Even companies which are registered outside Germany and have no employees in Germany may face claims based on the new Minimum Wage Act.
Minimum Wage Act
The Minimum Wage Act entered into force on January 1 2015 and set the minimum wage at €8.50 per hour. No matter whether a company is registered in Germany, it is liable to pay the minimum wage to its own employees working in Germany. Further, under Section 13 of the act, a company is also liable for its contractors (and their subcontractors) to pay the statutory minimum wage to their employees. It is therefore vital to select contractors carefully and to obtain contractual assurance that they pay the minimum wage. Further contractual obligations are advisable, depending on the specific risks covered by the contract. Failure to draft an appropriate contract could result in a fine of up to €500,000, since it is an administrative offence to commission a contractor to carry out work or services, aware or negligently unaware that the contractor:
- fails to pay (or fails to pay in due time) the minimum wage; or
- commissions (or allows commissioning of) a subcontractor, aware or negligently unaware that the subcontractor fails to pay (or fails to pay in due time) the minimum wage.
While the act explicitly provides that both German and foreign-registered employers are liable for the minimum wage of their own employees in Germany, it is not explicit with regard to subcontractor liability. To date, no courts have ruled on this issue and no legal commentary has dealt with it.
Since this situation involves a conflict of laws, the rules and regulations of private international law will determine subcontractor liability for foreign companies. As such, the EU Rome I Regulation (593/2008), which determines the applicable law of contracts in civil and commercial matters, applies in the European Union.
Parties' freedom to choose the applicable law is one of the cornerstones of the system of conflict of law. However, this is not without limitations: regardless of the choice of law, effect must be given to the overriding mandatory provisions of the law of the country in which the contractual obligations are performed. Article 9 of the EU Rome I Regulation defines such 'overriding mandatory provisions' as those which a country regards as crucial for safeguarding its public interests (eg, its political, social or economic organisation).
Generally speaking, German employment law contains few overriding mandatory provisions. For example, protection against dismissal under the Maternity Protection Act is regarded as mandatory, while general protection against unfair dismissal is not, nor is the law on transfers of undertakings.
The following arguments can be made that Section 13 of the Minimum Wage Act will not be viewed as an overriding mandatory provision:
- The act mentions companies registered outside Germany only explicitly in the context of the employer's liability for the minimum wage – not with regard to subcontractor liability.
- Subcontractor liability is a civil liability which, if violated, does not directly constitute an administrative offence.
- The main goal of the act is to guarantee the minimum wage, while subcontractor liability could rather be regarded as an 'add-on'.
- Subcontractor liability covers only net wages.
However, the arguments that Section 13 will be viewed as an overriding mandatory provision are more persuasive:
- Section 21 of the act specifies that commissioning a contractor while aware or negligently unaware that such contractor fails to pay the minimum wage is an administrative offence;
- The minimum wage must be guaranteed even if the employer becomes insolvent;
- All companies profiting from the employees' work are liable for the minimum wage and all service contracts must therefore be stipulated in a way that ensures payment of the minimum wage;
- If Section 13 were not an overriding mandatory provision, companies with a registered seat in Germany would effectively be disadvantaged; and
- If Section 13 were not an overriding mandatory provision, companies could easily circumvent subcontractor liability by contracting via companies registered outside Germany.
Existing legislation suggests that minimum wage liability claims will fall under the jurisdiction of German employment courts (eg, Articles 20 and following of EU Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters).
It is probable that employees who do not receive the minimum wage from their employers (eg, due to insolvency) will to claim the minimum wage from their employer's contractors regardless of their registered seat – especially given the high visibility and political impact of the Minimum Wage Act in Germany. Further, the new minimum wage is often not paid in specific industry sectors, such as logistics, security and cleaning services. If such services are contracted, the likelihood of employees claiming the minimum wage is quite high.
Employers should screen prospective international service contracts to see whether they contain general clauses that cover the risks linked to broad subcontractor liability for the German minimum wage. If not, such contracts should be amended in accordance with an individual risk assessment that takes into account the industry sector, the number of employees and subcontractors and the reputations of the subcontractors involved.
For further information on this topic please contact Barbara Bittman or Susanne Mujan at CMS Hasche Sigle by telephone (+49 211 4934 418) or email (email@example.com or firstname.lastname@example.org). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
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