The Anti-Wage and Social Dumping Act

(LSDB-G)including amendments as of 1 January 2015

What are the goals of the LSDB-G?• Problem: Wage dumping = real phenomenon, but hardly any

consequences– Many employees shy away from asserting their claims (for fear of losing jobs,

residence rights etc.), mainly when employment contract is in effect

– Bringing claim to court: Employer must pay difference (including interest), but no fine is imposed

– Control by regional public health insurance is “cheaper“ than correct payment (employees concerned often are not even aware of controls having taken place and that they have not received all claims they are entitled to)

• Wage and social dumping has repercussions on the entire labour market and on the whole workforce!

What are the goals of the LSDB-G?

• Reason for LSDB-G: Labour market opening as of 1 May 2011

• Ensuring equal work and wage conditions for all domestic and foreign workers

• Fair conditions of competition among companies

• Preventing cut-throat competition in the labour market

• Securing duties and social insurance contributions

LSDB-G – A socio-political success• Extending controls to statutory and/or collective agreement PAYS• Underpayment can both be sued for and is punishable• Range of penalties with deterrent effect• Obligation of authorities to inform employees concerned

With the above provisions, the legislator clearly demonstrates :

WAGE DUMPING IS NOT A MINOR OFFENCE!

Which employers are subject to the LSDB-G?

The LSDB-G applies to domestic and foreign employers– Domestic recruitment of employees (citizenship irrelevant)

– Secondment from abroad (employees seconded provisionally from foreign establishments to Austria for completion of an order)

– Leasing of domestic and foreign personnel

– EU/EEA and “third countries“

What is punishable under the LSDB-G?

1. Underpayment – as of 1 January 2015, not only basic wage, but (almost) all wage components

2. Foreign employers must keep German-language wage documentation available at the place of work and present it on inspection

3. Unacceptability or several places of work: If requested by the authority, documents must be forwarded to the authority, also for domestic employers

4. Impeding, obstructing or preventing inspections

5. Secondment from EU/EEA: Previous notice of secondment and proof of foreign social security

Underpayment (“wage dumping“)

Section 7i (5) AVRAG

(Employment Harmonisation Act)

LSDB-G: Pay instead of basic wage

Collective agreementLaw or ordinance (e.g. public service,

by-laws)

Works agreement, employment contract

• Basic wage (as before)

• Special payments

• Overtime including surcharges

• Shift allowances, fitter‘s allowances, allowances for difficult working conditions, etc.

• Reference surcharges for leased personnel

What is not part of the “pay“?

• Overpayments on basic wage as defined by collective agreement may be credited to missing components of the pay (e.g. surcharges) in the respective wage payment period (that is month) (Section 7e (3) and Section 7i (1) AVRAG)

• This applies also if a works agreement or employment contract contains no explicit stipulation (agreement)

• Remuneration of expenses or payments in kind cannot be credited (Section 7e (4) AVRAG)

• But this applies only to the penal provisions of the LSDB-G; not to employees‘ claim under labour law

• Exemptions from the term ‘pay‘ and thus from control are defined also in Section 49 (3) ASVG (General Social Security Act) (e.g. tax-exempt bonus for dirty work)

LSDB-G penalty range for wage dumping

UnderpaymentEUR 1,000 – 10,000

EUR 4,000 – 50,000EUR 2,000 – 20,000

EUR 2,000 – 20,000

Penalty per employee:

More than 3 employees concerned :

In the event of recurrence :

LSDB-G – Non-applicability of penaltiesNo penalty is imposed if the employer

– pays the difference between underpayment and the pay due within a defined period, at the latest, after having been requested to do so by the authority

and – If underpayment is only minor (max 10%; case 1) or underpayment

was due only to slight negligence on the part of the employer (case 2)

What does that mean for our work?• When underpayment has been established to exist

1. Request employer to pay the differences + point out that this is a punishable offence (in particular high penalties!)

2. If such payment is made demonstrably within a defined period of time, official notification may be disregarded

3. If the employer fails to pay: Information of regional health insurance branch or financial police (or both) or direct report to district administrative authority

• In companies without works council, try to contact the employees concerned at any rate (recruit new members)

• Perhaps consider to set up a works council

Who is in charge of what?

• All documents are available and the facts have been established clearly: Anyone may make a direct report to the district administrative authority at the place of employment

– Attention! We are not a party to the procedure and have no right to information!

• Normally: Documents and/or information are missing: Report to the competent supervisory authority (local branch of health insurance, finance police, BUAK (Construction Workers’ Annual Leave and Severance Pay Fund)

– Detailed investigation on the spot and subsequent report to the district administrative authority, if required: Party to the procedure = right of information

Local branch of health insurance

District administrative authority: may impose penalty

on employer

Employee

Conducts inspection on the spot: either on its own (during joint audit of wage-dependent levies) or following report of suspected wage dumping

In Austria subject to compulsory insurance (ASVG) – regardless of nationality!

Underpayment

Report

PenaltyEmployer

Notification of penalty (not report!)

Not insured in Austria (seconded or leased from abroad)

Finance police

Employer

Employee

Competence centre LSDB (Vienna branch of health insurance)

Forwarded for fine check

Back for more “rough investigations“ on the spot

Underpayment

Report

Penalty

Notification of penalty (no report!)

District administrative authority: may impose penalty on employer

Non-availability of German-language wage documentation at the place of work

Section 7d in conjunction with Section 7i (4) AVRAG

Non-transmission of wage documentation following request by inspection authority

LSDB-G: Availability of wage documentation

• As a fundamental rule, foreign employers must keep wage documentations available at the place of work (or assignment) in German

• The law specifies the following wage documents– Employment contracts or service notes– Wage slips– Proofs of wage payment (e.g. bank transfer receipts)– Working time records– Documents on employee classification

• When personnel is leased from abroad, the domestic employer must comply with this obligation!

LSDB-G range of penalties

Non-availability of wage documentation

in GermanEUR 1,000 – 10,000

EUR 4,000 – 50,000EUR 2,000 – 20,000

EUR 2,000 – 20,000

Penalty per employee :

More than 3 employees concerned :

In case of recurrence:

As of 1 January 2015: Adjustment to range of penalties for underpayment to ensure that violation is no longer possible! Similar penalties apply to avoiding inspections and controls …

LSDB-G security• Problem: It has to be assumed that penal prosecution and/or

execution will be impossible or may be impaired considerably (usually because the employer has its registered seat abroad)

• In case of justified suspicion, the authority may collect a security from the foreign employer– Cash payment (“deposit“)– Even provisional confiscation of exploitable items (e.g. motor vehicles)

• If this fails, a payment stop may be imposed on, and a security may be requested from, the domestic client or employer (in the amount of the penalty at most)

LSDB-G – other new provisions• If the district administrative authority issues a notification of

penalty for underpayment, the employees concerned must be informed accordingly.

• The limitation period commences on the due date of the pay and is three years

• Prohibition of providing service for foreign employers and/or in case of cross-border personnel leasing to Austria, if underpayment applies, and in case of non-availability of wage documentation or preventing inspections (one to five years)

Our goal is not to seek penalties, but additional payment

This is appropriate only in clear cases, in particular repetition of the same “mistakes“ – no test cases in administrative penalty procedures!

Therefore not appropriate for doubtful classification of employees, disputes on individual hours of overtime worked, and the like. Presumption of innocence applies!

As a rule, this is required only for companies without works councils – now, the managing directors talks with us even if have no “power of attorney“!

- Information by someone from such companies – we can help anonymously; everyone!- Information about “dirty competition“ or at the regulars‘ table in the pub ….