Overview of the amendment to the Austrian Anti-Wage and Social Dumping Act
The long-anticipated amendment of the Austrian Anti-Wage and Social Dumping Act (LSD-BG) with amended administrative criminal law provisions reflecting ECJ case law, was passed by the lower house of the Austrian Parliament and entered into force at the beginning of September 2021. The amendment also implements changes to the EU Posted Workers Directive. A further significant change is the amendment of the definition of an employee assignment (posting) in the LSD-BG to reflect the equivalent definition in the EU Posted Workers Directive. However, the amendment of the LSD-BG did not obtain a majority in the upper house of the Austrian Parliament. Objections from the opposition relating to the limitation of the penalty framework meant that the upper house did not pass a resolution on the legislation, causing a delay of eight weeks before it entered into force.
One objective of the amending legislation (943 d.B. XXVII. GP) relating to the Austrian Anti-Wage and Social Dumping Act (LSD-BG) and the Austrian Temporary Agency Work Act (AÜG), which was passed in the Austrian National Council (lower house of Austrian Parliament) on 7 July 2021, is to transpose the directive amending the EU Posted Workers Directive (Directive (EU) 2018/957) into Austrian law. Furthermore, the harmonisation of the scope of the LSD-BG with that of the Posted Workers Directive (“PWD”) has resulted in significant changes to the exceptions provided for in the LSD-BG, certain clarifications, as well as changes to administrative criminal law provisions based on CJEU case law.
The majority of the new provisions entered into force retrospectively from 1 September 2021. The new legislation will apply to employee assignments (“postings”) and staff leasing (“temporary agency work” or “hiring-out of workers”) beginning after 31 August 2021. The suspensive veto of the Austrian Federal Council (upper house of the Austrian Parliament) led to a delay of around eight weeks before the legislation entered into force. No further amendments were made by the lower house.
In this blog entry, we provide an overview of the most important changes.
a. Amendment of the scope of the LSD-BG and extension of exceptions
The scope of the LSD-BG in relation to postings is harmonised in line with that of the PWD. This means that the previous provision ceases to apply, in accordance with which the existence of a posting within the meaning of the LSD-BG does not require the conclusion of a service contract between an employer without legal seat in Austria and a service recipient that is operational in Austria. Accordingly, regardless of the applicability of certain exceptions, the LSD-BG will no longer be applicable according to the legislative documentation to activities such as the mere visit to a trade fair or a seminar on behalf of a foreign employer. The removal of the provision that contravened EU law means that a posting within the meaning of the LSD-BG may only be assumed if a cross-border service contract exists. The result is a restriction of the scope of the LSD-BG.
Furthermore, additional new exceptions to the scope of the LSD-BG have been introduced. Even in the previous version, the LSD-BG envisaged exceptions for certain kinds of work of limited scope and short duration. What is significant in practice is above all the fact that the LSD-BG will in the future not apply to employees with a monthly salary in the amount of at least EUR 6,660 gross (for 2021), irrespective of the scope and duration of the activity. Further exceptions apply for foreign government employees, postings/personnel leasing of workers to Austria for training purposes, postings/personnel leasing in the area of tertiary education, temporary intra-group postings (including use of specialist labour for delivery, initial operation, maintenance etc. of machines, plants, and IT systems).
b. Changes relating to documentation requirements
While it was previously only permissible to use English language versions of employment contracts or short-form employment contracts (Dienstzettel), this will now be permissible for all wage-related documentation under the LSD-BG, as well as documents evidencing the existence of social security coverage in another EU/EEA contracting state or in Switzerland. Furthermore, the materials state that no additional requirements will be placed on the nature and form of a translation and no certification of the translation will be necessary. This provision also constitutes a major simplification in practice.
c. Changes to administrative criminal law provisions
The criminal law provisions of the LSD-BG have been thoroughly revised in accordance with the ECJ judgment in the case Maksimovic and others (12.09.2019, C-64/18), which the Austrian Supreme Administrative Court (VwGH) and Austrian Constitutional Court (VfGH) subsequently confirmed in their case law, as the courts considered these provisions to be disproportionate and thus contrary to EU law. In the amending legislation, proportionality will be created by removing the cumulative principle (penalties based on multiple single offences) and the creation of a new penalty framework without a minimum fine, but with a maximum fine that corresponds to the ceiling in the judgment on the case Maksimovic and others (12.09.2019, C-64/18).
Accordingly, in relation to breaches of formal obligations under the LSD-BG, only a single administrative breach will be deemed to exist, which will be subject to a financial penalty of up to EUR 20,000 for breaches in connection with reporting and documentation obligations, of up to EUR 40,000 for breaches relating to actions impeding wage-related compliance checks, and up to EUR 20,000 for the failure to make available or transmit wage-related documentation (up to EUR 40,000 in the event of a repeat offence).
If the criteria for the offence of underpayment are fulfilled, the penalty per employee will also cease to apply. Instead, there will be five levels with various maximum penalties (depending on the amount of pay withheld: EUR 50,000 to EUR 250,000). For the highest level (max. fine of EUR 400,000), additional consideration will be made of the degree of indebtedness as well as the average percentage amount of underpayment. Milder penalties are envisaged for microbusinesses (up to 9 employees), as well as in the event of full and immediate assistance in establishing the truth. An additional reason for a lower penalty (due to implementation of the directive amending the PWD) will be if the relevant national website (in Austria: www.entsendeplattform.at) does not display information on the legal norms applicable to postings or temporary agency work.
A distinction will continue to be made between ZKO 3 notifications (for postings) and ZKO 4 notifications (for personnel leasing). However, according to the newly inserted Sec. 26 para 1a LSD-BG, a ZKO notification shall be considered to have been made in full if the wrong form was used erroneously (i.e., ZKO 3 instead of ZKO 4 and vice versa) as long as the form is complete. Foreign employers frequently encounter difficulties when correctly distinguishing between postings and personnel leasing, which makes it difficult, if not impossible, to implement the requirements without expert support. The amendments do not resolve this situation, even if the consequences of using the wrong form are now milder. Consequently, the amending legislation has only made a superficial change in this area, which does not address the problem of differentiating between postings and temporary agency work, which entails numerous further legal consequences (including under labour law and tax law).
d. Implementation of the directive amending the Posted Workers Directive
In order to comply with Directive (EU) 2018/957 (Directive amending the Posted Workers Directive), Austrian labour law regulations under statute law, ordinances, or collective bargaining agreements shall (with certain exceptions) apply in full for postings/hiring-out of workers from EEA states or Switzerland lasting more than 12 months. This applies in the event that the applicable regulations in the state of origin are not more advantageous. Without equivalence, the duration of 12 months may be extended to 18 months for certain factual or legal reasons (e.g., delivery delays). The rules according to the legislative materials are of particular relevance for the application of statutory rules on inability to work, or rights to leave from work (special leave) under the provisions of collective bargaining agreements.
In addition, as part of the implementation of the amending directive, Sec. 3 LSD-BG now encompasses a mandatory right of posted employees to reimbursement of expenses.
The information obligations of the employer under the AÜG in connection with the cross-border hiring-out of workers shall be extended in accordance with the amending directive.
As a result, the amending legislation, which covers a variety of diverse topics, brings much-needed clarity and simplifications in the application of the LSD-BG as well as administrative simplifications. In particular, the revision of the administrative criminal law provisions not only makes the necessary implementation of ECJ case law and eradicates the provisions contravening EU law, but also offers significant simplifications for penalties due to the removal of the cumulative principle. Nevertheless, many practical problems in the implementation of the LSD-BG remain unresolved, in which regard it shall be for those applying the legislation to ensure legal compliance via individual solutions.