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The history of temporary employment

“Dammit, what else do we have to put up with”, the American lawyers Elmer L. Winter and Aaron Scheinfeld may have thought as they were trying to find a qualified replacement for a sick secretary, to no avail, back in 1948.

As they realised that they probably weren’t the only ones that were grappling with such problems, in the very same year, they founded the company Manpower Inc. in Milwaukee, USA. The idea became established and the new sector of modern temporary employment took off on its huge triumphal course across the USA in the following years. The unstoppable expansion in the United States proceeded in Europe with the opening of two offices in Paris and London in 1956.

Employment Agency Act
The history of temporary employment in Germany goes back to the era after World War II. The placement of workers in return for money is regulated for the first time by the 1922 Employment Agency Cct. Parts of it were adopted in the new Job Placement and Unemployment Insurance Act, in short AVAVG, on 16 July 1927. An emergency decree by the Reich President on as early as 6 October 1931 put the burden of the full employer obligations on the placement agencies. Due to the reign of the National Socialists in the Third Reich, all placement activities of this sector became an unrestricted monopoly on 5 November 1935. Temporary employment at that time was thus all but dead.

AVAG (Recognition and Enforcement Implementation Law)
It wasn’t until years after the end of this terror regime, after the so-called Federal Agency for Job Placement and Unemployment Insurance had been founded on 10 March 1952, when the regulations of the AVAVG dated 1927 became effective again. Yet understandably, the Germans had other worries at that time rather than adopting, further developing and modernising good ideas of times gone by.

Placement monopoly
In the meantime, the expansion of temporary employment had also secured Europe. The pioneer of modern-time temporary employment was the Swiss company ADIA Interim, which set up a branch in Hamburg in 1962. The work of ADIA – Interim immediately attracted the attention of the Federal Employment Agency, how could it be otherwise, who saw their placement monopoly at risk and filed a complaint. The test case went through all levels of jurisdiction. On 4 April 1967, the Federal Constitutional Court in Karlsruhe passed the judgement: The expansion of the employment placement monopoly to temporary employment contracts via Section 37 AVAVG is not compatible with the basic right of free choice of employment as defined by Section 12 of the German Constitution.

Minimum protection
The triumphal procession of the service “temporary employment” then also began in Germany. In order to ensure the minimum social protection of temporary workers as called for by the Federal Social Court in a judgement in 1970, the law on the regulation of the supply of temporary workers (the German Law on Labour Leasing – in short AÜG) was passed in 1972 and also came into effect. With the introduction of this law, the legislator pursues various objectives:

  • To make the operating of temporary employment agencies dependent on a licence
  • To distinguish the temporary employment agencies from employment agencies
  • To prohibit the long-term supply of temporary workers
  • To subject the supply of temporary workers to state monitoring
  • To ensure the protection of temporary workers under employment and social security laws
  • To guarantee special protection for foreign workers.

Black sheep
At the same time as the passing of the AÜG, the Federal Government was commissioned to produce a report every four years on the experiences with the application of this law. Unfortunately, even this young, highly promising and modern sector was not spared ruthless racketeers. Black sheep did not pay any attention to the regulations employers had and social matters of course. The cases uncovered were included in the field reports by the Federal Government. This resulted in the prohibition to supply temporary workers to the main construction trades, because that was where the most violations were registered back then. On 01 January 1982, “the supply of temporary workers to businesses in the construction trades for work that is usually performed by workers” was prohibited by law. A complaint of unconstitutionality directed against this was unsuccessful as per the judgement of February 1988.

Amendments
Various amendments to the AÜG have been made since then. Even temporary employment has to constantly adapt to changing markets and conditions. Particularly in the course of the “Hartz proposals”, the framework conditions for the supply of temporary workers have been changed significantly. Since 01 January 2004, for example, there has been no limitation on the longest duration of leasing anymore; the prohibition of synchronisation and the re-employment band have been abolished. In parallel to this, the non-discrimination precept of the temporary workforce with the comparable permanent staff in the client’s company (equal pay/equal treatment principle) was introduced by law and the bargaining agents were granted the right to regulate the specifics of the temporary employment sector by negotiation.
This has happened in the meantime. iGZ, for example, has made a deal with the wage committee for temporary employment of all individual trade unions of the Confederation of German Trade Unions (DGB), which defines balanced work conditions for all parties. With the further AÜG reform in April 2011, necessary adaptions to the EU Directive Temporary Work, a generally binding minimum wage level were introduced as well as the so-called “revolving door effect” was eliminated, so that temporary employment cannot be abused for wage dumping.

Modern service
Our globalised economy of today cannot be imagined without temporary employment. Most companies now make use of this modern service, trend: upwards. Even the acceptance of this flexible way of working has become much better especially due to the conclusion of across-the-board collective wage agreements.

Normal working relationship
One thing is certain: Temporary employment agencies are run-of-the-mill companies. Temporary workers are run-of-the-mill workers. Other run-of-the-mill companies are dependent on the support of temporary employment agencies with their flexible temporary workers. Temporary work does not mean working temporarily, but different client assignments with no restrictions in time. Temporary employment is a three-way relationship between the temporary employment agency, the temporary worker and the client (the hirer). Temporary employment agencies assume all employer obligations, grant and pay for leave, pay social insurance contributions and tax on wages, and are also bound by all existing employment and social laws. Temporary employment agencies conclude a contract with the client companies covering the temporary worker’s job performance.

 

Source: iGZ

 

Employment relationship

What does a temporary employment relationship look like? Every quarter, the iGZ business barometer for small and medium-sized businesses collects data and facts from temporary employment agencies that are affiliated to the iGZ about their employees and the sector. The following pattern results from this:

 

 

Source: iGZ

Wages

Autonomy in wage bargaining prevails in Germany. This means that the so-called parties to the collective wage agreement i.e. the representatives of the employees (trade unions) and the employer (employers’ associations) are responsible for the layout of the employment contract including payment.

In collective wage agreements, these are regulated by the framework conditions of the employment and also wage increases. For temporary workers in Germany, it holds true that they have to be treated in the same way as a comparable employee in the client company – even when it comes to payment, unless a collective wage agreement applies to the temporary employment. Such a wage regulation currently forms the basis for almost all temporary employment contracts in Germany. Such a high pay commitment does not exist in any other sector in Germany.

Minimum wage

The basic wage for temporary employment is generally binding as a sector minimum wage, even for temporary workers loaned to Germany from abroad. This effectively rules out wage dumping.

At present, the following payment is stipulated for temporary employment in Germany as the minimum wage:

Sector-related extra pay

There are some sectors where there are noticeable differences between the payment to temporary workers and the so-called “permanent workforce” in the client company. For these sectors, sector-related extra pay scales have been agreed upon. The longer the employment lasts, the higher the sector-related extra pay is. They get closer to the wage level in the client company in five steps and within nine months and thus close the “wage gap”:

Collective agreement package

The iGZ DGB collective agreement package stipulates both the payment and many other issues regarding the employment relationship. The main wage brochure summarises, the framework payment agreement, the wage payment agreement, the master wage agreement and the collective wage agreement for securing employment.

 

Source: iGZ

How it works

Temporary work functions in a so-called three-way relationship. The vertices in this three-way relationship are

  1. the temporary worker
  2. the temporary employment agency
  3. the place of employment (also: client company)

The temporary worker has an employment contract with the temporary employment agency. The temporary employment agency is their employer – with all the rights and obligations resulting from this fact. This means, for example, that the temporary worker also receives their wages from the temporary employment agency.

The temporary worker does not, however, render their work performance at the employer’s premises but at the assignment company (or from the temporary employment agency’s point of view also frequently called the “client company”). They work there under the professional instruction of the superior on site. They more or less help the company out.

This assignment is regulated by law in a so-called “temporary employment contract”. It is concluded between the temporary employment agency and the assignment company. It regulates among other things how much the assignment company has to pay the temporary employment agency per hour for the assignment of the temporary worker. This amount is called “charge rate”.

The charge rate is always higher than the temporary worker’s wage, as the temporary employment agency has to cover, among others, the following costs from this income:

  • The temporary worker’s wages
  • The employer’s contribution to social insurance and the trade association
  • Reserves for leave and sick leave taken by the worker (during which there is naturally an entitlement to continued pay)
  • Reserves for “lease-free times”, i.e. phases where there is no assignment for the worker, yet they naturally still have entitlement to their wages
  • Costs for “internal staff”, e.g. the staffing managers that coordinate and accompany the assignment of the workers and try to acquire new assignments
  • Costs for wage accounting
  • General office costs (rent, electricity, telephone, paper, …)

 

Source: iGZ

Economic significance

Temporary employment exercises important functions for the economy and the employment market. Why do companies draw on temporary employment?

Flexibility as the assignment reason for temporary employment:

67 % (IW Consult, 2011)
68 % (Gesamtmetall, 2010)
87 % (Federal Ministry for Education and Research, 2010)

Costs as the assignment reason for temporary employment:

14 % (IW Consult, 2011)
15 % (Gesamtmetall, 2010)
11 % (Federal Ministry for Education and Research, 2010)

Significance for the employment market

Temporary employment is developing moderately in line with the general development of employment.

What functions does temporary employment fulfil for the employment market? – Temporary work brings people (back) to work. According to the Federal Employment Agency, two out of three temporary workers were unemployed before working for temporary employment agencies:

Temporary employment in Germany offers a high integration effect in work – also in comparison to other European countries

 

Source: iGZ

Legal foundations

The Law on Temporary Employment (AÜG) regulates the leasing of workers by employers (companies) “in the scope of the economic activities for work performance” (Section 1, Para. AÜG) – i.e. temporary employment. Among others, it lays down the following principles:

  • Licence obligation (Sections 1-3, Section 4 and 5): Temporary employment agencies need a so-called “licence to supply temporary workers”, which is initially issued for a limited period and which can then, after three years, be issued for an unlimited period.
  • Minimum wage (Section 3a): The AÜG permits the establishment of a “binding minimum wage” at the proposal of the parties to the collective wage agreement by the Federal Employment Agency. Use was made of this regulation included ex post for the first time on 01 January 2012. There has been a minimum wage for temporary employment ever since.
  • Collective wage exemption clause (Section10, Para. 4): In principle, a temporary worker must be treated (and paid) exactly the same as a comparable worker in the client company. Under the application of a collective wage agreement for temporary work, this can be deviated from. This regulations leads to a unique wage commitment of almost 100 percent in the German working world.

The entire AÜG can be viewed here: laws on the internet

 

Source: iGZ