Temporary Employment Agencies in a Bad Economy - DOC

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					         Temporary agency work and industrial
                 relations; Germany
   Beschäftigung bei Zeitarbeitsunternehmen in
As with other countries, Germany is witnessing an ongoing debate on employment with
temporary work agencies (TWAs) and its industrial relations consequences. This feature gives
an overview of the development, legal background and industrial relations consequences of
employment with temporary work agencies in Germany.

A brief history of employment at TWAs in Germany
The first German TWA was founded in 1960. In April 1967, the Federal Constitutional Court
decided on the preconditions for a regulated TWA industry. In 1969, the enterprise
organisation for TWAs Unternehmensverband für Zeitarbeit e.V. (UZA) was founded. In June
1970 UZA and salaried employed trade union Deutsche Angestelltengewerkschaft (DAG)
concluded the first collective agreement on temporary agency white collar workers. In August
1972, the Bundestag passed the Act on Temporary Employment Business
(Arbeitnehmerüberlassungsgesetz, AÜG). In 1976, UZA and another association of personnel
leasing companies merged into the Federal Association of Temporary Employment Agencies
(Bundesverband für Zeitarbeit, BZA) which is a member of the Confederation of German
Employers' Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA). In
1982, the Employment Promotion Act (Arbeitsförderungsgesetz, AFG) outlawed the leasing of
employees in the construction industry. In 1985, the Recruitment Promotion Act
(Beschäftigungsförderungsgesetz, BESCHFG) extended the maximum „hiring out‟-period to
one client was extended from three to six months. In January 1994, the maximum „hiring out‟-
period is extended to nine months. In 1996, a major reform of the Act on Temporary
Employment Business eased restrictions on employment at TWAs. This reform took effect on
1 April 1997.

Temporary work and the "flexible firm"
Temporary agency work can broadly be defined as a temporary employment relationship
between a temporary work agency, which is the employer, and a worker, where the latter is
assigned to work for, and under the control of an undertaking and/or establishment making
use of his/her services (the user company).

As many businesses are redefining the structure of their firms by moving to more flexible ways
of staffing, the utilisation of temporary workers increases. As opposed to the permanent core
workforce, using temporary workers serves the firm as a means of achieving numerical
flexibility, in order to:
 meet fluctuations in the product demand;
 supplement staff due to absences from work;
 reduce labour costs; and
 find employees with scarce skills which are only needed for a short period or special

Temporary workers create a buffer peripheral workforce as a hedge against market
uncertainty. Furthermore, since temporary workers are less likely to be trade union members
or covered by collective agreements, their use is also associated with low union influence.
Alternative ways for the firm to achieve numerical flexibility are the increased use of part-
timers, flexible working time arrangements, overtime and shift patterns, as well as
"outsourcing" strategies.
There are two types of temporary work: the first is associated with TWAs; the second involves
firms employing people on fixed-term contracts. This feature deals only with employment
through TWAs.

For employees, TWA employment as a "temp" may often be associated with lower than usual
remuneration and benefits, as well as less favourable employment conditions in terms of
employment duration, training by the company and opportunities regarding advancement in
internal labour markets. However, temporary employment may also provide an opportunity of
re-entering the labour market, acquiring on-the-job experience, and becoming acquainted with
a number of firms without having to switch companies. Long-term commitment is not an aim
of the employment relationship, neither by the employee nor by the hiring-out employer.

Extent of TWA employment in Germany
In Germany, the extent to which firms make use of TWA employees is increasing. A recent
survey reported that almost one in two employers had some experience with TWA employees.
BZA estimates that there are currently more than 400,000 temporary employees employed by
private temporary employment agencies per year (though the number in TWA work at any one
time are considerably lower - see table below). The respective figure for 1985 was 175,000
(western Germany only).

According to figures provided by the Federal Employment Service, on 12 December 1997
167,606 (+12.7%) people were employed at 2,870 temporary employment agencies (+14.8%).
By occupation, 41.6 % were metalworking industry production staff, 8.3% administrative staff,
and 25.6 % unskilled workers. Furthermore, 21.4% were female and 64.8% were previously
not in employment, 54.9% were unemployed. In 1996, the TWA industry turnover is estimated
to have amounted to DEM 6.6 billion. As a long-term trend, roughly 30% of TWA employees
are later recruited by user firms for permanent jobs.

                      Extent of temporary agency work in Germany

                        Number of employees at TWAs*                      Employed temporary

                  Eastern            Western              Total            agency workers in
                   Germany            Germany                                   Germany

1987                                                                                       73,083**

1989                                                                                      104,930**

1991                                                                                      133,734**

1992                     2,581            111,358            113,939                       140,579

1993                     4,024             93,628             97,652                       121,400

1994                     7,555            106,161            113,176                       138,451

1995                    11,630            136,534            148,164                       176,185

1996                    14,371            134,919            149,290                       177,935

1997                    17,092            162,558            179,650                       212,664

* Companies which main purpose is the hiring out of employees.

** Western Germany only.
Source: Bundesverband Zeitarbeit e.V; Federal Employment Service.

As regards the development of employment at TWAs in Germany, the number of people
employed at TWAs which main purpose is the provision of agency work services rose from
114,000 in 1992 to roughly 180,000 in 1997. The figures of people employed at TWAs is still
higher. The difference stems from the fact that business companies may have small TWAs in
order to eg provide flexible staffing to different establishments on demand. The people
employed in such companies are not included in the other figures.

Legal regulation of TWA employment in Germany
German labour law defines temporary employment (or the hiring-out of labour) as "a legal
relationship where a business lends temporarily an employee with whom it had concluded a
permanent employment contract to another employer while the legal relationship with the first
one continues to apply and the employee is obliged to work for the company and in line with
the instructions of the hiring-out employer".

The permanent employment relationship between agency and temporary agency worker is
governed by labour law including all regular social security provisions and additional
regulations of the Act on Temporary Employment Business (AÜG). Private temporary
employment businesses are governed partly by the AÜG and have to be approved by the
Federal Employment Service (Bundesanstalt für Arbeit).

The TWA employees have a permanent individual employment contract with the TWA, are
entitled to maternity, parental leave, continued payment of remuneration in case of sickness,
24 days of holidays (including Saturdays), social insurance and statutory redundancy
provisions. The contract has to include all major aspects of the employment relationship
including compensation, bonus payments, transportation expenses, the level of continued
remuneration in case of sickness, holidays, a specification of the services/work rendered and
working time. Flexible working time and working time account provisions may be agreed. In
case, the TWA has no work for the employee, the latter is entitled to receive full basic

In order to meet the increasing demands of the economy for flexible personnel, the following
major changes to Art. 3 § 1 VI AÜG came into effect on 1 April 1997, relaxing the legal
regulation of TWAs:
 private temporary employment businesses may hire out temps for up to 12 months. Before
  1 April 1997, the maximum period was nine months;
 it is now permissible to conclude a one-off fixed-term employment contract between a
  TWA and an employee, where the length of the fixed term is exactly the length of the
  period for which the worker is hired out to the user company ("synchronisation");
 the one-off conclusion of fixed-term employment contracts between hiring-out employer
  and temporary employee without an "objective reason" which is linked to the employee
  him- or herself, and the repeated conclusion of unbroken and subsequent fixed-term
  contracts, are allowed. Before 1 April 1997, fixed-term contracts without objective reasons
  were not allowed.

According to the BZA, these changes ease the entry of individuals in problem groups into the
labour market and increase their chances of getting a permanent job via temporary
employment. Furthermore, the changes mark a step towards equal opportunities for
temporary work agencies as compared with other service businesses. Following BZA, TWAs
hired 82,000 employees since the changes in law.

TWAs employment and industrial relations

Participation and co-determination

As regards participation and co-determination, the TWA employee remains a member of the
staff of the hiring-out firm and neither has a vote nor can be elected in works council elections
at the user company. However, he or she is allowed to make use of the works council
consultation hours, to attend staff meetings and to exercise individual rights pursuant to §§ 81,
82 I and 84 to 86 of the Works Constitution Act (Betriebsverfassungsgesetz)(Art. 1 § 14II
AÜG) at the user firm. The works council of the user employer has a right to co-determination
with regard to the permanent recruitment of formerly temporary employees (Art. 1 § 14III

As regards the introduction of temporary agency employment in the hiring out company, the
works council has to be consulted according to § 14 III AÜG.

Collective bargaining

Currently, employees with TWAs are not covered by collective agreements. The only
collective agreement ever concluded in this area in Germany covered clerical workers who
were represented by the salaried employees' union, Deutsche Angestelltengewerkschaft
(DAG). This agreement was struck between UZA and DAG in 1970. After almost two decades'
duration, DAG terminated the agreement on 31 March 1989. Subsequently, the BZA
recommended to its member firms to retain the previous collectively-agreed employment
standards. Since then, terms and conditions of employment are - under the governance of
German labour law - unilaterally decided by either individual employers or collectively by
member companies of the BZA. However, a number of TWAs have concluded works
agreements with their works councils.

It is not, though, necessarily the TWA employers which reject the conclusion of collective
agreements. Some companies, the most prominent of which is Manpower Germany, have
repeatedly declared their willingness to negotiate collective agreements, on the condition that
the agreement would take into account the peculiarities of the industry and would be declared
generally legally binding for the whole sector through the mechanism of the extension of
collective agreements (Allgemeinverbindlicherklärung). The intention would be to improve the
industry's image by forcing all companies to stick to the collectively-agreed rules, especially
those with a reputation for bad working conditions. However, there are problems in organising
companies with the necessary market share to meet the precondition for extension of an
agreement - ie that the agreement should cover 50% of the employees in the sector. To the
impartial observer, it might seem as if it were the German trade unions which were reluctant to
initiate and conduct collective bargaining.

Views of the social partners on TWA employment
In general, trade unions oppose the use of temps as short-sighted and destructive of
harmonious industrial relations. Furthermore, they criticise the fact that temps are not subject
to employee participation in the user company, and that they can be exposed to the unilateral
imposition of changes to their terms and conditions by the hiring-out employer.

In autumn 1997, the German Federation of Trade Unions Deutscher Gewerkschaftsbund
(DGB) published a report on employment with TWAs which criticised especially the following:
 the instability of the employment relationship and the high personnel turnover at TWAs.
  Employment contracts at TWAs are, on average, concluded for short periods. According to
  DGB information, no more than roughly one in three of all employment
 contracts at TWAs which were terminated in 1996 had been concluded for more than three
 substitution of permanent jobs in user firms by temps;
 poor pay - in 1995, average TWA employees received 63.4% of the pay of an average
  employee; and
 a trend in the direction of "precarious" work, especially as regards the integration of the
  TWA employees in companies' safety and health at work policies. Furthermore, the DGB
  accuses TWAs of relatively frequent breaches of labour law provisions on working time,
  payments for hours not worked, and the termination of employment contracts.
The main DGB demands are:
 stricter controls of private profit-oriented temporary work agencies;
 new laws that make sure that temps are covered by the same terms and conditions of
  employment (eg receive the same payments) as their counterparts at user firms;
 stricter regulations regarding work with TWAs; and
 a ban on temporary work in industries where temporary work is difficult to regulate and
  monitor. It is already banned in the construction industry.

As means of flexible personal deployment for employers and integration into the labour market
for employees, BDA approves and supports TWA employment. However, BDA demands the
removal of “pointless and regarding the current state of labour law inadequate regulation” of
employment at temporary work agencies, especially as regards the so-called ban on
synchronisation and the ban on reemployment. Both were anachronistic and kept TWAs from
creating jobs.

The TWA employment sector represents a "black hole" of non-unionised and non-collectivist
firms in contemporary German industrial relations. The reasons for this peculiarity are
complex and deserve further attention.

From the employers' perspective, there are several necessary conditions to be met relating to
the peculiarities of the industry in order to make collective agreements useful and effective.
The individual TWA employer operates in a market which is very competitive. This means
that, unless forced in other directions by law or trade union power, a firm would voluntarily
conclude company collective agreements only if its competitiveness would not be negatively
affected. As regards industry-level collective agreements, the necessary conditions are even
more difficult to meet. First, the agreement(s) must provide the necessary flexibility for
individual companies which is required by the market in which they operate. Second, one
might argue that the agreement(s) should cover the whole industry, possibly through the
mechanism of general and legally binding extension (see above), in order to avoid "free-riding"
by some companies. Third, since wage levels in TWAs are market oriented and thus closely
tied to the labour market situation, the agreement(s) should provide only for a framework and
leave the final pay determination to the individual firm. Fourth, since TWAs employ different
occupational groups, the agreement(s) should provide for enough flexibility regarding different
types of employees.

As regards the legally binding extension of collective agreements, owing to the insufficiently
high level of membership density of the TWA employers' associations, it seems highly unlikely
- as mentioned above - that any industry agreement concluded will meet the necessary
condition of 50% employee coverage laid down by Art. 3 I 1 of the Act on Collective
Agreements (Tarifvertragsgesetz, TVG).

From the unions' perspective, there are several obstacles to collective bargaining and
concluding collective agreements. To begin with, TWAs are very difficult to unionise. The
reason for this is not necessarily reluctance or resistance from the employer, but, more likely,
may result from the special characteristics of the employment relationship at TWAs and of
TWA employees. TWA firms are characterised by extremely high labour turnover rates and
low levels of commitment by employers and employees to a long-term employment
relationship. Furthermore, anecdotal evidence reports very individualistic personality traits
among employees who choose to work for a TWA. As a consequence, they might be less
inclined than other employees to join a union. Under such circumstances, recruiting and
retaining TWA employees poses a serious problem for trade unions. Lastly, TWA employment
is based on wage competition and thus must run counter to any trade union "equal pay for
equal work" policy.

All these reasons may, to a certain extent, explain:
1) the strong resistance of the German trade unions against TWA employment;
2) why there are no collective agreements for temporary workers; and
3) why it seems not very likely that there might be any collective agreements for TWA
   employees in the near future.

As the legions of TWA employees keep on steadily growing, so too does the "black hole" in
German collectivist industrial relations. (Stefan Zagelmeyer, IW)

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