Creating legal certainty for cooperation in agile working groups

Digitisation is changing our society rapidly, and it is about more than just the use of new technologies or the abandonment of paper. Companies must react flexibly to these challenges and change working methods in the long term. "Agile work" is the key word. One aspect of this is that many companies are becoming increasingly dependent on the knowledge of external IT experts in order to master complex tasks. However, the current legal situation poses risks for all parties involved when using such external specialists. Therefore, the deployment of independent IT specialists in agile teams, in particular, must be made legally compliant as quickly as possible. 

Agil stands for flexible, dynamic and fast. But what does agile working actually mean in everyday business life? In agile organizations, individually assembled work teams are often responsible for the final product. This means, among other things, that not one single manager decide exactly how, for example, software should look and who works on it and in what way. Rather, teams of highly specialized experts independently seek solutions, they try out, reject, learn, start over. Companies must first create the right conditions for this type of work – by putting together teams that have the necessary know-how and by providing the necessary equipment. Especially in their IT sector, however, companies often do not have a sufficient number of these usually highly specialized employees; such specialists are therefore usually employed as freelancers or via external service providers on a temporary basis. Against this background, the question of how these external experts can be deployed within companies for a limited period of time is becoming increasingly important in business practice. This is because labour and social law in Germany sets strict limits on the cooperation between permanent employees and self-employed service providers. In contrast to (management) consultants, for example, who are usually expected to achieve a clearly defined goal, IT experts are now often integrated into a team instead of regarding at their work from the outside like an external consultant.

Current legal situation results in high additional expenditure

However, the German Act on Temporary Employment (AÜG), which was amended with effect from 1 April 2017, sets (too) narrow limits for this. With this law, the Federal Ministry of Labour and Social Affairs (BMAS) at the time wanted to orientate temporary employment towards its core function and prevent the misuse of contract for labour. The law was thus intended to protect only those employees who are employed on so-called "sham contracts", without social security and at low wages, for example in slaughterhouses, logistics or the construction industry. 

It is undoubtedly right and necessary to take action against precarious employment relationships and illegal hiring of workers or bogus self-employment. The problem is that the legislator does not differentiate sufficiently between those who really need protection, who only appear to be self-employed, and genuine freelancers who earn well and can easily insure themselves and provide for their future. The latter group in particular includes IT experts who are often not interested in being permanently employed by a company. 

At present, such external IT experts can only be commissioned and deployed by companies in agile project teams with a great deal of bureaucratic effort. Among other things, companies must physically separate their own employees and external digital experts or take extensive measures to avoid giving the impression of an unacceptable integration into the company's operations, which is a characteristic of an employment relationship. This means a considerable additional expense for the companies and delays the development of new products.

Significant risks require companies to respond

If the German Pension Fund (Deutsche Rentenversicherung DRV) and the social courts classify a temporary cooperation between companies and freelancers as “Scheinselbständigkeit” for freelancers or if labour courts classify hiring of employees by service providers as illegal, there is a risk of considerable financial, criminal and image-related consequences, including

  • Up to 5 years imprisonment for the board or management
  • High fines and skimming of profits
  • Additional payment of social security contributions plus late payment surcharges (4 to 30 years retroactively) and additional payment of earning tax
  • Other consequences under tax law (incorrect tax return)
  • Exclusion from public tenders
  • Actions before the labour court to establish the existence of an employment relationship
  • Loss of reputation

Many companies have therefore drawn the consequences and developed very strict compliance requirements to avoid the appearance of freelancers being integrated. The problem is that such restrictive specifications mean that internal and external employees cannot work together as closely as would be necessary for an agile team. Many companies are therefore undecided on how to deal with this topic. innogy, for example, has set the standard to avoid mixed teams of internal employees and external experts, other companies define more or less extensive guidelines for cooperation, while others refrain from using agile methods for certain projects or transfer corresponding activities abroad. 

Germany's competitiveness is endangered

A permanent employment of IT experts is usually not an alternative for companies. Freelancers have often oriented their lives towards independence and do not want to change this status. In times of skill shortages, they can earn higher daily rates, which is why they often turn down offers of permanent employment. Nor does the supply of temporary workers under the German Law on Temporary Employment (Arbeitnehmerüberlassungsgesetz - AÜG) represent a suitable alternative. Many IT experts are convinced that they do not want to be employed by the client or a temp agency. In addition, the statutory maximum duration of 18 months under the current Law on Temporary Employment is too short for the implementation of some complex IT projects. 

As a result, it is already apparent that digital experts are migrating abroad in order to offer their know-how there and circumvent the legal and bureaucratic obstacles that exist in Germany. This development is particularly worrying as Germany currently does not play a significant role in the important digital markets of the future. Ultimately, this is where Germany's competitiveness in terms of digitisation is severely curtailed.

Digital working world needs a stable framework

Thus, the existing legal regulations in social and labour law, as well as the well-intentioned but too comprehensive Law on Temporary Employment, promote the migration of IT competence and deprive German companies of their competitiveness. The current situation is unsatisfactory both for companies that want to use agile working methods and for IT experts who want to offer their know-how. The government must find solutions here to strengthen Germany as a digital location.

There are several options that could help. A stable legal framework, with clear and reliable demarcation criteria, is crucial in order to be able to make the necessary distinction between those in actual need of protection in dependent employment or employment relationships and well-paid self-employed experts. One starting point for this would be, for example, to link the assumption of "genuine" self-employment to a certain income level. The aim must be that well-paid experts can be classified as self-employed by the client with legal certainty. 

In addition, understanding of agile working practices should be encouraged among audit authorities. Only by further development of existing test procedures and corresponding training of the responsible persons it is possible to evaluate agile working methods adequately. 

The current coalition agreement also offers another starting point, namely by introducing an obligation for a retirement insurance for the self-employed. "In principle, the self-employed person should be able to choose between the statutory pension insurance and – as an opt-out solution –  other suitable insolvency-proof types of insurance", the coalition agreement states (margin no. 4290ff). Of course, alternative forms of provision must guarantee a pension above the level of basic security. In this way, it would be possible to provide security and take a step against poverty in old age. The question of evasion of pension insurance contributions would then no longer arise. 

In any case, one thing is clear: The digital working world also needs the possibility of legally compliant deployment of IT and digitisation experts!

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