Even companies with their registered seat outside of Germany and without any employees in Germany may face claims based on the newly introduced German Minimum Wage Act.
German Minimum Wage Act since 1 January 2015
The new German Minimum Wage Act (referred to as the Act) entered into force 1 January 2015. Itsets the minimum wage to EUR 8.50 per hour. Companies registered in Germany and abroad are liable for the minimum wage of their own employees working in Germany. They are also liable for their sub-contractor (and its sub-contractors) to pay the statutory minimum wage to its employees, as if they were a guarantor (section 13 of the Act). It is therefore vital to select any sub-contractor carefully and obtain – at least – their contractual assurance that they do pay the minimum wage. Further contractual obligations are recommendable, depending on the specific risks linked to the individual contract. Failure to do so could carry a fine of up to EUR 500,000.00, since an administrative offence shall be deemed to be committed by any person who has significant work or services carried out by a contractor, being aware or negligently failing to be aware that the contractor fails to pay (or to pay in due time) the minimum wage or employs a sub-contractor or allows that a sub-contractor becomes active that fails to pay or to pay in due time the minimum wage.
Sub-contractor-liability for companies registered outside of Germany
While the Act explicitly mentions that both employers registered in Germany as well as those registered abroad are liable for the minimum wage of their employees, the Act is not as explicit with regard to the sub-contractor liability. There has not been any court decision on this question yet, nor has any legal commentary dealt with it.
Since this is a situation involving a conflict of laws, the rules and regulations of private international law will decide upon the sub-contractor-liability for foreign companies.
In the European Union, the Rome I Regulation (EC No 593/2008 of 17 June 2008 on the law applicable to contractual obligations) applies. The parties' freedom to choose the applicable law is one of the cornerstones of the system of conflict-of-law – not without limitations, though. Regardless of the choice of law effect must be given to the so-called overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed. Rome I Regulation (Article 9) defines such overriding mandatory provisions as provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organization..
Generally speaking, so far there are not many "overriding mandatory provisions" in German employment law (e.g. protection against dismissals under the Maternity Protection Act is regarded as mandatory, while general protection against unfair dismissals and the law on transfers of undertakings (TUPE) is not). There are some arguments against the characterization of section 13 of the Act as overriding mandatory provision, such as:
- the Act mentions companies registered outside of Germany only explicitly in the context of the employer's liability for the minimum wage, but not with regard to sub-contractor-liability;
- sub-contractor-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 the sub-contractor-liability could rather be regarded as an "add-on";
- the sub-contractor-liability covers only the net-wages.
However, from our perspective there are more arguments in favor of the characterization of section 13 of the Act as overriding mandatory provisions, such as:
- section 21 of the Act stipulates an administrative offence for working together with a contractor, being aware or negligently failing to be aware that such contractor fails to pay the minimum wage;
- the minimum wage shall be guaranteed even if the employer becomes insolvent;
- all companies profiting from the employees' work shall be held liable for the minimum wage, all service contracts shall therefore be stipulated in a way ensuring the payment of the minimum wage;
- companies with registered seat in Germany would be disadvantaged in comparison to companies registered abroad;
- companies could easily circumvent sub-contractor-liability by contracting via companies with registered seat outside of Germany.
There is much to suggest that such claims fall under the jurisdiction of German employment courts (Articles 20 et seqq. of Regulation (EU) No 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters).
Besides this legal perspective, there are factual aspects which give reason to believe that employees who do not receive the minimum wage by their employers, e.g. due to its insolvency, claim the minimum wage to be paid by their employer's contractors, regardless of their registered seat. This is even more true due to the high visibility and political impact of the Act in Germany. Moreover, there are specific industrial sectors where the newly introduced minimum wage is often not paid, such as logistics, security and cleaning services. If such services are contracted, the factual risk of employees claiming their minimum wage is quite high.
Against that background, it is recommendable to screen any respective international service contracts to see whether they contain general clauses that already cover the risks linked to the broad sub-contractor-liability for German minimum wages. If not, such contracts should be amended accordingly, depending on an individual risk-assessment taking into account the industry sector, the number of employees and sub-contractors, and the reputation of the sub-contractors involved.