Law against wage and social dumping, Austria

About

Country: 
Austria
Sectors: 
All
Target Groups: 
employers/purchasers

 

On 1 May 2011, the seven-year transitional period banning workers from eight new central and eastern European Member States from entering the Austrian labour market ended. In order to prevent social and wage dumping, a law bringing in stricter controls and penalties for these offences was introduced. However, the law leaves a loophole for companies refusing to disclose wage documentation. Administrative fines for this offence are much smaller than are the penalties for wage and social dumping.

 

Background

In May 2011, the transitional period for workers from eight new eastern and central European Member States that joined the EU in May 2004, and for which access to Austria’s labour market had been restricted (AT0403201N), expired. With the opening of the labour market for employees and employers from the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia, it was anticipated that wage and social dumping might occur on a large scale. This could involve both domestic and foreign companies in the following two ways:

  • It was feared that foreign companies working on projects in Austria (for example, in the construction industry) and employing foreign workers from one of the eight NMS could engage in social dumping. By law, the company needs to employ and pay its workers according to the relevant Austrian collective agreements. This is set down in the Posting of Workers Directive (Entsenderichtlinie) from 1996, which was implemented in Austria by the Employment Contract Law Adaptation Act (Arbeitsvertragsrecht-Anpassungsgesetz, AVRAG). The Directive states that if an employer sends an employee abroad, the employee is subject to the same working conditions as domestic workers, including the collective agreements on pay levels. However, because social security contributions are to be paid in the home country, the Austrian authorities had no legal power to establish whether the workers were being paid ‘dumping’ wages.
  • The second way in which social and wage dumping was feared concerned Austrian companies employing workers from the NMS. The line of argument was that employers could take advantage of the fact that foreign employees are often not well informed about the legal situation of the country they work in, and disregard relevant laws and pay lower wages than provided for in collective agreements.

Objectives

In order to target the prevention of wage and social dumping, a new law (Lohn- und Sozialdumping-Bekämpfungsgesetz, LSDB-G) was implemented, following an agreement between the social partners (AT1006011I). The aim of the law is to ensure fair competition between Austrian and foreign firms and to protect workers from underpayment.

Specific measures

The LSDB-G law contains penalties if minimum wages and salaries (as provided for in the collective agreements) fall short and if documents (e.g. relating to employment contracts) are not available in German (AT1105011I). Penalties issued in cases of violation of between €1,000 to €10,000 were put in place for every underpaid employee; penalties rise to between €2,000 and €20,000 in cases of recurrence or if more than three workers are concerned; and to between €4,000 and €50,000 in cases of recurrence with more than three employees involved. When only small violations occur, the companies may make delayed payments and are thus exempted from penalty fees. If a control is denied or if documents are not available in German, administrative penalty procedures are triggered. If very serious violations take place recurrently, the foreign employer may be prohibited from providing services in Austria and domestic employers might have their business licence taken away for at least a year. As compared to the draft bill, the penalty payments have been drastically reduced after heavy criticism by the employer side (originally, they went up to €100,000).

Actors involved

Along with the implementation of the law against wage and social dumping, a new system of controls was installed as well. The renamed finance police, formerly the KIAB (Kontrolle illegaler Arbeitnehmerbeschäftigung, Control of Illegal Employment of Workers), an organisation set up by the finance ministry in 2002, is responsible for performing checks and controls at employers’ sites. If the finance police find violations, they inform the newly established centre of excellence (LSDB) at the Vienna branch of the state health insurer (WGKK), which in turn files a complaint. This procedure applies to employees posted to Austria or those working for temporary agencies in the eight NMS. The wages of employees working for Austrian companies that are covered by the general social insurance law (ASVG) are controlled by the relevant insurance institutions themselves; in the construction sector, the Construction Workers’ Annual Leave and Severance Pay Fund (BUAK) has control. The labour inspectorate (Arbeitsinspektion) is now also authorised to monitor compliance with respective collective agreements.

The social partners are indirectly concerned with the implementation of the law, in so far as they provide counselling to both employers and employees with regards to the application of the law. Both organised business and organised labour are by and large content with the design of the LSDB-G.

Outcome of evaluations; lessons and conclusions

Achievement of objectives

The implementation of the law against social and wage dumping has played a big role in the unproblematic opening of the labour market, according to experts. Altogether, some 31,800 companies (with 72,000 employees) were checked within the first year, with only 526 companies (with 2,300 employees) suspected of wage and social dumping. So far, complaints have been issued for 160 companies, among them 134 foreign ones. Altogether, fines of €4.7 million have been applied for, of which six have the force of law (worth €300,000). The labour and social minister, Mr Hundstorfer, speaks of a pleasing outcome, as only 1.6% of all companies checked have been objects of complaints.

Obstacles and problems

The opposition Green Party has identified flaws in the law. It would be ‘lucrative’ for companies to refuse to disclose documents, as foreign companies need to present documentation on the wages of their employees when they are being checked. If they refuse, they need to pay administrative fines – however, these are much lower than the fines they would have to pay in case of underpayment of workers. Thus, companies prefer not to present the controllers with the necessary documents, according to Ms Schatz, the employee spokesperson of the Green Party. Data show that some 378 charges have been made due to the refusal to disclose documents or the absence of such documents.

In addition, the collection of the fines abroad is highly problematic under the current legal framework, as so far, no bilateral agreements have been decided upon with the eight NMS. This means that only court decisions may be enforced, not administrative penalties.

Another problem of the law concerns employees themselves: if they are underpaid, they will not automatically receive the pay difference, but will need to claim the outstanding amount at the social court themselves.

It has also been noted that wage dumping due to the incorrect classification of employees in wage groups covered by collective agreements – where, for example, skilled workers are classified as unskilled and paid less than they should be – cannot be ruled out.

Lessons learned

So far, no adjustments to the law have been made, as it has only been in force for just over a year. Some problems and flaws have been indicated (see above). Talks with neighbouring countries on the collection of fines from employers abroad are currently underway.

Impact indicators

See the ‘Achievement of objectives’ section above.

Transferability

The law against social and wage dumping can be considered as transferable to other national settings where those offences are likely to occur (in countries with a relatively high wage level in which foreign workers and companies from countries with a lower wage level work and operate).

In June 2011, Austria and Germany signed a contract designed to improve the cooperation between Austrian and German authorities. The improved cooperation includes speeding up the investigation of relevant facts and penalties for employers engaged in wage and social dumping, especially when major forms of organised social fraud are taking place. As mentioned above, a similar contract is to be negotiated between Austria and its eastern neighbouring countries – at this stage, talks have commenced.

Contacts

BMASK: www.bmask.gv.at

BUAK: www.buak.at

LSDG: https://www.sozialversicherung.at/portal27/portal/wgkkportal/channel_content/cmsWindow?action=2&p_menuid=72089&p_tabid=5

WGKK: www.wgkk.at

Social partners:

AK (Chamber of Labour): www.arbeiterkammer.at

ÖGB (Austrian Federation of Trade Unions): www.oegb.at

WKO (Federal Economic Chamber): www.wko.at

IV (Federation of Austrian Industry): www.iv-net.at

Bibliography

Adam, G. (2004), ‘Government plans seven-year transitional period for workers from central and eastern Europe’, EIRO, available at /ef/observatories/eurwork/articles/government-plans-seven-year-transitional-period-for-workers-from-central-and-eastern-europe.

Adam, G. (2011), ‘Measures to combat “social fraud”’, Eurofound, available at

/ef/observatories/eurwork/case-studies/tackling-undeclared-work-in-europe/measures-to-combat-social-fraud-austria.

Allinger, B. (2010), ‘Wage and social dumping feared when labour market opens in 2011’, EIRO Information Update, available at /ef/observatories/eurwork/articles/undefined/wage-and-social-dumping-feared-when-labour-market-opens-in-2011.

Allinger, B. (2011), ‘Austrian labour market opens for new Member States’, EIRO Information Update, available at /ef/observatories/eurwork/articles/austrian-labour-market-opens-for-new-member-states.

BMASK (2012), ‘Pressekonferenz Sozialbetrugsbekämpfung 26. Juni 2012’, press release, available at http://www.bmask.gv.at/.

Die Presse (2011), ‘Österreich: Eine Million Pfuscher’, 4 January, available at http://diepresse.com/home/wirtschaft/economist/622782/Oesterreich_Eine-Million-Pfuscher.

Die Presse (2012), ‘Scheinfirmen kosten den Staat eine Milliarde pro Jahr’, 26 June, available at http://diepresse.com/home/wirtschaft/economist/1260071/Scheinfirmen-kosten-den-Staat-eine-Milliarde-pro-Jahr.

ORF (2012), ‘Kriminalamt ermittelt gegen Scheinfirmen’, 22 May, available at http://noe.orf.at/news/stories/2534004/.

Schneider, F. (2012a), ‘The shadow economy and shadow economy labor force: What do we (not) know?’, forthcoming in World Economics 2012, available online at

http://www.econ.jku.at/members/Schneider/files/publications/2011/ShadEconWE.pdf.

Schneider, F. (2012b), ‘Size and development of the shadow economy of 31 European and 5 other OECD countries from 2003 to 2012: Some new facts’, available online at http://www.econ.jku.at/members/Schneider/files/publications/2012/ShadEcEurope31_March%202012.pdf.

Schneider, F. (2012c), ‘Der Einfluss eines abgeschwächten Wirtschaftsaufschwunges auf die Schattenwirtschaft in Deutschland und anderen OECD-Staaten: Ein (erneuter) Rückgang’, available online at http://www.econ.jku.at/members/Schneider/files/publications/2012/Schatt2012_1.pdf.

Bernadette Allinger, FORBA (Working Life Research Centre)

 

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