Germany: Staffing agencies may have to cough up billions of Euros

Staffing firms in Germany could be faced with paying hundreds of millions of Euros in back pay and social contributions. Here's why. In December, the labor court of Berlin declared that the minimum wages negotiated by the so-called Christian Unions (CGZP) on behalf of temporary employees null and void. The court argued that the CGZP is no longer allowed to negotiate collective bargaining agreements on behalf of temporary employees because they are not sufficiently representative of their members.

CGZP have been widely criticized as a representative of employers side rather than a real union and the conditions they have negotiated in the past on behalf of their members have consistently been worse than those negotiated by other unions.

According to German law, temporary employees are entitled to 'equal pay for equal work' unless there are specific collective bargaining agreements in place.

The country's highest labor court has not made a decision on the validity of existing CGZP temporary employment agreements. This part of the case will be decided by the labor court in Berlin. The two groups that may be most affected by this ruling are the roughly 1,100 member firms of the Employers' Association of Medium-Sized Personnel Service Companies (AMP) and the employers who used their services.

Should the Berlin court apply the federal labor court's ruling retroactively, 200,000 of the 930,000 agency temporary employees would be entitled to the last four years' difference between their pay and the equivalent pay a traditional employee has received during that time.

The worst case scenario is that they have to top up the wages and pay benefits for roughly 280,000 workers for four years, which may run into billions of euro. On the other hand, the best case set-up is that the courts simply prevent the CGZP from reaching collective agreement going forward.

But here's the issue for the end users of contingent labor. If staffing agencies do not have the funds to make back payments, or if they go bust, the user of the temporary employment service or client will have to pay. A lawyer who represents the temporary employer organization AMP told the media that "we are talking about the survival of several thousand employment agencies and their clients." This could mean the loss of 200,000 to 300,000 jobs.

Staffing agencies are anxiously awaiting the ruling.