It is also important that employees know their rights and actively demand them. You can turn to advice centers, trade unions or other institutions that can help you with your questions.
Good cooperation on both sides can solve the problem of hidden temporary employment in the long term.
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