Unwelcome surprise: EU posted worker changes have broader impact on mobile workforces

In European Union parlance, the term ‘posted worker’ typically brings to mind an employee from one of the lower wage European countries, for example, the Czech Republic, being sent to a higher wage country, such as Germany, to complete a service contract won by his or her Czech employer. The contract might be to build a school in Germany, for example.

For many multinational employers, the whole concept of posted workers, together with their EU legal protections, are baffling but, happily, they could also be largely ignored. Not now. Posted worker changes implemented last year are affecting some intra-group transfers, secondments and expatriate assignments, with many employers not aware that they may be in breach. We explain why below.

What are posted workers?

A posted worker is an employee who is sent by his employer in one EEA[1] country (the ‘home’ country) to carry out a service in another EEA country (the ‘host’ country) on a temporary basis and remains employed by the sending company during the posting.

Importantly, a posted worker can include an employer posting a worker from one EEA country to an establishment or to an undertaking owned by the group in another EEA country i.e. some intra-group transfers (providing the employment relationship remains with the home country employer and the posting is for a limited period). An employee posted to the EEA from an employer outside the EEA, such as a US expatriate, is not a posted worker for the purposes of EEA legislation.

The rights of posted workers under EEA law

The Posted Workers Directive (‘PWD’) was agreed in 1996 and it extends to the EEA. Under the PWD, posted workers benefit from certain minimum employment rights under the laws of the host country, for example, they must be paid at least the minimum rates of pay applicable in the host country for the period of the posting. The aim of the PWD is to promote free movement while protecting workers and preventing ‘social dumping’ (cross-border undercutting of wages).

Recent developments to tackle exploitation

Since 1996, concerns have grown over non-compliance with the PWD and the exploitation of posted workers. For example, the use of sham postings to confer a labour cost advantage to the posting employer over local companies in the host country (the posting employer having to comply with a narrow set of minimum rights and no more).

As a result, the EU implemented in June 2016 the Enforcement Directive (‘Directive’) to strengthen the protection of posted workers and stop circumvention of the rules. Penalties for breach differ by country and typically include fines or inspections.

The Directive provides for new administrative checks, levied on the employer posting the worker, to verify whether a posting is genuine or a sham arrangement including that a country may (but is not required to) introduce legislation requiring employers to:

  • identify workers posted to that country: this might include, before or upon commencement of the posting(s), information on their number, anticipated duration, workplace addresses and the nature of the services justifying the posting
  • provide or make available copies of contracts of employment together with payslips, time-sheets and proof of payment of wages (translated into the host language if required)
  • identify a local contact to liaise with authorities
  • identify a person (which may be the same as the local contact) to act as a representative through whom trade unions may seek to enter into collective bargaining with the employer within the host country.

The Directive provides also for contractor liability, in the construction sector, if the direct subcontractor fails to pay statutory minimum pay rates.

Unwelcome surprises for employers with mobile employees

Previously, an employer posting employees between EEA countries would typically only pay attention to the PWD if rates of pay were low compared to the host country, to ensure compliance with minimum pay in that country and to provide evidence of compliance to local authorities if requested. The PWD was therefore largely irrelevant to the movement of well-paid mobile employees across EEA borders.

However, the Directive’s new notification and registration measures apply regardless of the posted workers’ pay and conditions, forcing more employers to pay attention for the first time. In addition, when implementing the Directive, some EEA countries extend the requirement to register and provide information beyond posted workers to expatriates assigned from outside the EEA, such as the US, who would otherwise fall outside the PWD (as defined above).

What are the risks to employers?

A practical first step is to check whether an employer is, in fact, dealing with a posting under EEA legislation. For example, the transfer may not be temporary in character: if it is for an unlimited period of time or the employee is not expected to return to the home country. If it does not have the characteristics of a posting, the changes resulting from the Directive may not apply.

However, given that EEA countries are implementing the Directive differently, it is also necessary to check whether particular EEA countries involved have decided to implement the optional notification and registration requirements under the Directive and whether they have extended those requirements beyond posted workers to, for example, all foreign secondees.

Some countries, such as the UK, have decided against changing local notification laws in response to the Directive[2]. Those that have include Belgium, Finland, Italy, Ireland, Poland and Sweden. For example:

  • in Belgium, an existing requirement to register foreign (not just EEA) posted employees has been strengthened by the requirement to provide, upon the request of the Inspectorate services, four types of documents and information: a copy of the employment contract, information on the currency used for paying remuneration and proof of payment, any other benefits linked to the secondment, working time records
  • in Finland, an enhanced reporting duty for foreign (not just EEA) posted employees will be implemented this year requiring employers to provide information before the posting commences with a potential maximum 10,000 Euro fine for non-compliance
  • Ireland has introduced a new registration requirement but it only applies to posted workers (as defined above). A potential fine of up to Euros 50,000 applies in the event of a breach
  • Italy has applied its new registration requirements to all foreign posted workers before they commence work. They are enforced by new powers of inspection and fines
  • Poland has introduced new registration and information requirements which extend to foreign (not just EEA) postings. They are also enforced by powers of inspection and a maximum fine of approximately Euros 6,900
  • Sweden requires the registration of any employees working in the country for more than five days regardless of where they come from.

Comment

Some employers are unaware of the new registration and information requirements introduced last year in some EEA countries and how they affect secondments between EEA group companies. The fact that they may also affect the movement of expatriate workers into the EEA from non-EEA countries is adding confusion, particularly when overlaid with other work permit or immigration requirements. However, given the risk of labour inspections and fines for non-compliance, employers with mobile workforces need to take note.

Finally, a proposal to further strengthen posted workers’ rights is on the EU agenda. It proposes equal pay for posted workers when compared to host country worker pay which has the potential to affect EEA intra-group secondments. The proposal has met strong opposition from nine member states and may stall as a result. But, employers should keep a watching eye on this topic in case the deadlock is broken and a new directive is agreed.