Austrian Act Against Wage and Social Dumping – A Sleeping Giant Awake

Legal framework

The Austrian Act Against Wage and Social Dumping (Lohn- und Sozialdumpingbekämpfungsgesetz; LSDB‑G) entered into force in 2011. The provisions were implemented within the Employment Contract Law Adaption Act (Arbeitsvertragsrechts-Anpassungsgesetz; AVRAG). In November 2014, the Austrian government presented a government bill tightening up the provisions of the LSDB‑G, which is scheduled to enter into force in January 2015.

Whereas some provisions of the LSDB‑G apply only to foreign employers not having a permanent establishment in Austria (particularly those temporarily posting employees to Austria), the provisions with regard to underpayment also apply to domestic Austrian employers of all industries.

Underpayment

According to section 7i para 5 AVRAG, foreign and domestic employers must pay the remuneration to which the employee is entitled as stipulated by law, regulations or the applicable collective bargaining agreement (CBA).

Until the end of the year 2014, the law only penalised the failure to pay the employee’s “base pay”, which led to criticism as this rather unspecific term did not, according to the legislative materials, include any overtime premiums or the 13^th and 14^th salary. The government bill recently presented by the Austrian government explicitly refers to the remuneration the employee is entitled to. This includes all parts of the employee’s compensation, e.g. minimum wages, overtime premiums, 13^th and 14^th salary. Only certain fringe benefits or other payments specifically listed in article 49 para 3 of the General Social Security Act (Allgemeines Sozialversicherungsgesetz; ASVG) are not part of the employee’s remuneration.

Consequently, as of January 2015 the failure to pay any part of the employee’s remuneration will be considered as underpayment and will therefore be subject to penalties.

Note however that the LSDB‑G does not refer to the employee’s salary as agreed in the employment contract or a shop agreement. Therefore, no wage or social dumping takes place if employers pay their employees less than their contractual salary. Only the violation of provisions on minimum wages and all other parts of the employee’s remuneration as set out by law, regulations or CBAs can constitute wage or social dumping according to the LSDB‑G.
In practice, minimum wages and other parts of the employee’s remuneration are stipulated by CBAs or federal decrees on minimum wages in certain sectors (Mindestlohntarife). The remuneration to which the individual employee is entitled is to be determined “under consideration of the individual classification criteria”, meaning mainly the work actually performed by the employee as reflected in the CBA’s salary scheme.

Documents on wages and salaries and cooperation with the authorites

As set out in section 7^d para 1 AVRAG, foreign employers must have employment contracts, “service notes” (Dienstzettel), pay slips, time records and records of payments as well as other documents that are necessary to verify the salaries their employees are entitled to in store. All documents are to be kept ready in German.

Moreover, all employers must cooperate with the authorities when being monitored with respect to the provisions of the LSDB‑G.

Penalties

Employers not paying the remuneration the employee is entitled to, failing to keep ready documents on salaries or not cooperating with the authorities when being controlled commit administrative offences.

Penalties for the failure to pay the remuneration the employee is entitled to vary between EUR 1,000 and 10,000 for every underpaid employee (!), and between EUR 2,000 and 20,000 in case of recurrence or if more than three employees are concerned. In case of recurrence with more than three employees concerned, penalties between EUR 4,000 and 50,000 for every underpaid employee (!) apply. As of January 2015, the same penalties apply for not holding the necessary documents in store or not cooperating with the authorities.

Risks for employers of all industries

Until 31 August 2012, 488 suspected cases of wage and social dumping were reported to the Competence Center for Combating Wage and Social Dumping at the Vienna Health Insurance Fund. In 261 cases, charges were filed against employers for underpayment.¹

According to our information, the number of charges filed has gone up significantly within the last 12 months. As our recent experience has shown, the authorities particularly perform more frequent controls regarding the LSDB‑G within the regular joint audit of wage-dependent levies (GPLA).

Contrary to the common perception, LSDB‑G controls have increased not only in the building sector but in all lines of business. Therefore, we advise employers of all industries to review their records on wages and salaries to make sure their employees are paid remunerations as set out by the applicable collective bargaining agreement. Employers, particularly those employing high numbers of employees, should be aware that if several employees are underpaid, fines can easily amount to hundreds of thousands of Euros since the penalties stipulated by law are due for every concerned employee.

Austrian authorities have increased controls relating to wage and social dumping. Failure by the employer to pay employee remuneration pursuant to applicable collective bargaining agreements may be fined with up to hundreds of thousands of Euros in extreme cases.

¹Statistics of the Vienna Health Insurance Fund (Source: http://www.hauptverband.at/portal27/portal/hvbportal/content/contentWindow?&contentid=10008.564293&action=b&cacheability=PAGE; 1 October 2014)

authors: Stefan Kühteubl, Susanne Olt