CWS 3.0: March 29, 2011 - Vol.3.8

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Behind the News: Europe

The decision by the highest labour court in Germany (BAG) to force staffing companies who were members of The Association of Medium-sized Temporary Employment Agencies (AMP) to retroactively pay millions of Euro in social security and pension contributions by the end of May 2011 may face further legal challenges.

The issue is of particular interest to employers in Germany because, if the temporary employment agencies in question are not able to meet these payments, their clients will be expected to pay instead.

The Pensions and Social Security institutions have already signaled that fines will apply if temporary employment agencies don't pay up on time. However, despite the Government's hard-line stance, it seems likely that further legal challenges will be mounted by the staffing companies affected, which means the May 2011 deadline is unlikely to be the end of this issue.

BZA is the Association of Temporary Employment Agencies whose members (including Adecco, Randstad and Manpower) were not affected by this ruling as they had signed different collective bargaining agreements with the Federation of German Unions (DGB). However, BZA Vice President Thomas Bäumer says, "the temporary employment agencies in question should come to an amicable out-of-court settlement. It will be impossible to determine the difference between equal pay for equal work and the lower negotiated wages in each temporary employee case."

"Without a settlement there is also likely to be a wave of law suits because many temporary employment agencies will try and defend themselves in court," Bäumer states.

According to German law, temporary employees must receive equal pay for equal work unless a collective bargaining agreement with a representative union says otherwise. The AMP had signed collective bargaining agreements on behalf of its members with the Christian Unions (CGZP) establishing the level of pay for temporary workers.

However, the labor court in Germany has subsequently declared that the CGZP is non-representative, nullifying the agreements. An estimated 1,400 small and midsize temporary employment agencies are now being asked to pay the difference between equal pay and their negotiated salaries as well as the difference in social security and pension contributions going back to 2005.

The umbrella organization for German employers' associations, BDA, believes many temporary employment firms will not be able to pay, and predicts a number of insolvencies over the next few weeks. This will then put pressure on employers, who will then be legally obliged to make up the discrepancy in pay and social contributions. Previous estimates put these outstanding social contributions alone at a total of euro2.4 billion (US$3.4 billion) while the retroactive difference in pay for temporary employees is also estimated to amount to billions of euros.

While employers may be relieved if further legal challenges to this decision are mounted, it will mean that the issue will rumble on for some time now and an extended period of uncertainty is the only likely outcome.

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