Employer liability introduced to combat social dumping

In June 2009, the Norwegian parliament adopted new legislation giving employers in a contract chain joint and several liability over employees’ wages. The legislation is a follow-up to the government’s ‘action plan 2’ against social dumping. According to the legislation, contractors will be made liable for the obligation of subcontractors to pay wages, overtime pay and holiday allowances. Thus, all employers are liable for the pay of workers at the bottom of the contract chain.

In June 2009, new legislation on employer joint and several liability was passed by the Norwegian parliament (Stortinget) as an amendment to the Act relating to the general application of wage agreements (53Kb PDF) (General Application Act, Allmenngjøringsloven). The aim of the new legislation is to ensure that wages, especially those of foreign workers in Norway, are actually paid, as well as to give main contractors greater incentives to choose legitimate subcontractors.

New legislation

The legislation is a follow-up to the government’s ‘action plan 2’ against social dumping, and a proposal was submitted for consultation in December 2008 (NO0902039I). Only minor adjustments have been made to the adopted legislation compared with the initial proposal.

According to the legislation, the main contractor may be made liable for the obligation of the subcontractors to pay wages, overtime pay and holiday allowances. The liability covers obligations of the subcontractors as well as the subcontractors’ subcontractors. This means that all contractors are liable for the wages of the workers at the bottom of the contract 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, as stipulated in administrative provisions of an extended collective agreement, at a predefined and fixed date (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 in relation to work covered by an agreement, or provisions of an agreement, which has been made generally applicable in pursuance with the General Application Act. At present, therefore, the new regulation will mainly be 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. Furthermore, the scope of liability does not apply to the person who is commissioning the work, typically a developer or owner.

For the joint liability to come into play, the workers that have not received payment in accordance with the provisions in a generally applied collective agreement must put forward a claim to the contractor within three months after payment was due. This time limit has been extended from the four weeks stipulated in the initial proposal. In the consultation round, the trade unions as well as the Norwegian Labour Inspection Authority (Arbeidstilsynet) argued that the time limit for forwarding a claim was too short. According to the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO), six months would have been a more appropriate time frame. When the Ministry of Labour and Social Inclusion (Arbeids- og inkluderingsdepartementet, AID) decided to set a deadline of three months, this was said to be an ‘act of balancing differing interests’ and that it is important to the contractor that the time limit is not too long.

Reaction to initial proposal

The initial proposal received support mainly from the trade unions and was opposed by the employer organisations. The rationale behind the opposition of the Confederation of Norwegian Enterprise (Næringslivets Hovedorganisasjon, NHO) to the proposal was that the confederation did not see a need for joint liability at present. As the government has already introduced several new measures to combat social dumping, NHO claimed that the effects of these measures have yet to be seen. Furthermore, the employers argued that the new legislation would impose increased economic and administrative costs on undertakings, while the positive effects would be limited. NHO had also some objections to the contents of the proposed liability. NHO proposed, among other things, that liability should be limited to the contractor’s own subcontractors, and that the contractor should not be liable unless directly at fault. Furthermore, NHO did not support the part of the proposal that placed liability on contractors not only in relation to wages and overtime pay, but also with regard to holiday allowances. However, in the adopted legislation, none of these proposed amendments were taken into account.

Kristin Alsos, Fafo

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