Employee Leasing

(Published on Fortunegreece.com and BussinessNews.gr)

Employee Leasing

Ι.  Introduction

Under an employment contract, employees have an obligation to provide their work to an employer, who shall pay an agreed salary (CC 648). As in other contracts, in employment contracts, the contractual relationship is not always presented in its standard (bilateral) form, as the intervention of a third party is not uncommon.

ΙΙ. The concept of employee leasing
Employee leasing (assignment) is a triangular relationship between an employer, an employee and a third party, which is established by the conclusion of a contract between the employer and the third party, stipulating that the employee is leased (“assigned”) to the third party, thus provisionally working for him and not for the employer. Since employment relationships are of a personal nature (CC 651), an agreement to lease an employee to a third party is permissible and lawful only if the employee’s consent is provided in any way, express or implied, either in the original employment contract or subsequently, in view of the specific leasing (CC 361).
The leasing agreement between an employer and a third party, functions alongside with the employment contract, which in principle is not affected. The contracted employer continues to be the original employer, who essentially retains all the obligations and rights arising from the employment contract (e.g. obligation to pay a salary, withholding and payment of insurance contributions, right to terminate the employment contract, and so on). The third party, being the recipient of the employee’s work during the leasing period, is the person exercising the managerial right, always within the limits stipulated in the employment contract. The fact that the employee provides his work to the third party rather than to the employer creates – unless otherwise agreed – a set of obligations of the third party towards the employee (e.g. welfare obligation, obligations arising from occupational accidents suffered by the employee during the leasing period, and so on).

ΙΙΙ. Forms of leasing – Legal framework

In practice, employee leasing assumes one of the following forms:

  1. Genuine or occasional leasing: By mutual agreement or following his consent, an employee recruited by the original employer to provide work to the latter provides his work to a third party (leasing firm) for a temporary period and only to cover, as a rule, emergency and occasional needs. The most common case of genuine leasing is that agreed between related companies of the same group[1]. The duration of leasing is agreed between all three parties (the employer, the employee and the third party) or between the employer and the third party with the employee’s subsequent consent.
  1. Non-genuine or professional leasing: The employee’s original contract provides that the employee will not provide his work to the original employer but is hired to provide his work to third parties indicated by the original employer. The original employer is an undertaking whose business purpose is specifically to lease employees to third parties (“Temporary Employment Agency”).

 

2.1 Legal framework: This case of leasing was regulated in Greece initially with L. 2956/2001, which laid down the conditions for the establishment and operation of “Temporary Employment Agencies”, defined the concept of temporary employment and regulated the relations of the parties involved. Subsequently, Law 4052/2012, which transposed Directive 2008/104 into Greek law, repealed the previous Law 2956/2001.

The main changes brought about by Law 4052/2012 to the pre-existing regime under Law 2956/2001 were, inter alia:

  1. the recognition of the right to operate a temporary employment agency to natural persons,
  2. the possibility of establishing a temporary employment agency with the announcement alone of this activity to the competent Authority, without requiring a special permit henceforth, and
  3. the choice of any corporate type (under Law 2956/2001, the only permissible corporate type was that of the société anonyme).

Subsequently, under Law 4093/2012, the requirement for a minimum capital of one hundred, seventy-six thousand and eighty-three euros (176,083.00 €), initially stipulated in Law 2956/2001 and maintained under Law 4052/2012, was abolished; thus, the general rules of law for commercial companies are followed in terms of the amount of capital, on the basis of the corporate type chosen each time.

 

2.2. Temporary Employment Agencies (TEAs) – Direct Employer: A natural or legal person whose business purpose is to provide its employees for employment by another employer (indirect employer) in the form of temporary employment.
TEAs may not engage in any activity other than the above, with the exception of: a) mediation for finding a job, the opening of which has been announced at the Employment Directorate, when engagement in this activity has not been prohibited; b) assessment and/or training of human resources in accordance with the provisions in force; c) advisory and vocational guidance, in accordance with the provisions in force.
Leasing employees/providing temporary employment without meeting the above legal conditions, constitutes an illegal act and leads to the following penalties:
In accordance with the provision of article 128 of L. 4052/2012, a fine is imposed for any infringement of the provisions regarding the establishment and operation of Temporary Employment Agencies, ranging from three thousand (3,000) euros to thirty thousand (30,000) euros, depending on the category and seriousness of the infringement. In particular, natural or legal persons found to be engaged in the business of temporary employment without having made an appropriate announcement of their business to the competent administrative authority shall be imposed with: i) a fine of ten thousand (10,000) euros; and/or ii) temporary interruption of operation up to three (3) days; iii) temporary interruption of operation for more than three days or permanent cessation of operation.
In addition, anyone who puts into operation or operates a TEA without having properly announced said business to the competent administrative authority or operates in violation of the legal requirements, shall be punished by imprisonment of up to two (2) years and with a monetary penalty.

2.3 Relationship between the TEA (direct employer) and the employee: Providing employment in the form of temporary employment requires a prior written fixed-term or open-ended employment contract, drawn up between the T.E.A. (direct employer) and the employee; such contract must necessarily indicate the terms and conditions of employment and the duration thereof, the conditions of employment at the indirect employer(s), the conditions of employee remuneration and insurance and so on.
The duration of the employee’s placement with the indirect employer, including any renewals made in writing, may not exceed thirty-six (36) months; if this is exceeded, the existing contract shall be converted into an open-ended contract with the indirect employer.
The contracted employer continues to be the TEA, which retains all the rights and obligations of the employer (e.g. obligation to pay a salary, right to terminate the contract, and so on). The law, however, taking into account the particularities of temporary employment and in order to protect the employees’ rights, stipulates that the TEA and the indirect employer are jointly and severally liable towards employees for the satisfaction of their salary-related rights and for the payment of their insurance contributions. This liability of the indirect employer is suspended, if the contract stipulates that the person liable for the payment of remuneration and social security contributions is the direct employer and the employee’s salary-related and social security rights can be satisfied by the forfeiture of the letters of guarantee under article 126 of Law 4052/2012 (subsidiary liability of indirect employer).
The principle of equal treatment imposed by the law for the protection of temporary employees, is of fundamental importance. In accordance with article 117 of L. 4052/2012, “the basic working conditions for employees under temporary employment contracts or relationships, including remuneration, when assigned to an indirect employer must be at minimum the ones that would apply if this employer (the indirect employer) had directly recruited the employees for the same position”.

 

2.4 Relationship between the TEA and the indirect employer: A service provision contract is concluded between the TEA (direct employer) and the indirect employer, under which the TEA undertakes to assign its employees, with whom it is associated via a temporary employment contract, to the indirect employer, in order to provide the latter with their work, while the indirect employer undertakes to pay a fixed percentage on the cost of the temporary employees’ work as remuneration for the finding of staff, their education or training and the management of procedures for the recruitment, insurance and payment of employees. As a rule, the TEA’s remuneration includes the cost for the assigned employee’s remuneration and for the overall management of the employment relationship (insurance contributions, training costs, etc.), as well as the business profit of the TEA. It is worth noting that the TEA’s obligation under the above contract concerns the assignment of staff with the necessary and appropriate qualifications for the performance of the agreed work. As a result, the TEA is not responsible for any defective performance of the obligation to provide work by the employee and is responsible only for the supply and selection of staff suitable for the agreed position throughout the assignment period.

2.5 Relationship between the employee and the indirect employer: The key characteristic of the relationship between an employee and an indirect employer is the lack of a contractual association. The employee is contractually associated only with the TEA. In accordance with the most widely accepted view, the employment contract between a TEA and an employee is a genuine contract in favour of a third party and therefore the indirect employer directly acquires an immediate and independent right to claim from the employee the performance of his service (CC 410 et seq.).
As mentioned above, the fact that, during the performance of his work, the employee forms part on the business of the third-party undertaking creates a network of rights and obligations between the employee and the indirect employer.
One of the most important ones is that, following the assignment of the employee, the indirect employer is the one exercising the managerial right, always within the limits of the employment contract.

IV. Grey areas: Works contracts that conceal illegal temporary employment

1.1 Contemporary economic life has seen a marked rise in assignments to third parties, under works or service provision contracts, of specific activities and functions of an undertaking, which were previously carried out by departments of the undertaking itself and its own staff (“outsourcing”). Such activities are for example cleaning services, IT services, building guarding and security services, etc. More and more often, in practice we see third-party contractors performing the assigned activities with their staff in the undertaking’s premises (“in-house – outsourcing”).
1.2 Legislative restrictions, provisions on employee protection and the recognition of the liability borne by the undertaking to which the employee is assigned, have created a “shift from temporary employment towards works contract”, which in practice comes in two forms:
a) many undertakings – recipients of services under the guise of a works contract are in reality recruiting staff instead of outsourcing a particular project. The ultimate objective is to avoid the obligations of the indirect employer in the case of a temporary employment contract (e.g. subsidiary liability for the employee’s salary-related rights, conversion of the contract into an open-ended contract with the indirect employer, principle of equal treatment, and so on),
b) in the opposite case, undertakings acting as service providers lease employees to other undertakings without complying with the legal conditions for establishing a TEA, through merely titular works contracts. The ultimate objective is to avoid complying with the provisions regarding the conditions for the establishment and operation of TEAs.
1.3 The distinction between works contracts and staff assignment contracts is of critical importance in this problem. We will try to present some indicative criteria that will make it easier to distinguish between these two types of contracts:

   a) Exercise of managerial rights

In the case of professional employee leasing, the staff made available by the TEA becomes fully part of the business of the third party – indirect employer and is subject to its managerial right. On the other hand, in the case of a works contract, the employees, as servants of the contractor, are fully and exclusively subject to the contractor’s managerial right, being a “foreign body” in relation to the third contracting undertaking.

   b) Liability for damages caused by staff during the performance of the work

As mentioned above, the TEAs’ responsibility is limited to the selection and supply of staff suitable for the agreed position throughout the leasing period. The TEA does not bear responsibility for any defective performance by the employee. On the contrary, in works contracts, the contractor bears responsibility for damages caused by its staff during the performance of the work and for any defects or shortcomings in the works.

   c) Existence of organisational structure, know-how and equipment

Temporary Employment Agencies are legally permitted to have a specific and strictly defined business purpose, primarily consisting in the selection and supply of staff to third-party undertakings. Contrariwise, contractors have an independent business organisation that makes it possible to carry out business operations that are not strictly limited to the assignment of staff, but extend to other purposes, which require specific logistical infrastructure and know-how.

   d) Works performed, distinct from the products or services of the third party

In the case of professional employee leasing, the subject of the temporary employment contract is essentially the supply of labour power, which can be channelled and integrated into the overall productive activity of the company without distinction from the services or products of the third-party undertaking (e.g. an employee employed as a manager’s secretary). On the contrary, the work undertaken by a contractor and the services provided by its staff concern a specific and distinct result, which can potentially be “detached” from the products or services of the undertaking.

V. Epilogue

Employee leasing, and in particular professional employee leasing through Temporary Employment Agencies, is undoubtedly a flexible form of employment with many advantages for businesses. Both Greek and EU legislators have taken significant steps to mitigate the dangers that this form of employment implies for employees. However, it is the responsibility of businesses and legal society, in general, to act in such a way that the provisions on employee protection are applied strictly in practice, without undue circumventions.

[1] See in this regard P.D. 219/2000, which transposed into Greek Law Directive 96/71/EC of the European Parliament and the Council of 16 December 1996, concerning the posting of workers in the framework of the provision of services, into Greek law.

 

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