Government endeavours to stamp out illegal work

The Latvian government has begun an active campaign against illegal and unregistered employment. The Ministry of Welfare has set up a working group to prepare an information report on illegal employment and possible measures for its curtailment. The social partners support the government’s efforts in this regard but believe it will be difficult to implement many of the proposed measures.

In 2005, up to 936 illegal employees were found to be working in the 2,000 companies that were inspected by the government. In the first quarter of 2006, the government counted 536 illegal employees in the 1,319 companies inspected. It seems from these inspections that illegal employment most often occurs in the construction, woodworking and trade sectors.

If found to be employing illegal workers, employers have to pay a fine of between €1,423 and €2,134 for those illegally employed persons.

Ministry of Welfare addresses illegal employment

In order to find out the actual extent and causes of illegal and unregistered employment, the Ministry of Welfare has commissioned a research project on the issue within the framework of the Labour Market Research Programme, which is supported by the European Social Fund (ESF). Until the results of this research are published, the Ministry of Welfare has, in the meantime, established a working group to prepare an information report on illegal and unregistered employment and to put forward possible proposals for government measures to curtail the problem.

The proposals prepared by the working group include the following:

  • sanctioning both the employer and the employee for illegal work;
  • disqualifying companies that have employed workers without employment contracts and have paid wages ‘under the table’ from participating in state and municipal procurement tenders for two to three years;
  • obliging employers to register each employee before they start work with the local agency of the State Revenue Service (Valsts ienemumu dienests, VID);
  • setting up a register of employed persons and issuing them with an identification card;
  • applying the conditions of an agreement concluded between the trade union and the employer organisation of an industry to all of the industry’s employees;
  • empowering the State Labour Inspectorate (Valsts Darba Inspekcija, VDI) to complete an administrative report without the presence of the employer;
  • determining that, in cases where an employer has made ‘under the table’ wage payments, the VID should collect fines in addition to the sums not duly paid in taxes;
  • declaring that employment contracts or duplicate copies of such must remain at the workplace;
  • ensuring that employment contracts are made in writing.

In order to prevent illegal construction teams from working, it has been suggested that only first-degree relatives and self-employed persons should be allowed to work in the construction of private houses without an employment contract. If several subcontractors carry out work on a particular site, the main contractor must prepare a list of all employed persons.

In order to encourage workers to demand observance of the labour legislation, the VDI initiated a campaign in May 2006, entitled ‘The employment contract works’, during which people were informed about the benefits for the employee in concluding an employment contract and the losses involved if no contract has been drawn up.

Employers back government efforts

In general, employers support the government’s efforts to curtail illegal employment. In particular, the Latvian Construction Contractors Association (Latvijas Buvnieku Asociacija, LBA) supports stricter measures to eliminate illegal employment in the construction sector.

However, the Employers’ Confederation of Latvia (Latvijas Darba deveju konfederacija, LDDK) and other employer organisations do not support all the proposals, particularly those stating that:

  • employees should be registered with the VID before starting work;
  • the VID should be empowered to collect the sums not duly paid in taxes;
  • the employment contracts should be kept at the place of work.

LDDK strongly supports the proposal that both the employer and the employee should pay fines for illegal work.

Chair of the Council of Small and Medium-sized Enterprises and Handicrafts (Mazo un videjo uznemumu un amatniecibas padome, MVUAP), Silvija Greste, believes that prohibiting companies from participating in state and municipal procurement tenders would be too severe a punishment, as the employer is already obliged to pay the fine for illegal employees.

Trade unions defends employee

The Free Trade Union Confederation of Latvia (Latvijas Brivo arodbiedribu savieniba, LBAS) treats with caution the proposal that the employed person should also be sanctioned for unregistered and illegal work. LBAS Deputy Chair, Livija Marcinkevica, stated that it is usually the employer who convinces the employee to agree to work without an employment contract. The employers interviewed also acknowledged that they could not identify a case where an employee had asked to be employed without a contract. Trade unions believe that in regions with low wage levels, such as rural areas, people have no other choice than to accept the conditions of the employer, and therefore they should not be punished for that.

Commentary

Curtailing illegal work and ‘under the table’ wages has been a priority on the government’s agenda for several years now, but no significant actions or results have been observed so far.

There is a public consensus in Latvia that illegal work and wages must be eliminated, and there is strong support for the implementation of measures planned by the government. Some critical assessments are not directed at the content of the working group’s proposals but rather at the ways of implementing them and the costs involved. According to LDDK, the proposals often deal with the problem by creating new bureaucratic hurdles for those who already obey the law.

The proposals of the Ministry of Welfare have yet to be transposed into Latvian legislation.

Raita Karnite, Institute of Economics, Latvian Academy of Sciences

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