By Birgit Vogt Majarek, Firm:  Schima Mayer Starlinger

A recent European Court of Justice ruling has held that the Austrian principle of cumulative sanctions for breaches of employment law rules relating to posted workers is contrary to the principle of free movement of services.

In a decision of 12 September 2019 (ECJ C-64/18), the European Court of Justice ruled that Austrian legislation which provides for administrative fines for breaches of labour law, to be imposed cumulatively without restriction on each individual breach and for each employee availability of imprisonment as an subsidiary penalty for failure to pay the fine(s) is contrary to the principle of free movement of services under Article 56 TFEU.

Background

The Croatian company, Brodmont d.o.o. (based on a contractual agreement with Bilfinger Duro Dakovic Montaza d.o.o.), leased more than 200 employees to an Austrian plant manufacturer, Andritz AG, for the purpose of short-term work on a boiler plant in Austria. During a construction site inspection at the boiler plant, the Austrian financial police revealed that in defiance of the legal requirements that applied to the posted workers, neither the necessary employment permits nor the necessary wage documents were available for the employees of the Croatian company.

As a result, the competent Austrian district commission accused the managing director of Brodmont d.o.o. as well as all four members of the executive board of Andritz AG, of having infringed their obligations under s7d of the Austrian Employment Contract Law Adaptation Act (‘AVRAG’) to provide the Austrian plant manufacturer with wage documents or to hold those documents ready for consultation for the 217 employees. Based on the cumulative penalty principle described above, the district commission imposed an administrative fine of approximately EUR 3,25 million on the managing director of the Croatian company. In addition, the district commission imposed fines of EUR 2,6 million and EUR 2,4 million on each member of the executive board of the Austrian plant manufacturer for non-compliance with s7d AVRAG.

The level of these sanctions was based on the mentioned Austrian legislation concerning Anti-Wage and Social-Dumping (regulated at the time by the Austrian Employment Contract Law Adaptation Act, now regulated by the Anti-Wage- and Social-Dumping Act) and the occupation of posted foreign workers, which provide for administrative fines between EUR 500 and EUR 50.000 in each single case. Furthermore, in the event of an appeal against the district commission’s decision further payments (for the procedural costs) are added.

However, as the competent Austrian appellate court had doubts as to the compatibility of the relevant Austrian legislation with the principle of the proportionality of sanctions under EU law it referred this question to the European Court of Justice for a preliminary ruling.

The decision

The European Court of Justice ruled that the sanction under Austrian law for breaches of labour law obligations, aiming at the social protection of employees, the fight against social fraud and the prevention of abuses in particular, constitutes an interference with the free movement of services, but this is nevertheless justified in general.

However, the European Court of Justice also stated that the objective of the fines imposed, namely compliance with labour law, could also be achieved by lower administrative fines. The combination of the described principle of cumulative penalties and no upper limit with regard to the cumulative amount (based on the number of employees involved and/or the number of single breaches) can result in disproportionately excessive administrative fines such as the ones imposed by the authority here based on the high number of employees and several formal breaches as well as fines imposed on several executive board members.

The high minimum penalty for each individual offence that breaches the formal principles of employee protection and against social fraud, and cumulative penalty principle mean that Austrian administrative courts have hardly any flexibility with regard to the total amount of the administrative fines imposed (especially in case of a legal entity where the fines are imposed on each member of the executive board). According to the European Court of Justice ruling, the Austrian legislation on cumulative penalties is therefore not reasonable taking into consideration the seriousness of the offences punished, since a relatively minor formal breach, for example, of document storage and retention rules such as in the case at hand, can lead to excessive fines. If, for example, 200 employees were involved, the breach would be penalised 200 times. The Court ruled this contradicts the free movement of services under Article 56 TFEU.

Comment

In addition to the anti social-fraud-regulations relating to posted workers, which were the concrete subject of this ruling, many other provisions in Austrian administrative criminal law that concern cross-border cases or directly implement EU law apply the principle of cumulative sanctions. In contrast to provisions in criminal law they also have no upper limit with regard to the total amount of the fine, meaning a one-time breach (of, for example, recording or preserving obligations) may trigger hundreds of fines because of the many employees affected and/or the many formal breaches of the same kind at the same time that are cumulated. The implementation of the current ruling of the European Court of Justice could have a major impact on the legal situation in Austria.

Many distinguished representatives of the legal professions argue in favour of abolishing the principle of cumulative sanctions based on this ruling and replacing it with the principle of ‘absorption’ (as stipulated in Austrian judicial criminal law). According to the absorption principle, only one penalty can be imposed at a time for cases such as a breach of anti-social fraud regulations and repeated offences or several offences occurring simultaneously can only be regarded as aggravating circumstances.