Employee leasing from abroad with “employer of record” without activity in Germany — subject to licensing according to the AÜG?
It happens more and more often: A foreign company “transfers” employees, such as IT specialists, from abroad to Germany. However, these workers perform their work exclusively remotely and never set foot on German soil in connection with their work. They are employed by the foreign company and work — as is usual for IT staff — very largely without instructions, but there is at least regular coordination with the German client, so that as a rule it can be assumed that they are working under instructions in the legal sense (no freelancers). Is the company nevertheless subject to the licensing requirement of the AÜG?
The legal point of view
According to the principle of territoriality, a state can, in general, only apply its state power and its law to persons who are located on its state territory. According to general opinion (see, among others, § 9 para. 1 SGB IV as well as FW 2019 1.1.1 (2)), the territoriality principle applies to social security law as well as to the AÜG.
The AÜG therefore only applies if employees are transferred within or to Germany to perform their work. The relevant point of reference is the place of work. As part of social security law, the place of work or employment under the AÜG is determined by the place where the employment is actually performed, cf. Section 9 (1) SGB IV.
The view of the Federal Employment Agency
In the authority’s own technical directives, the Fachliche Weisungen 2019 zum AÜG, 1.1.1 (2), the Federal Employment Agency does write that “hiring out by a foreign hirer to a domestic hirer if the temporary worker is deployed exclusively abroad” is not covered by the scope of the AÜG. However, the Federal Employment Agency has since clarified its legal opinion in notices that we have received to the effect that this opinion only refers to cases in which, in addition to the employee, the hirer must also be active abroad, such as on assembly sites, if the domestic company cannot assign enough permanent employees for assembly abroad and these gaps are therefore filled locally with foreign temporary workers.
The Federal Employment Agency distinguishes between this and the increasingly frequent constellations in which employees from abroad work purely digitally for a hirer in Germany. This is because these work services could be performed anywhere in the world, regardless of location, but would have the effect of work performed in Germany. If such constellations were not subject to the scope of the AÜG, German companies could switch to employing only foreign workers without a permit and at significantly lower wage costs. The social security regulations could thus be easily and permanently circumvented. In the view of the German Federal Employment Agency, these cases should therefore be subject to the AÜG and thus require a license.
A new trend: “Employer of Record”
A new trend on the international labor market is also interesting in this context. With the help of so-called “Employers of Record” (EoR for short), the entire employment relationship is outsourced abroad. Employers of record are foreign agencies that are based in the respective country and take over the employment of workers in that country on behalf of, for example, a German company in return for a fee. In doing so, these agencies take care of all legal and formal requirements in accordance with the local legal situation. However, the employees hired in this way work exclusively for the actual, for example German, company, so that the latter retains full control over the content. Even though it is not explicitly stated, the Federal Agency seems to have these cases in mind with its changed legal interpretation.
While the Federal Employment Agency’s fear of the consequences of increasing outsourcing with the help of such constellations, especially in the area of IT, may be understandable overall, the legal argumentation leaves much to be desired. The Federal Employment Agency’s interpretation is already not covered by the wording of its own technical directives, the Fachliche Weisungen, in section 1.1.1 (2). Of course, such directives can also be changed, but in this case, too, it is more a matter of the authority‘s concern about loss of control than of convincing factual arguments. Above all, the argument of “pursuing labor market policy goals” can be used for just about any argumentation, but without anchoring it in the wording of the law, it is of no use. For good reason, however, the clear social security regulation of § 9 SGB IV speaks for the side of freedom from permission: What takes place abroad must be subject to foreign legal regulations, because otherwise there are no possibilities to control them in Germany. Or would the Federal Agency like to check foreign tariff and contribution regulations in the future?
Thus it remains that the goal of this view is to control the uncontrollable.
Nevertheless, the view of the Federal Agency must of course be observed in practice. In the future, therefore, we can expect more checks to be carried out on these issues as well. Companies with the constellations described above should therefore be aware of the risks of being classified as employee leasing requiring a license and take precautions against this, i.e. at best apply for a license.