Over the past decade, the phenomenon of cross-border subcontracting has become even more popular. Increasingly often, foreign companies are part of a contracting chain and foreign employees are seconded to the Netherlands. The stimulation of the free movement of services seems to be successful. Further, it enhances the flexibility of the labour market. However, there are also negative points. The increased use of contracting chains leads to infringement of the rights of employees at the bottom of the chain. In spite of the implementation of the EU Posting Directive,(1) foreign employees seconded to the Netherlands do not always receive what they are entitled to. Recent examples are the proceedings before the Court of Groningen against a Turkish building company(2) and against a Polish installation company,(3) and before the Court of Appeal of 's-Hertogenbosch against a Polish temporary employment agency.(4)
The Netherlands is not the only country where problems have arisen with the enforcement of the Posting Directive. In order to improve, enhance and reinforce the way in which the directive is applied and enforced across the European Union, the European Commission has published a proposal for a directive on the enforcement of the Posting Directive.(5) The proposal contains specific provisions concerning contractors' obligations and joint and several liability with respect to compliance with the relevant terms and conditions of employment of posted workers by subcontractors. The introduction of this chain liability can have major consequences for Dutch principals and contractors and, among other things, might lead to an increased administrative burden in future. This update considers this joint and several liability in more depth, but first looks at the Posting Directive and the existing enforcement possibilities in the Netherlands.
Pursuant to the Posting Directive, member states must guarantee workers posted to their territory, regardless of the law applicable to their employment relationship, certain terms and conditions of employment as laid down in the law or a collective bargaining agreement that is declared generally applicable. It provides a limited list of elementary terms and conditions that should be guaranteed (eg, minimum rates of pay, paid holidays and maximum work periods).
In the Netherlands, the Posting Directive was implemented by the Terms of Employment (Cross-Border Work) Act. The provisions of collective bargaining agreements in respect of core employment conditions that have been declared generally binding are applicable on the basis of Section 2(6) of the Collective Agreements (Declaration of Universally Binding and Non-binding Status) Act.
The Posting Directive does not set down direct enforcement rules, but leaves this to member states. Member states are obliged to take adequate measures in case the directive is not being complied with.They must make sure that the employees and/or their representatives have access to procedures to enforce performance of the obligations of their employer pursuant to the directive. In addition, the employee must be able to start court proceedings in the country of employment in order to assert his or her rights to the basic terms and conditions.
The Netherlands provided for this possibility in Section 6(c) of the Code of Civil Procedure. Collective bargaining provisions that are declared generally binding can be enforced on a civil law basis by individual employees or by a party to the collective agreement before the court. The parties to the collective bargaining agreement can bring a matter before the court on the basis of Sections 3:305a and 3:305b of the Civil Code and Section 9(2) of the Collective Agreements Act.
The proposal for the new directive takes a comprehensive approach to enforcement, including:
- raising awareness (better information); and
- implementing state enforcement mechanisms (inspections and penalties) and civil law enforcement mechanisms (joint and several liability).
This update focuses on joint and several liability in the case of subcontracting.
The proposal provides for obligations and (joint and several) liability of the contractor with regard to the obeservance of the employment conditions of employees seconded by the subcontractors. The category of persons covered is limited to the building activities listed in the annex to the Posting Directive, but member states can extend the scope to other sectors.(6) The main objective is prevention, together with the possibility for member states to maintain or implement further-reaching systems of joint and several or chain liability.
The proposed directive requires member states to ensure that the contractor of which the employer is a direct subcontractor can, in addition to or in place of the employer, be held liable by the posted worker and/or social partners for non-payment of:
- any outstanding net remuneration corresponding to the minimum rates of pay and/or contributions due to the social partners, to the extent that these fall under the core employment conditions; and
- any back payments or refund of taxes or social security contributions unduly withheld from his or her salary.
The proposal includes a possible indemnity for a contractor who has undertaken due diligence, although it does not define the concept of due diligence. However, it gives the example that the contractor can ask the employer to provide evidence with regard to the observance of the core employment conditions that apply in the host state. To this end, the employer can, for example, produce payslips and evidence of payment of wages and compliance with its obligations in respect of social security and taxation.
In view of the free movement of services, the administrative requirements and control measures that a member state may impose are limited. According to the proposed directive, a member state may ask for a declaration to be made at the commencement of the service provision at the latest. The declaration may cover only:
- the identity of the service provider;
- the presence of one or more clearly identifiable posted workers;
- the anticipated number of workers;
- the anticipated duration and location of their presence; and
- the services justifying their posting.
Further, a member state may impose the obligation to keep, make available and/or retain paper or electronic copies of the employment contract, payslips, timesheets and proof of payment of wages or copies of equivalent documents during the period of posting (eg, at the building site). Member states can ask for translations of these documents and can require the foreign employer to designate a contact person.
It is still unclear what this due diligence entails and when the contractor is supposed to have exercised due care. If the Dutch legislature follows the example given in the proposal, will a Dutch company have to establish each month whether the foreign subcontractor pays its employees in accordance with Dutch conditions? If the foreign contractor does not do so, will it have to check whether an exception applies because the already-applicable employment conditions are more favourable or because there would otherwise be double charges? In order to be able to assess this and to compare the employment conditions, the contractor will have to investigate the employer's exact obligations. This could go as far as checking whether the employee is classified in the correct job grade. The question is whether this is possible at all. It is up to the Dutch legislature to determine how the possibility of disculpation in view of the chain liability will be given substance in the Netherlands. Should the example given in the proposal be followed, this might lead to a heavier administrative burden for Dutch principals and contractors.
An increase in the administrative burden is unlikely to be sufficient reason to decide to drop the chain liability. In Wolff & Müller(7) the additional administrative burden and costs resulting from a German regulation of chain liability were put forward as an argument. However, this objection was rejected. According to contractor Wolff & Müller, the chain liability was contrary to the free movement of services – in particular, it could result in national contractors having to carry out particularly intensive checks and obtain evidence from foreign subcontractors. The European Court of Justice considered that on an objective view, the chain liability ensures the protection of posted workers. Inasmuch as one of the objectives of the national legislature is to prevent unfair competition on the part of undertakings paying their workers at a rate less than the minimum rate of pay, such objective may be taken into consideration as an overriding requirement capable of justifying a restriction on freedom to provide services. Therefore, a chain liability and the accompanying increase of the administrative burden is appropriate and proportionate. In principle, the Netherlands is optimistic about the proposal, but it has raised the issue that the directive should not lead to an increased administrative burden.
A majority of member states have indicated that they are in favour of a European system of chain liability. A small group within this majority, including the Netherlands, is advocating some form of prudent arrangement in respect of the requirements that companies must fulfil, which member states can define.
The proposed directive does not include a detailed substantiation of such prudent arrangements. The explanatory notes do indicate that the required due diligence can exist in preventive measures with regard to the evidence to be provided by the subcontractor. However, this could lead to an increased (administrative) burden for Dutch companies that engage a foreign company to carry out work in the Netherlands.
The European Parliament is due to hear the first reading of the proposed directive on February 3 2014. It is expected that details of the concept of due diligence will be discussed. Thus, the issue of how to escape chain liability cannot yet be resolved.(8)
For further information on this topic please contact Maartje Govaert or Annette van Beers at Norton Rose Advocaten & Solicitors by telephone (+31 20 46 29 300), fax (+31 20 46 29 333) or email (firstname.lastname@example.org or email@example.com).
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(5) Proposal for a directive of the European Parliament and of the Council on the enforcement of Directive 96/71/EC concerning the posting of workers in the framework of the provision of services (COM(2012) 131).