Austria: The Reform of the Act on Wage and Social Dumping – High Risk for Employers

Austria’s central location in the heart of Europe and its many borders to Eastern European Countries provide for many business opportunities, but also pose challenges in the field of labour law: cheap labour costs across the eastern (and sometimes southern) borders and high labour costs in Austria make it difficult for Austrian companies, especially in the building industry, to compete on prices. Often the fear that competition from low-wage countries will lead to wage dumping in Austria has been expressed.

The notion that the competition of high wage countries with low wage countries will lead to wage dumping in the former is not a new one. In 1996 it prompted the EU to issue the so-called Posted Workers Directive (PWD). It concerns workers who are sent to another Member State by their employers to do a certain job (posted workers) and establishes that while in general the labour law of their country of origin applies, a core of mandatory rules of the host state have to be applied. Most notably, the minimum wage according to the laws or universally applicable collective agreements has to be paid to posted workers. The idea was that this “compromise” would ban the risk of wage dumping while at the same time allow for fair competition in the common market.

It turned out that the Act on Posted Workers was good on paper, but difficult to enforce in practice: the main reason was that the Austrian enforcement system relies on action by the workers themselves who enjoy as members of the Austrian Chamber of Workers free legal counselling and representation in court. Posted workers do not enjoy these rights, and even though trade unions offer free counselling and representation, they are often unaware of their rights. Additionally, they often have little incentive to enforce their rights: even though Austrian wages would be higher than their earnings, they tend to earn more than they would back home.

The Austrian legislator soon realised that the “usual” enforcement system does not function when it comes to posted workers. In 2011, it introduced the Act on Wage and Social Dumping. The underlying notion of the Act was to put enforcement of the Act on Posted Workers in the hands of public authorities rather than to leave it to the posted workers themselves. The Act equipped the administrative authorities with vast competences in controlling the Act on Posted Workers, raiding office and building sites unannounced. Heavy administrative fines can be issued if employers don’t have the required documentation on their posted workers ready at hand or if the posted workers aren’t paid according to the basic/general rate of pay in the applicable collective agreement.

The Act on Wage and Social Dumping has now been amended, the amendment entering into force on 1st January 2015. This amendment brought not only significant changes to the Act itself, but also for Austrian labour law in general as the two most notable amendments show:

• Until now, employers who paid less than the basic rate of pay were subject to fines. Now, the relevant level of pay is the one required by the respective collective agreement. This change is not a mere play with words but has significant consequences: collective agreements often contain a vast number of allowances and regulations on overtime etc. Any mistake in the difficult calculation of pay can potentially lead to hefty administrative fines.
• Administrative fines now not only concern foreign employers posting workers to Austria, but every Austrian employer. They too are now potentially subject to the above mentioned administrative fines if they do not pay according to the collective agreement.

These amendments effectively mean that administrative authorities and their courts are now in charge when it comes to assessing whether or not a collective agreement has been applied correctly. This was, until now, a task for the civil courts who took on the often rather difficult challenge of assessing whether or not a collective agreement was applied correctly. As many collective agreements define their “occupation groups” in open and broad terms, the outcomes of these court cases were often not easy to predict for employers. However, in case the courts found that they had not paid accordingly, the consequence was merely to pay the difference in pay to the respective workers (and, if further court cases were to be avoided, pay all workers the higher level of pay in the future). Now, employers are faced with heavy administrative fines on top of having to pay the difference. But what is most concerning is that now two Courts – administrative and civil courts – with potentially conflicting jurisdictions are in charge of assessing whether collective agreements have been applied correctly. The risks for employers navigating through the often extensive provisions in collective agreements have increased significantly.