Cross-Border Employee Leasing – Even More Red Tape for Employers of Record

What the ELA Says About Authorisation

• As a general rule, the ELA only applies in Germany under the territoriality principle. The Employee Leasing Act applies if the assignment is relevant to the domestic market. For example, it applies to an assignment in Germany and to assignments that cross borders into or from Germany.
• If a foreign provider hires an agency worker to work exclusively abroad for a Germany-based client, the ELA doesn't apply and the foreign provider doesn’t need to get an ELA permission. That's been the general view and practice of the Federal Employment Agency up until now.
• Given all this, there's been a growing interest in the model of purely virtual collaboration between skilled workers in Germany and abroad as a way of getting skilled workers from abroad on board, particularly recently. In particular, this was a popular way for companies to get the IT expertise they needed. From a legal standpoint, this was also fine. As long as the specialist worked exclusively from abroad, the ELA didn't apply.

Agency Now Extends the ELA to Cover Employees that Virtually Work for a Germany-based Hirer

• The agency is now expanding the ELA’s geographical scope in its revised instructions and confirms a domestic connection if an agency worker works virtually for a Germany-based client from abroad.
• It’s questionable whether a domestic connection can be established if the person from abroad works virtually for a company in Germany. This seems to go against the territoriality principle.
• Also, it’s unclear what is meant by “virtual activity”. What virtual activity is required? Is joining video calls and emailing enough?

What This Means for Foreign Providers, EORs and their Germany-based Clients

• The agency’s technical instructions are internal regulations that only bind the agency in its administrative actions and otherwise have no legal effect outside the agency. In practice, though, they're pretty important. The agency makes the call on whether a situation is subject to authorization under the ELA based on its technical instructions and can take action against the companies involved. Courts often look to the instructions for guidance, too.
• Including virtual activities from abroad will pose challenges for EOR service providers. If an EOR provider hires skilled workers abroad and they work virtually for a client in Germany, this may be enough for a license requirement. But many, if not most, EOR providers from abroad are unlikely to have an ELA license.
• If a company in Germany hires an agency worker without a license, it’s an administrative offense. The fine for EOR and the German hirer can be as high as €30,000. While the foreign provider may not be concerned that the agency can recover this fee from them in a foreign country, they have a stake in this because they want to offer their customers in Germany a legally compliant service.

With the new rules in place, foreign providers, EORs and German client companies will need to take a closer look at how deep their cooperation goes, especially in terms of how integrated employees employed by providers or EORs are. It's a good idea for providers and EORs based in the EU to apply for ELA permission in case. This isn’t possible for non-EU providers and EORs.