Government to widen employer liability in bid to combat social dumping

Throughout Europe, the main contractor is increasingly becoming legally responsible for the unpaid wages of employees of its subcontractors. The Norwegian government is currently considering a model of joint and several liability. A proposal for how such a model may be shaped was submitted for consultation in December 2008. The proposal forms part of the national action plan against social dumping.

The Norwegian government published its ‘action plan 2’ against social dumping as part of the 2009 state budget proposal. One of the key measures of the action plan, according to the government, is to develop a model for joint and several liability to ensure compliance with the Act relating to the general application of wage agreements (53Kb PDF) (Allmenngjøringsloven). Joint and several liability refers to cases where two or more people enter into an obligation together, and where the claimant can recover the full obligation from any one of them; the cooperating parties are then left to decide their respective contributions between themselves.

The purpose of introducing such a liability is to ensure that wages are actually paid, as well as to give main contractors greater incentives to choose legitimate subcontractors. This proposal was sent for consultation on 5 December 2008; the document emphasises that the government has not taken a final stance on the issue and it requests the consultation bodies’ views on this matter.

Liability throughout contract chain

The main proposal of the consultation paper outlines a model for joint and several liability based on the existing German model. According to the proposal, the main contractor will be made liable for the obligation of the subcontractor to pay wages, as well as the obligation of the subcontractor’s subcontractor. This responsibility, in other words, applies throughout the value chain of contractors, which means that all of the contractors are liable for the wages of the workers at the bottom of the chain – in terms of ‘one for all and all for one’. The conditions under which joint and several liability comes into play are when an employee has not been paid the minimum wage at a predefined and fixed date, as stipulated in administrative provisions of an extended collective agreement (NO0808019I, NO0509103F). Thus, the employer may not be directly at fault for the mechanism to come into play.

Joint and several liability will only be made applicable to work covered by an agreement, or provisions of an agreement, which has been made generally applicable in pursuance with the Act relating to the general application of wage agreements. At present, therefore, it is mainly applicable in the construction sector and shipbuilding industry. Contracts in which private individuals constitute the commissioning party are not covered by the new regulation; it is a condition that the contractor or vendor is a company. The scope of liability should also be restricted with regard to the person who is ordering the assignment, typically a developer or owner.

Responsibilities of liability

The responsibilities of the main contractor will, in line with the German model, include paying minimum wage and overtime compensation, as stipulated by administrative provisions under the Act relating to the general application of wage agreements. It will also include holiday compensation, as established in the Act relating to holidays (44Kb PDF) (Ferieloven). It will be up to the individual employee to make a claim against the main contractor. In this regard, the Ministry of Labour and Social Inclusion (Arbeids- og inkluderingsdepartementet, AID) is considering setting a deadline of four weeks to bring such claims to bear.

Views of social partners

The employee side – particularly the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) and LO’s largest member union in the private sector, the Norwegian United Federation of Trade Unions, Fellesforbundet) – has long advocated the introduction of the principle of joint and several liability. Therefore, Fellesforbundet is satisfied with the government’s proposal, not least because it meets three preconditions set by the trade union, namely that:

  • responsibility is vested throughout the value chain;
  • the duty to pay wages arises as soon as the salary is due to be paid;
  • this liability may only be met by payment of outstanding wages.

Fellesforbundet is nevertheless critical of the government’s proposal to impose a deadline of four weeks to bring forward a claim.

On the other hand, the employer side disapproves of the introduction of such a responsibility. The Confederation of Norwegian Enterprise (Næringslivets Hovedorganisasjon, NHO) believes that joint and several liability is not an appropriate measure to combat substandard labour practices in working life. According to NHO, providing increased resources to the labour inspectorate (Arbeidstilsynet) has benefited the situation considerably and, moreover, no evidence suggests that there is a need for a joint and several liability.

Commentary

The government has previously considered the introduction of joint and several liability. In a consultation paper of 22 December 2006, AID concluded that the introduction of such a liability would entail too drastic a measure. However, the government’s conclusion this time around is far from clear.

A possible introduction of joint and several liability will come on top of measures already adopted, such as the information and supervisory responsibilities of commissioning companies (NO0705019I). AID has in its consultation report considered whether the sum of these measures may be said to be disproportionate and, as such, may violate the Agreement on the European Economic Area (EEA). It concludes, however, that the measures complement each other and cannot be considered to be overlapping regulations placing a disproportionate burden on companies. The provisions, therefore, are considered to be in line with the requirements of the EEA Agreement.

The European Foundation for the Improvement of Living and Working Conditions (Eurofound) has published a comparative report on Liability in subcontracting processes in the European construction sector, based on eight national reports including one for Germany.

Kristin Alsos, Fafo Institute for Applied Social Science

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