Statutory minimum wage of 8.50 Euro as from 1 January 2015

The Law to Strengthen Free Collective Bargaining will result in the introduction of a national minimum wage of 8.50 Euro per clock hour in Germany with effect from 1 January 2015. Even employers who already pay above the minimum wage must prepare for far-reaching changes. The Minimum Wage Act (MiLoG) gives rise to a number of complex questions, illustration of which would go beyond the limits of this Newsletter. This article is therefore limited to a cursory illustration of a few selected problem areas. All employees – including those in insignificant employment – are covered by the MiLoG. Practical trainees are also employees within the meaning of the law (Section 22 MiLoG). The exceptions, formulated in Section 22 Subsection 1 MiLoG for this group of people, throw up questions that are not answered by the law and which create significant legal uncertainty. For example, an internship of up to three months for the purpose of gaining orientation for vocational training or for studying, need not be remunerated by the minimum wage. In the event of exceeding of the three-month period, is the minimum wage payable from day 1 or only as from month 4?

Due date

Under Section 2 MiLoG, the minimum wage is payable on the agreed due date, at the latest however on the last banking day (Frankfurt am Main) of the month following the month in which the work performance was provided, see Section 2 MiLoG.

Crediting of allowances etc

This therefore gives rise to the question – also unanswered by the law – as to which remuneration components can be credited against the minimum wage of 8.50 Euro per clock hour. If one transfers previous case law related to the Law on the Posting of Workers (AEntG), payments are only taken into account if they do not alter the ratio of performance and counter-performance, if they serve as remuneration for the “normal performance”. Accordingly, annual special payments are only credited against the minimum wage in so far as they are paid monthly and irrevocably.

Beware of concealed circumvention when formulating contracts

Caution is called for when formulating contracts. For example, the agreement of a fixed monthly remuneration or of unpaid overtime can result in concealed circumvention of the envisaged minimum hourly wage. Section 2 Subsection 2 MiLoG could offer a solution to this problem, as it contains an escape clause in favour of working-time accounts.

Obligations to document

MiLoG will create increased documentation obligations for employers. For example, the start, end and duration of daily work must be recorded for each insignificant employee – irrespective of the sector in which he/she works – up until the end of the seventh calendar day following the date of the work performance, Section 17 Subsection 1 MiLoG. These records must be kept for at least two years from the authoritative date for the recording. The above rulings also apply to the industrial sectors and branches of the economy stated in Section 2a of the Law Combating Illicit Work (for example freight forwarding, transport, logistics, industrial cleaning, the building sector, passenger transport) and to  hirers using temporary employees in one of the above sectors.

Liability under 13 MiLoG

One ruling that has thus far been neglected to a large extent in practice is Section 13 MiLoG. Under this ruling, an entrepreneur who appoints another entrepreneur to provide work or services is liable for the obligation of this entrepreneur, the subcontractors and hirers involved to pay the minimum wage to the respective employees. If, therefore, employees in the order chain are not paid the minimum wage, they can choose one principal within the order chain and demand the minimum wage from this principal. The party claimed against must pay and cannot be exculpated from this liability.

Section 13 MiLoG as liability of the principal or general-contractor liability

An outstanding question is whether Section 13 MiLoG constitutes liability of the principal or exclusively general-contractor liability based on the case law of the Federal Labour Court (BAG) concerning Section 1a AEntG. In the latter case, only the party in turn using subcontractors for the performance of its obligations would be liable.

Non-obligatory status, waiving, forfeiting

The entitlement to the minimum wage is mandatory. Consequently, preclusive periods under employment contracts or collective wage agreements are not applicable in respect of this entitlement. Waiving is only possible for entitlements already created, and even then only on the basis of a judicial settlement. Forfeiture is excluded.

Administrative offence and administration fine

Even unintentional violations of the MiLoG involve significant liability risks. Because, if the employer does not pay the minimum wage or does not do so on time, he is acting illegally under Section 21 MiLoG. This is liable to punishment by an administration fine of up to 500,000 Euro. The same applies to employers who have work or services provided by another entrepreneur in a significant scope, if the latter or a subcontractor does not pay the minimum wage or does not do so on time, and the principal was aware of this or should have been aware of it. Failure to document or incorrect documentation is likewise punishable by administration fine.

Effects on competitive tendering procedures

The imposition of an administration fine of at least 2,500.00 Euro has far-reaching consequences since, under Section 19 MiLoG, companies concerned are to be excluded from awards of public contracts for an appropriate period until such time as their reliability has been restored.

Criminal liability and (potential) personal liability

Last but not least, account must be taken of the potential criminal liability as a result of the withholding and misappropriation of work remuneration (Section 266a StGB (German Criminal Code)). As the level of the social charges to be paid is based on the minimum wage owed and not on the lower   remuneration actually paid, failure to pay the minimum wage is also likely to involve non-payment of social charges – and potential personal liability of the party responsible.

Summary

Employers should check in sufficient time prior to the coming into effect of the MiLoG whether payment of the minimum wage is ensured in all contract constellations, or whether there is a need for adjustment in terms of employment contracts or payment modalities. Contracts of employment and contracts for work and services should be supplemented in order to minimise the risk of liability under Section 13 MiLoG, for example through the inclusion of indemnification agreements.