Labour Leasing (Staff Augmentation) Licensing Requirements under German Employment Law
Guest Article by Martin Halfmann, LLM | Employment Lawyer at Schlun & Elseven
German clients increasingly look to UK-based contractors to fill short-term gaps in specialist trades, from construction to engineering to marine crew. What is often missed on the UK side is that supplying staff into a German operation can trigger a licensing requirement that has nothing to do with immigration law and everything to do with how the arrangement is structured. Getting the classification wrong and thus not obtaining the labour leaseing permit is not merely a paperwork issue – it can make the lease contract void, create a “real employment” relationship nobody intended, and expose both companies to hefty fines or even criminal liability.
Staff Leasing Under German Law: The Basic Rule
Germany regulates the commercial supply of workers to a third party under the Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG). Under Section 1(1) AÜG, an employer that hires out its own employees to a client company, for the client to direct and integrate them into its operations, is engaged in staff leasing (Arbeitnehmerüberlassung) – and needs a licence (Erlaubnis) from the Federal Employment Agency (Bundesagentur für Arbeit) to do so lawfully.
Whether the AÜG applies at all to a UK company leasing staff to a German client is not entirely free of doubt, particularly where the work in question is actually carried out in the UK rather than in Germany. Where the leased worker is deployed and actually works on German soil, however, strong arguments support applying the AÜG in the same way as to a German staffing agency, and this is the assumption worth planning around.
Brexit changed the immigration and social security picture considerably, but it did not touch this underlying licensing question – the AÜG never distinguished between EU and non-EU lenders on this point. One consequence of the licensing regime is worth stating plainly rather than as a caveat: a UK company cannot obtain an AÜG licence at all unless it operates a branch, business unit, or subsidiary located within an EU or EEA member state – a UK-only operation will need to structure the arrangement through an EU-based entity rather than applying directly.
Even where staff leasing is properly licensed, the law imposes formalities that are easy to overlook: the contract between the lender and the client must expressly describe the arrangement as Arbeitnehmerüberlassung, and the specific worker being supplied must be identified before deployment begins. Treating this as a formality to tidy up later is itself a fineable oversight, independent of whether a licence is held.
Works Contract or Staff Leasing? The Distinction That Actually Matters
The AÜG does not apply to a genuine works contract (Werkvertrag) under Section 631 of the German Civil Code (BGB), where a contractor delivers a defined result and organizes its own personnel to do so. Many UK companies structure their German engagements as service or works contracts precisely to sit outside the licensing regime.
The difficulty is that German authorities and courts look past the label on the contract to what actually happens on site. The decisive factors are whether the workers are integrated into the client’s operational structure, whether the client – rather than the UK employer – gives them instructions on how, when, and where to work, and whether the UK company retains genuine organizational and commercial responsibility for the outcome. Project-related, outcome-focused direction under a works contract is permitted; day-to-day instructions of the kind a normal employer gives its staff are not. Where the reality on the ground looks like staff leasing, calling it a works contract in the paperwork provides no protection.
The Consequences of Doing It Wrong
Where staff leasing takes place without the required licence, the lending company can face a fine of up to €30,000 under Section 16 AÜG. A separate and considerably larger fine applies where a foreign worker who lacks the required residence title or work permit is deployed through the arrangement: up to €500,000 under the same provision – a figure that applies regardless of whether the underlying leasing itself was licensed, and that makes independent verification of each worker’s status a priority in its own right, not a secondary check. Where the deployment of an unauthorized foreign worker is done knowingly by the lending company, exposure escalates further to criminal liability under Section 15 AÜG, with custodial sentences of up to three years, and six months to five years in particularly serious cases carried out on a commercial basis or for gross self-interest.
The most consequential result, however, is civil rather than regulatory: where the arrangement is void for want of a licence, the law deems an employment relationship to have arisen directly between the worker and the German client from the point work began, regardless of what either side intended. The worker is entitled to at least the wage terms agreed between the lender and the client, and if the lender continues paying wages despite the arrangement being void, the lender and client can be held jointly and severally liable for shortfalls against what a valid employment contract would have required.
The UK-Specific Angle Since Brexit
For UK companies, the AÜG licensing question now sits alongside a separate immigration layer that did not previously apply. Workers supplied by a UK company into Germany are no longer covered by EU freedom of movement, so their own right to work and reside in Germany needs to be checked independently of the staffing question – particularly for non-UK nationals employed by the UK company, who will typically need a German visa or work permit in their own right, not merely UK immigration status. Given the scale of the fine attached to deploying an unauthorized foreign worker, this check is not optional paperwork – it stands alongside the licensing question as one of the two central risks in the arrangement.
A UK lending company should treat the two questions separately and in that order: first, whether the arrangement is staff leasing or a genuine works contract; second, assuming it is staff leasing, whether a licence is held – bearing in mind that a UK-only operation cannot hold one directly and will need an EU or EEA branch or subsidiary to apply through – and whether each individual worker has independent authorization to work in Germany.
Applying for and Maintaining a Licence
A licence application is made in writing to the Federal Employment Agency and can be refused on reliability grounds, including a poor record of compliance with social insurance, wage tax, placement, immigration, health and safety, or employment law, or where the applicant is not organizationally capable of fulfilling ordinary employer duties. The first licence granted is limited to one year and renews based on an extension application for a further year unless refused; only after three consecutive years of licensed operation can an unlimited licence be granted. Ongoing obligations include respecting the maximum assignment duration – 18 consecutive months to the same client, extendable only where a specific collective agreement provides for it – and granting leased staff the equal treatment (Gleichstellungsgrundsatz) the client’s own comparable employees receive, including pay, subject to limited and time-bound collective agreement exceptions.
Checklist for UK Companies Supplying Staff to Germany
- Establish, in substance and not just in the contract wording, whether the arrangement is a works contract or staff leasing.
- If it is staff leasing, confirm whether an AÜG licence is already held before any worker is deployed.
- Check the individual work authorization status of every worker being deployed – the fine for getting this wrong is separate from, and far larger than, the fine for unlicensed leasing itself.
- Confirm the leasing contract expressly labels the arrangement as Arbeitnehmerüberlassung and identifies the specific worker before deployment.
- Review the 18-month maximum assignment duration and equal treatment obligations if a licence is in place.
- Take advice before assuming a “consultancy” or “services” label is sufficient to avoid the licensing regime.
The German law firm Schlun & Elseven Rechtsanwälte advises UK and other international companies on the classification of cross-border staffing arrangements, AÜG licensing applications, and the related immigration requirements for workers deployed to Germany.
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