Wage and social dumping feared when labour market opens in 2011

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 ends. To combat social and wage dumping, a draft bill has been issued bringing in stricter controls and penalties for these offences. The draft bill is appreciated by organised labour, but organised business rejects it because of the anticipated increased bureaucratic burdens for employers.

Transitional period ends in May 2011

Until the end of April 2011, workers from all new Member States (NMS), except Malta and Cyprus, are subject to restrictions in the Austrian labour market as laid down in the country’s EU Enlargement Adaptation Act (EU Erweiterungs-Anpassungsgesetz). This law is based on the provisions allowed for in the transitional arrangements of the 2003 Treaty of Accession and prohibits employees from these countries (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) from entering Austria’s labour market freely for a transitional period of up to seven years. While in general Austria has availed itself of the whole seven-year period, in 2007 it allowed a partial opening of its labour market due to a shortage of skilled workers in some sectors and regions (AT0703029I).

Draft bill targets wage and social dumping

When the labour market opens in May 2011, it is 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 is 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 as 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 have no legal power to establish whether the workers are being paid ‘dumping’ wages. Until now KIAB (Kontrolle illegaler Arbeitnehmerbeschäftigung), an organisation set up by the finance ministry in 2002, has been responsible for checking that foreign workers are not employed illegally. Once the Austrian labour market opens up without restrictions to employees from the NMS, KIAB will cease to be responsible for them as they will no longer fall under the Aliens’ Employment Act (Ausländerbeschäftigungsgesetz). The trade unions and the Federal Economic Chamber (WKÖ) have therefore suggested establishing a new organisation, or granting KIAB more resources and powers to combat illegal employment.
  • Social and wage dumping could also occur in Austrian companies employing workers from the NMS. 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. The trade unions are therefore demanding that paying wages lower than provided for in the relevant collective agreement be made a statutory criminal offence. WKÖ has, however, opposed the move, arguing that foreign employees can always get legal advice from the Chamber of Labour (AK) if they think they are being subjected to wage dumping by their employer.

Social partner reactions to draft bill

To combat social and wage dumping, a bill enabling stricter controls was issued by Rudolf Hundstorfer, Austria’s Federal Minister of Labour, Social Affairs and Consumer Protection. The draft bill, which is currently being assessed, provides for comparatively high penalties when wages and salaries, as provided for in the collective agreements, are undermined. For a breach of these clauses, the penalty envisaged in the draft bill ranges from €5,000 to €50,000 per worker, and €10,000 to €100,000 per worker if the offence is repeated. There is a realisation that it will be difficult to issue administrative penalties outside Austria under the current legal framework. Thus, negotiations with the NMS are planned to come up with suitable agreements to enable the authorities to impose the penalties. The social partners have reacted strongly to the draft law: while organised labour welcomes the bill, organised business firmly rejects it.

WKÖ protested against the draft bill, arguing that it targets domestic companies in the first place. According to Brigitte Jank, President of the Vienna branch, the bill’s provisions will mean more bureaucracy, penalties and checks for WKÖ’s members. At the same time, the law will do little to prevent wage and social dumping by foreign companies. Instead, WKÖ demanded more effective measures against foreign companies that do not adhere to the rules, especially in ensuring that foreign employees are being paid wages that comply with at least the lowest wage level provided for in the respective collective agreements.

In a similar vein, the General Secretary of the Federation of Austrian Industries (IV), Markus Beyrer, complained about increased bureaucratic burdens for companies. He insisted the new regulations would be ‘inefficient and unnecessary’ because Austrian law already provides for such penalties under the administrative criminal law. IV is against introducing more bureaucratic measures in uncertain economic times and suggests leaving the question of wages or potential wage dumping with the Austrian Labour and Social Courts.

AK, on the other hand, appreciates the social minister’s draft bill and has accused WKÖ of trying to protect those enterprises that do not comply with the rules. The President of the Upper Austrian branch of AK, Johann Kalliauer, said that examples from the goods transport sector already demonstrate unlawful behaviour that cannot be sanctioned under the current legal arrangements.

The Manufacturing Union, PRO-GE, which represents blue-collar workers in sectors which would be affected most severely by wage and social dumping, also welcomed the draft bill. PRO-GE’s Federal Chair, Rainer Wimmer, said that because the wage differentials between Austria and the NMS were still considerable, the law was essential to protect the domestic labour market.

Both AK and PRO-GE expressed surprise at the negative reactions of organised business because they felt that the law would also protect Austrian companies against foreign competitors who might try to gain an unfair competitive advantage.

Bernadette Allinger, Working Life Research Centre (FORBA)

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