Employee Leasing Explained: The Contract Triangle and Where It Differs From a Contract for Work

Employee leasing (Arbeitnehmerüberlassung) under German law is a three-way contract structure: the agency (Verleiher) stays the legal employer and pays the wage, the client company (Entleiher) pays the agency a fee for the assignment and directs the worker's day-to-day tasks. That split — the party you owe wages to is not the party who tells you what to do — is exactly what separates it from a contract for work (Werkvertrag), where the contractor keeps the right to direct its own people and owes a result, not hours of availability.

This article covers the legal construction itself: the three-way contract and how it is distinguished from a contract for work, a contract for services, and genuine self-employment. A full walk-through of the German Temporary Employment Act (AÜG) paragraph by paragraph lives in our AÜG overview, the licensing process with the Federal Employment Agency in our piece on the leasing licence, and what happens when the line described here is crossed in our article on disguised employee leasing.

How is the three-way contract of employee leasing built?

Three parties, but only two actual contracts. The agency signs an employment contract with the worker and stays the legal employer — it pays wages, holiday pay, and continued pay during sick leave. The agency also signs a second, separate contract with the client company: the leasing agreement. Between the client company and the worker, no contract exists at all — yet there is a real, functioning right to direct the work, and that is exactly the statutory definition: workers count as leased for work when they are integrated into the client's work organisation and subject to its instructions (Section 1(1) sentence 2 AÜG. Source and as of: https://www.gesetze-im-internet.de/a_g/__1.html, accessed 10 September 2026).

The agreement between agency and client company needs text form, and it must explicitly label the arrangement as employee leasing and identify the specific worker before the assignment starts — not a formality, but its own statutory duty (Section 1(1) sentences 5 and 6 AÜG. Source and as of: https://www.gesetze-im-internet.de/a_g/__1.html, accessed 10 September 2026). Skip that label, and the consequence explained further down kicks in. The agency also generally needs a licence from the Federal Employment Agency before it can build this triangle at all — the application, cost, and duration are covered in our piece on the leasing licence.

Who is on the hook if the paperwork says one thing and practice says another?

One quirk of the leasing agreement: if the contract text and the actual conduct contradict each other, the actual conduct decides the legal classification — not the heading on the document (Section 12(1) sentence 2 AÜG. Source and as of: https://www.gesetze-im-internet.de/a_g/__12.html, accessed 10 September 2026). Calling a paper a "service agreement" offers no protection if, on the shop floor, workers are in fact being leased rather than commissioned. The same logic runs in reverse for the boundary with an employment contract: if actual conduct shows an employment relationship exists, the contract's label does not matter either (Section 611a(1) sentence 6 BGB. Source and as of: https://www.gesetze-im-internet.de/bgb/__611a.html, accessed 10 September 2026). Whoever asks which contract "really" applies never gets the answer from the title page — only from how the arrangement is actually lived.

How does employee leasing differ from a contract for work?

A contract for work (Werkvertrag) obliges the contractor to produce a promised result — that can be a physical item or "any other outcome to be achieved through work or services" (Section 631(1) and (2) BGB. Source and as of: https://www.gesetze-im-internet.de/bgb/__631.html, accessed 10 September 2026). What is owed is a result, not a set number of working hours. If the contractor deploys its own staff on the client's premises, it still decides how and in what order the work is done and assigns its own people; those staff are not organisationally integrated into the client's workflows, and the right to direct them stays with the contractor, who also carries the entrepreneurial risk and the warranty obligation for defects. That is precisely what separates third-party staff deployment under a contract for work from employee leasing.

And how does it compare to a contract for services and genuine self-employment?

A contract for services (Dienstvertrag) obliges a party to render the promised services, without owing any particular result (Section 611(1) and (2) BGB. Source and as of: https://www.gesetze-im-internet.de/bgb/__611.html, accessed 10 September 2026). A freelance service contract with a genuinely self-employed person differs from employee leasing in that the person is neither bound by employment-style instructions nor integrated into someone else's work organisation: a person only counts as instruction-bound if they cannot substantially organise their own work and set their own hours, and whether that is the case is decided by weighing all circumstances of the individual case (Section 611a(1) BGB. Source and as of: https://www.gesetze-im-internet.de/bgb/__611a.html, accessed 10 September 2026). The table below groups the criteria that actually get weighed in that assessment.

Why does this distinction fail so often in practice?

Because no single criterion decides on its own. A worker in overalls using the client's tools is not, by itself, proof of employee leasing; a neatly labelled "contract for work" is not, by itself, proof against it. Courts therefore weigh all circumstances of the case together — no single feature is decisive, only the overall picture of the right to direct the work, integration, whether a result or mere effort is owed, tools, and warranty (Section 611a(1) sentence 5 BGB. Source and as of: https://www.gesetze-im-internet.de/bgb/__611a.html, accessed 10 September 2026). In practice, the classification usually tips where a relationship set up as a contract for work or services is actually lived like ordinary team membership: the outside worker sits in the same meetings, takes tasks from the same manager as permanent staff, and uses their tools — at that point, regardless of the heading, it is employee leasing in substance. Add the missing label and missing licence, and it becomes disguised employee leasing; how that arises, how to spot it, and what it triggers legally is covered in our article on disguised employee leasing. For solo contractors, the identical test runs under a second name: false self-employment (Scheinselbständigkeit). Here too, the contract title decides nothing — what matters is whether the person genuinely operates free of instructions and as an independent market actor, or is in fact integrated like an employee.

What a wrong classification actually triggers is spelled out directly in the statute: if the contract between agency and worker is void — for instance because the agency lacked the licence, or the leasing was not explicitly labelled as required — an employment relationship between the client company and the worker is deemed to have arisen by operation of law, effective from the date the assignment was meant to start (Section 9 No. 1a in conjunction with Section 10(1) AÜG. Source and as of: https://www.gesetze-im-internet.de/a_g/__10.html, accessed 10 September 2026). The client company becomes an employer against its own intent — with all the duties it tried to avoid by structuring the arrangement as a contract for work or services in the first place.

This article frames the legal position based on the statutory text and does not replace individual legal advice.

Frequently asked questions about employee leasing

Who is actually the employer in the employee-leasing triangle?

The agency stays the employer throughout — it signs the employment contract with the worker and pays wages, holiday pay, and continued pay during illness. The client company never becomes the worker's contracting party, but it exercises the day-to-day right to direct the work. That split between contracting party and instructing party is the defining feature of employee leasing.

Does the agreement between agency and client company have to say "employee leasing" explicitly?

Yes. The law requires the agency and client company to explicitly label the arrangement as employee leasing before it starts and to identify the specific worker. Without that label, the employment contract between agency and worker can become void — which automatically creates an employment relationship with the client company instead.

What is the clearest difference between a contract for work and employee leasing?

Under a contract for work, the right to direct deployed staff stays with the contractor, who also sets the sequence of tasks and carries liability for the result. Under employee leasing, that right to direct sits with the client company, while the agency remains the employer but owes no warranty for the work outcome itself.

Is using the client's tools enough on its own to prove employee leasing?

No, not on its own. Tools and equipment are just one indicator among several in the overall assessment, alongside the right to direct the work, integration, whether a result or mere effort is owed, and warranty. Only the combination of these features decides how a court actually classifies the relationship.

What is the difference between disguised employee leasing and false self-employment?

Both rest on the same test — the right to direct the work and integration decide the real legal nature, not the contract title. Disguised employee leasing involves leasing dressed up as a contract for work or services with another company; false self-employment involves a single contractor who is, in fact, integrated like an employee.

Does every agency need a licence before it can set up this three-way contract?

Generally yes — commercial employee leasing requires a licence. Without it, the agreements between agency and client company, and between agency and worker, are void. The application, required documents, cost, and renewal are covered in detail in our piece on the leasing licence.