“Wage and social dumping” is the term used to describe situations where employers deprive employees of, at least a part of, the remuneration due to them under a law, ordinance or collective bargaining agreement. Wage and social dumping can be committed by both domestic and foreign employers. In Austria, minimum pay standards for most employment relationships are provided for in collective bargaining agreements the regulations of which have normative effect and are mandatory to the extent they inure to the benefit of the employees.

But collective bargaining agreements do not apply “automatically” as soon as an employee takes up work in Austria. Therefore, the legislator created rules to combat wage and social dumping, in particular by enacting sections 7 et seq of the Austrian Employment Contract Law Amendment Act (Arbeitsvertragsrechts-Anpassungsgesetz, AVRAG).  Employers infringing upon the provisions of the AVRAG are even subject to administrative penalties.

As the AVRAG contains only a very brief statement of the legal standards and in order to increase the penalties provided for therein, the legislator enacted a separate law combatting wage and social dumping (Lohn- und Sozialdumping – Bekämpfungsgesetz, LSD-BG), which shall enter into force as of 1 January 2017. Cases concerning the period until 31 December 2016 remain subject to the regulations of the AVRAG, though.

As a rule, the LSD-BG shall apply to persons who have their ordinary place of work in Austria or are posted to Austria from a member state of the EU or EEA or from Switzerland or from third countries to carry out work or are temporarily hired out to Austria under cross-border arrangements. But the authorities will also check on the wages of quasi-employees, i.e., economically dependent persons who carry out work on behalf and for account of specific persons without having employment contracts.

Section 3 LSD-BG provides that employees whose ordinary place of work is located in Austria are necessarily entitled to the pay that is due under a law, ordinance or collective bargaining agreement. If the employer does not have its registered office in Austria and is not a member of an entity able to enter into collective bargaining agreements in Austria, the employees of such employer are necessarily entitled to be paid such remuneration stipulated by law, ordinance or collective bargaining agreement as is due to comparable employees of comparable employers at the place of work.

The LSD-BG entails a tightening of the current liability provisions that were often criticised as being toothless before. For instance, a general contractor acting unlawfully (general contractor liability applies only in a public procurement context) will no longer be held liable as an ordinary surety as currently, but as a surety and payor (section 10 LSD-BG).

Infringements of provisions of the LSD-BG (underpayment, non-availability of documents, etc.) are subject to high fines; in the event of repeated infringements, the fines imposed may amount to up to EUR 50,000.00. The LSD-BG will not enter into force before 1 January 2017. Nevertheless, given that the LSD-BG provides for several stricter rules, domestic and foreign employers, the time has come for general contractors and contracting authorities in the construction sector to acquaint themselves with the new regulations as soon as possible.