Germany: Reforms to temporary agency work law and company pensions

The last few months saw legislative progress in two areas: temporary agency work and company pensions.

• The German Federal Ministry of Labour presented a draft bill regarding the reform of the German Act on Temporary Agency Work and other laws. This law is to take effect on 1 January 2017. The draft bill provides for the introduction of a maximum hire period (subject to deviations permitted in the case of collective agreements). If the maximum hire term is exceeded, an employment relationship with the hiring business is deemed to arise, provided the temporary employee does not object to this.

  Currently, it is expected the draft bill will be agreed by the German Federal Government (Bundeskabinett) on 9 March 2016. Employers should keep an eye on progress and, once the new law has been approved, temporary agencies and employers hiring temporary agency workers should assess whether their business model still complies with the new requirements, particularly in terms of the maximum hire period.
   

• In late December 2015, the German Federal Council approved the law for the transposition of the EU Mobility Directive 2014/50/EU into national law, to take effect by early 2018. Among other things, the employer-funded company pension entitlements are to reach the status of vesting after only three years (instead of five years under the existing rules), if employees have completed their 21st year of age by that time. Moreover, an adjustment of pension rights of former employees with vested pension rights, a regulation on paying-off of minimum pension rights and detailed employers' information obligations have been set forth. The adjustment will apply to pension schemes which provide for a calculation of pension benefits on the basis of the salary received by the employee at the time of his/her retirement (e.g. 5% of the remuneration received at the age of 67). 

  Companies may face additional costs once these changes come into force and may therefore want to review their pension schemes and decide whether to adjust them for new hires. They may also wish to assess the impact of the adjustment to former employees' rights and consider whether changes to schemes are required and legally feasible.

For more detail on these and other recent developments in Germany, please see our EPI Germany E-bulletin. Please contact Nathali Palencia if you would like to receive future issues of our EPI Germany E-bulletin.