The European Court of Justice (ECJ) recently ruled that fines imposed under Austrian legislation exceeding EUR 13 million for failure to comply with the obligations for posted workers are disproportionate. The ECJ ruled that Austria’s national legislation is in conflict with the freedom to provide services outlined in article 56 of the Treaty on Functioning of the European Union (TFEU). This means that the ruling has a broader impact beyond Austria. The ruling could have implications for compliance efforts and fines established for non-compliance in EU countries.
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The European Court of Justice (ECJ) ruled in joined cases for “Maksimovic and Others”1 that fines imposed under Austrian legislation exceeding EUR 13 million2 for failure to comply with the obligations for posted workers are disproportionate.
The ECJ ruled that Austria’s national legislation is in conflict with the freedom to provide services outlined in article 56 of the Treaty on Functioning of the European Union (TFEU). This means that the ruling has a broader impact beyond Austria.
The ECJ justifies the application of the financial administrative penalties and fines, but declares that such measures must be proportionate. Fines that vary in accordance to the number of workers are not disproportionate, but the Court finds that fines for non-compliance in regards to administrative permits and payroll documentation:
The ruling could very well lead to a revision of the fines applied/devised in EU countries. This case will not lead to diminished efforts to conduct labour inspections, though it could lead to a higher level of compliance for workers from abroad that companies in both home and host countries must fulfill.
The case concerned a large Austrian paper/pulp company (“Company A”) which had contracted with an Austrian engineering company (“Company B”) to conduct repairs. Company B has four members on its company board.
Company B then contracted with a Croatian company (“Company D”) in 2015 to complete the necessary repairs after another Croatian company (“Company C”) failed to conclude the work.
The Austrian fiscal investigation service (Finanzpolizei) visited the construction site on three different occasions and concluded that the necessary payroll administration was not complete for any of the workers present. Consequently, Finanzpolizei issued substantial fines to each of the four board members in Company B and the highest fine to the company director for Company D.
The ECJ ruled out the application of the Directive for Posted Workers 96/71/EC as this Directive does not contain monitoring measures. Further, the Court ruled out the application of the Enforcement Directive 2014/67/EU that includes such measures given that this Directive was not transposed into Austria’s national legislation at the time of the circumstances of this case.
When it comes to fines for administrative non-compliance, as we see with this ruling, the sky is not the limit and, as such, fines which exceed EUR 13 million for this type of offence are very excessive (regardless of the fact that such fines could have – arguably – a deterrent effect and conceivably could “persuade” many companies to pay close attention to the compliance requirements in respect of their foreign workers).
It is important to note that in principle the ECJ does not find financial fines for administrative non-compliance as an obstruction to the freedom to provide services – quite the contrary!
The judges refer to the TFEU in their legal basis for this ruling, indicating that requirements for administrative compliance and the fines established for non-compliance that countries implement in their national legislation are not restricted to a certain type of worker, e.g. posted workers.
1 Case nos.: C-64/18, C-140/18, C-146/18 and C-148/18 can be found on the website of the Court of Justice of the European Union.
2 The fines could be converted to prison sentence between 1,600-1,736 days for each responsible agent.
The information contained in this newsletter was submitted by the KPMG International member firm in the Netherlands.
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