Austria: Updated law against wage and social dumping comes into force

On 1 January 2017, Austria enacted a new law against wage and social dumping, updating (for the second time since 2015) regulations which first came into force in 2011. The law features the concept of customer liability and improves aspects of cross-border administrative prosecutions. However, its enforcement will depend on the cooperation of neighbouring countries.

Background

Austria first brought in a law against wage and social dumping in May 2011, at the same time as its labour market opened up to nationals from eight New Member States (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia). The law aimed to ensure that foreign companies would adhere to Austrian wage regulations and provide employees with wages according to Austrian minimum standards, thus preventing potentially unfair competitive advantages. It applied to domestic companies and to foreign employers (including temporary agencies) posting workers to Austria.

There were penalties for those who paid wages less than the Austrian national minimum wage or less than those provided for in collective agreements. These penalties aim to ensure fair competition between Austrian and foreign companies and to protect workers from underpayment. However, they were quite low (starting at €1,000 per each underpaid employee) and there were loopholes for companies which refused to provide wage documentation, as administrative fines issued for this were much smaller than the penalties for wage dumping.

The law was tightened in 2015, following the opening of the Austrian labour market to Bulgarian and Romanian nationals in 2014. The reforms meant that all the salary conditions of persons were subject to checks, including whether workers were classified correctly within the wage scheme (often, foreign skilled employees would be classified as unskilled labourers, thus receiving a lower wage than they were entitled to under the collective agreement) and whether overtime hours, night work supplements,  and 13th and 14th monthly wages had been paid correctly.

Under the 2015 amendment, the same fines applied to companies not supplying wage documentation as to those underpaying their workers. Also, employees were now automatically informed by the health insurance authorities if their employer had been found guilty of underpayment, thus enabling them to claim for outstanding wage components. Nonetheless, fines could often not be collected due to the lack of cross-country enforcement rights.

Uniform Act transposing the Enforcement Directive

In the most recent step, the updated law has, for the first time, been implemented as a standalone act (previously it was included in the Labour Contract Adaptation Act, AVRAG). The Law against social and wage dumping (LSD-BG) was issued in June 2016 and came into effect on 1 January 2017, and includes transposition of the Enforcement Directive (2014/67/EU).

Cross-border administrative prosecutions (on the grounds of infringements such as wage dumping) of employers posting workers to Austria have now been improved and accelerated to make it easier to enforce. However, this is dependent on other EU countries also implementing the directive.

Public authorities are obliged to cooperate with foreign administrative bodies in order to ensure compliance with labour law. Furthermore, use of the Internal Market Information System (IMI) is expected. According to the law, collective agreements now have to be made available in electronic format. This has already been implemented via a new website run by the Federal Ministry of Labour, Social affairs and Consumer Protection and the Austrian Construction Workers Leave and Severance Pay Fund (BUAK), which has a clear and detailed presentation in seven languages of the substantive entitlements of posted workers to Austria on wages, holidays and working time.

Several further improvements have been implemented under the new law.

  • Penalties for violations of the registration of employees have been doubled (up to €20,000 per employee). For recurring violations, a ban on services of between one and five years is to be enforced, depending on the severity of the violation. Managers and directors are personally liable for the penalties.
  • Registration and social security documentation for every employee are to be held ready for checking at the place of work; there is no longer a requirement to present them within one week of the check. Wage documents have to be in German; only the employment contract may also be in English only (and no other language).
  • Exemptions from registration and documentation obligations in intragroup posting (within a corporation) apply only to very well paid employees (with a monthly wage of more than €6,225 in 2017) and to the temporary posting of appropriately skilled employees for special purposes (for example, research and development, training, planned project activities, business consulting, sharing experience, controlling or collaborating with departments of the company group, for up to two months per calendar year).

Specific regulations for construction and transport industries

In the construction sector, a customer liability (for both private and public sector customers) was implemented in order to secure wage entitlements for posted employees. This enables posted workers to claim wage differences not only from their (foreign) employer, but also from their (Austrian) customer. Customers can be held liable only when, prior to hiring a company they knew (or should have known based on obvious indications) that the wage would not be paid or that underpayment would occur. This includes not only construction services, but also ancillary services such as painting or installation.

A pre-existing general liability of contractors for violations of regulations on the transfer of contracts, according to the Federal Procurement Act or on contractual limitations on the transfer, has tightened and now also applies to public clients.

In the newly implemented act, ‘transit traffic’ is for the first time explicitly regulated. Thus, activities including mobile workers or crew members in the cross-border transport of goods and people, whose usual place of work is not in Austria, are exempt from the act. At the same time, the act does apply to cabotage operations (that is, interrupted transit movements).

On 27 April 2017, the European Commission initiated an infringement procedure against Austria on the application of the act to the road transport sector. The Commission argues that the application of Austrian legislation to all international transport operations with unloading and/or uploading on Austrian territory disproportionally restricts the EU internal market. Upon receipt of this notice, the Austrian authorities have two months to respond. Similar infringement procedures against France and Germany are also ongoing.

Social partner reactions

The law against wage and social dumping came into force initially after the social partners had negotiated on the issue prior to the opening of the Austrian labour market in 2011. Before the latest amendments were presented in 2016, the social partners made detailed comments on the draft bill, as is their usual role in the legislative process. While there were no major disagreements with the law, nonetheless, the enforcement of penalties is dependent on the cooperation of neighbouring Member States. The effects of the new act will be seen in the coming months.

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