Draft legislation seeks to curb illicit work

In autumn 1998, while the social partners were still negotiating the details, the Austrian government circulated draft legislation on combating illicit or "informal" work. It attempts to prevent "assistance amongst neighbours" from being turned into criminal activity but at the same time it substantially enhances the powers of the authorities and increases penalties.

Draft legislation to combat illicit or "informal" work was released in Austria in autumn 1998 after almost a year of continuing public debate (AT9712154N). This debate involved vigorous participation by the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB), its component trade unions and the Austrian Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ) as well as the Association of Industrialists (Industriellenvereinigung, IV). It is hoped to enact the new legislation to take effect from 1 January 1999.

Definitions, means and responsibilities

The government's proposed legislation includes a new Law on Illicit Work (Schwarzarbeitsgesetz, SchwAG) and amendments to nine existing laws. It defines as "illegal" five kinds of employment situation:

1. dependent employment in breach of social security legislation;

2. agricultural self-employment in breach of social security legislation;

3. other self-employment in breach of social security legislation;

4. employment of non-Austrians in breach of the Aliens Employment Act (Ausländerbeschäftigungsgesetz, AuslBG); and

5. self-employment in breach of the regulations on trading (Gewerbeordnung, GewO).

The proposal exempts "assistance amongst neighbours" (Nachbarschaftshilfe), presumably including friends and family, from qualifying as "illicit work". However, no definition of the term is provided.

The authorities are given the power freely to enter business sites, workplaces, company facilities and company grounds, to move about them freely and, upon suspicion, to use force if attempts are made to deny access. At control points, they are also free to inspect vehicles and anyone's identity papers, to interrogate people, to be shown any records and documents in a generally legible form and to make photos and photocopies of any evidence or, if necessary, to confiscate it. The authorities are furthermore given the power to eject anyone suspected of illicit work. Employers and contractors are required to cooperate. Everyone requested to do so at a control point has to produce proof of identity and demonstrate the legality of their employment. They have to provide information to the best of their knowledge. However, the proposed law specifically states that there is no obligation for self-incrimination. Property owned by those profiting from the illicit work may be confiscated. If they feel there is no other way to stop the illicit work, the authorities are given the power to close down a works or a building site immediately for the period believed necessary to remedy the situation. An appeal against a closure does not prevent the closure itself.

Breaches of the regulations on trading are to be controlled by the trades authorities (Gewerbebehörde). Breaches of social security regulations and regulations on the employment of foreigners will be dealt with by the customs office (Hauptzollamt), though in the latter case actual inspections may also be carried out respectively by the social security agencies and the Public Employment Service (Arbeitsmarktservice, AMS). All authorities, including specifically the tax offices and the construction workers' vacations and severance pay fund, have to assist each other to the best of their ability and must exchange information amongst themselves to promote the discovery of illicit work. They must also report any suspicions to the designated authority. The new law obliges the authorities to coordinate their activities, ranging from the exchange of information and experience to joint inspections. They have to appoint a designated administrator in each of their offices. Over the course of the year 2000, customs office staff is to reach its full strength of 184 inspectors. Currently there are only 42 labour inspectors. The customs office will have to consult the social partners in each province twice a year.

Penalties

Penalties include payment of the profits from illicit work to the relevant authority. The wording of the law allows for a degree of bargaining on the precise amount. Entrepreneurially organised illicit work may result in one year's imprisonment for the entrepreneur and the responsible manager, or an equivalent fine. Advertisement of illicit work or the failure to cooperate with the authorities may carry a fine of up to ATS 50,000. Fines and prison terms specified in existing laws are being increased substantially, usually up to a maximum of ATS 100,000 for the first offence and ATS 200,000 in the event of subsequent offences. Penalties imposed on recipients of unemployment benefits who are found to have been employed legally or illegally are also being stiffened.

Commentary

Only Switzerland is thought to have a lower share of illicit work in its Gross Domestic Product than Austria. The Austrian share, in the most widely publicised version, is estimated at 8.6% in 1997, compared with 7% in 1996. However, estimates of value added vary between ATS 86 billion and ATS 233 billion. Given the high cost of legally performed work, 64% of Austrians condone illicit work according to a survey carried out in the summer of 1998, and 41% admit working illicitly themselves, at least on and off. Only 4% think that illicit work should be reported to the authorities. Experts attribute the recent increase in illicit work to the virtual stagnation of incomes, the high level of taxation and the broadening, in 1997, of the social security base to "employee-like" work and to employees earning less than ATS 3,880 gross per month.

Much of the debate in the media has been focused on the meaning of the term "assistance amongst neighbours". Indeed, this was also the sticking point amongst the social partners themselves, which is why it was left undefined. Employers maintain that if this term were meant to include assistance by friends and relatives or anybody within somebody's personal network, then 60% of all illicit work would remain untouched by the new regulations. In this case, they claim, only employers would be penalised by the new law.

All five of the illegal employment situations are defined by reference to regulations that have been under constant revision. The Aliens Employment Act, for instance, is now at the same time being amended for the 20th time in 11 years. There is currently much scope and a great likelihood for employees, employers or the self-employed to be in breach of employment-related regulations simply because they cannot all become legal experts.

The proposed legislation reflects a further incremental attempt to shore up the social security system and the tax base. It is also meant to protect small businesses from unfair competition. However, it does not seem unlikely from most people's experience that a significant share of the illicit economic activity is in fact being carried out by small-scale enterprise precisely in an effort to stay in business. Ultimately, therefore, big business may profit most from the new control measures, since their smaller competitors will see their operating costs increase. Customs officers are also likely to be beneficiaries of the measures since they were in danger of becoming redundant following Austria's accession to the European Economic Area.

Employers, in a "due diligence" clause, are offered some protection. No equivalent protection is included for employees. This is because in the main, as is generally understood, the new measures are meant to discourage unauthorised economic activity of immigrants and residents of neighbouring countries. In this sense there are suspicions of a degree of "scapegoating". A visible target is being sought in a bid to suggest that the inexorable, though very gradual, rise of unemployment can be attributed to external factors and not to factors internal to the Austrian political and economic system. (August Gächter, IHS)