ECJ: Deviation from the principle of equality
22 December 2022
For more than 20 years, the principle of equality has been one of the fundamental principles of German temporary employment law. In very simplified terms, it states that temporary workers must not be placed in a worse position than the (permanent) employees of the company in which they are deployed. In its details, the principle of equality has undergone repeated changes in the past. Since 2008, it has been enshrined at European level in the Temporary Agency Work Directive (Directive 2008/104/EC). In its ruling of December 15, 2022 (C-311/21, "Time Partner Personalmanagement GmbH"), the European Court of Justice (ECJ) has now clarified an extremely relevant issue in connection with the application of the principle of equality, which is likely to have far-reaching consequences for the German temporary employment practice. Specifically, it concerns the question under which conditions the principle of equality can be deviated from by collective agreements.
Legal starting position
Section 8 para. 2 of the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz "AÜG") allows a collective agreement to deviate from the principle of equality. Within the scope of such a collective agreement, temporary workers can therefore also be employed under less favorable conditions than the (permanent) employees of the hiring company. In particular, lower remuneration may also be paid - at least for a limited period of time.
This power to deviate has to be seen against the background of Art. 5 para. 3 of the Temporary Agency Work Directive. According to it, the member states can give the social partners the opportunity to conclude collective agreements that deviate from the principle of equality while respecting the overall protection of temporary workers.
Background to the decision
The focus of the current decision is the concept of "overall protection of temporary workers". The German Federal Labor Court (BAG) had submitted several questions to the ECJ in this regard.
The starting point for the current ECJ decision was a lawsuit filed by a temporary worker who was employed by a temporary work agency for a limited period of four months and was deployed in a retail company during this time. There, her gross hourly wage, which was paid to her on the basis of a collective agreement applicable to the temporary work sector, was approximately EUR 4.00 below that of comparable permanent employees. With her lawsuit she sought payment of the difference in remuneration.
ECJ: Deviation only if compensated by advantages elsewhere
The ECJ has ruled that the "overall protection of temporary workers" requires that unfavorable deviations that a temporary worker has to accept in one place compared to permanent employees must be compensated by advantages in another place. While there may well be differences between temporary workers and permanent employees in individual working conditions, an overall comparison of working conditions must not result in a deviation to the detriment of temporary workers or, to use the words of the ECJ, any unequal treatment must be neutralized.
The overall comparison covers all essential working conditions within the meaning of the Temporary Agency Work Directive, i.e. duration of working time, overtime, breaks, rest periods, overtime, vacation, days off and pay. On the one hand, this means that "only" deviations in these working conditions must be compensated. On the other hand, however, it is also necessary that the compensation lies precisely in advantages in these working conditions. Lower pay, which according to the ECJ Advocate General's Opinion "must be justified in the strictest terms", could therefore be compensated for by additional vacation days, for example.
Job-related standard of comparison
The comparison is based on the working conditions of comparable permanent employees in the hiring company. For each job to be filled by a temporary worker, it must therefore be checked separately to what extent the employee's working conditions differ from those of the permanent employees in this job and how any differences can be compensated. Besides the additional work involved - in the case of a wide range of assignments, the review will probably have to be carried out several times - it may not be possible in some cases to determine the comparison group among the permanent employees without further ado, for example if the activity to be performed by the temporary worker is not carried out by permanent employees at all or if the working conditions of the permanent employees differ from each other. In addition, the “value” of the working conditions to be compared can hardly be determined with certainty, also because the ECJ failed to provide more detailed criteria here. For example, how many days of additional leave would be necessary to compensate for a 10% reduction in pay?
Full judicial review?
In the event of a dispute, it is up to the (labor) courts to determine whether the compensation in the collective bargaining agreement is correct. They must determine whether the collectively agreed working conditions take sufficient account of the "overall protection of temporary workers". The difficulties mentioned above arise again here. Particularly with regard to the “value” of the working conditions to be compared, courts may have their own ideas about what is "worth" which deviation and which advantage granted in return.
This problem is intensified by the fact that the ECJ leaves very little room for the parties to the collective bargaining agreement to make an assessment, which is in itself also recognized at the European level. Although the ECJ expressly takes up and confirms the prerogative of the parties to collective agreements in determining working condition, the ruling reads as if it were no longer relevant to the question of whether deviations to the detriment of temporary workers are sufficiently compensated. What exactly is to be understood by "effective judicial control", as required by the ECJ, can therefore not be fully clarified. However, what is certain is that the ECJ does not grant the same far-reaching prerogative to the parties to collective agreements as they enjoy under the case law of the German Federal Labour Court. If the parties to the collective agreement make use of the opportunity of deviation, there is therefore a considerable risk that a court will base its review on a different “value” of the working conditions to be compared than the parties to the collective agreement did when they concluded the collective agreement, and thus deem the compensation to be insufficient.
Deviation in the remuneration of temporary workers employed for an indefinite period still possible without compensation
The "overall protection of temporary workers" must be observed for all temporary workers, regardless of whether they are employed by the temporary work agency for a limited or unlimited period. In principle, deviations from the working conditions of permanent employees are therefore only permissible for all temporary workers in return for compensation.
However, an exception may apply in the case of deviations in the remuneration of temporary workers employed by the temporary work agency for an indefinite period. In this case, Art. 5 para. 2 of the Temporary Agency Work Directive gives the member states the option to allow deviations from the principle of equality provided that the temporary workers continue to be paid in the period between the assignments. There is no need to respect the "overall protection of temporary workers" in this context, since continued payment of wages during non-assignment periods is not taken for granted in most European countries - in contrast to the German temporary work model - and thus represents sufficient compensation in the opinion of the European legislator. Sec. 8 para. 4 of the German Temporary Employment Act restricts the collective bargaining parties' right to deviate from the pay agreement in the first nine months of the assignment; this period can be extended to up to 15 months if payments are gradually brought up to the pay level of permanent employees. Insofar as a collective agreement complies with the personal (only temporary workers employed for an indefinite period) and time requirements (in principle no longer than nine months, in exceptional cases up to 15 months), it does not conflict with European law. There is, therefore, no reason - even without separate compensation - to not apply it.
It is also conceivable that the continued payment of wages may also compensate for deviations, for example in pay, in the case of temporary workers employed for a fixed term. The ECJ does not rule out the possibility of taking continued payment of wages during non-working periods into account when assessing adequate compensation. But here, too, there are problems in reliably determining the relationship between the “value” of remuneration and continued remuneration, whereby the “value” of continued remuneration is likely to be determined to a large extent by the duration of the (fixed) term of the agency worker’s employment contract with the temporary work agency. Thus, continued remuneration will not have any significant compensatory value in the case of short time limits or time limits for the planned duration of the assignment, as temporary workers are unlikely to benefit from continued remuneration in this case.
With its ruling, the ECJ poses major challenges for the temporary work industry. Their collective agreements, which probably contain sufficient compensation benefits in exceptional cases at best, will have to be adapted for the future - with all the practical difficulties and legal uncertainties that this entails. It, therefore, can only be hoped that the German Federal Labour Court will take account the parties’ to collective bargaining agreements prerogative in determining working conditions, which is protected by the autonomy of collective bargaining, when it comes to judicial review of the compensation, although this will probably only be possible to a limited extent in view of the ECJ ruling. In any case, the parties to the collective agreement should explain and document the considerations on which they base the compensation in a comprehensible manner so that they can later convince the court of the appropriateness of the compensation in the event of a judicial review.
For the past, temporary work agencies must be prepared for claims for outstanding compensation, at least from their fixed-term employees. However, in the case of an (effective) exclusion clause in the collective agreement and/or employment contract, this risk is generally limited in time to a few months. However, there is the risk of having to pay social security contributions on the outstanding remuneration for the past four years without being able to recover the temporary worker’s half of the social security contributions. This risk equally affects the hiring company, which is also liable to pay the social security contributions in addition to the temporary work agency.