Risk of “principal’s liability” pursuant to Section 13 of the German Minimum Wage Act
Even before the minimum wage comes into force on 1 January 2015, companies are expressing concern due to the “liability of the principal” pursuant to Sec. 13 of the German Minimum Wage Act (Mindestlohngesetz – MiLoG): Does a company in future have to check whether the tradesman it hires pays his workers properly?
Reference in the German Minimum Wage Act to the German Employee Secondment Act
Sec. 13 of the German Minimum Wage Act broadly refers to Sec. 14 of the German Employee Secondment Act (Arbeitnehmerentsendegesetz – AentG) and is therefore to read as follows:
A company, which instructs another company to render works or services, is liable for the obligations of such other company, a sub-contractor or a hirer instructed to act by such other company or a sub-contractor to pay the minimum wage to employees […] like a guarantor who has waived the defence of unexhausted remedies (Einrede der Vorausklage).
As made clear by the heading of Sec. 13 of the German Minimum Wage Act, the issue here is a principal’s liability for companies. This would, when simply reading this statutory provision, appear very broad and is therefore the reason for the current concerns: How should all sub-contractors be checked? “Guidance” could be provided by the case law of the Federal Labour Court (Bundesarbeitsgericht – BAG) on Sec. 14 of the German Employee Secondment Act. The Federal Labour Court interprets Sec. 14 of the German Employee Secondment Act, to which Sec. 13 of the German Minimum Wage Act broadly refers, restrictively: according to the purpose and intent of this provision, not every principal should be liable, but only companies who use third parties to meet their obligations. This concept is summarized concisely as “general contractor liability”.
Care required: Can the case law of the Federal Labour Court on Sec. 14 of the German Employee Secondment Act be applied to the German Minimum Wage Act?
Initial opinions therefore now want to give the all-clear with respect to Sec. 13 of the German Minimum Wage Act, saying that the restrictive case law of the Federal Labour Court (on “general contractor liability”) also applies here. After all, parts of the explanatory memorandum of the Act, which emphasise a correspondence of Sec. 13 of the German Minimum Wage Act and Sec. 14 of the German Employee Secondment Act. Doubts are, however, raised by a passage in the explanatory memorandum to the Act, according to which a liability of the “principal […], in particular a general contractor,” is desired. The addition of “in particular” indicates that the liability pursuant to Sec. 13 of the German Minimum Wage Act is not limited to a general contractor liability in accordance with the model of the German Employee Secondment Act. The restrictive interpretation of the Federal Labour Court relating to Sec. 14 of the German Employee Secondment Act is also extremely disputed.
In addition, any opinion should not prematurely be based on the term “general contractor”: Even if one does not see oneself as a “general contractor”, one can be a “general contractor” in the meaning of the case law of the Federal Labour Court. The Federal Labour Court’s arguments are namely based on the purpose and intent of the principal’s liability. These considerations could also apply to a principal, who does not purchase works or services on the market like a third party, but itself creates and controls a complex works or services structure. Group service companies could therefore also be affected by principal’s liability if the restrictive interpretation of the Federal Labour Court is followed (“general contractor”). Practical concerns are therefore legitimate. The question for companies is “What do we have to do to prevent liability pursuant to Sec. 13 of the German Minimum Wage Act?”
What should concerned companies do?
General contractors, but possibly principals ordering complex works or services should therefore review their contracts at the earliest convenience and if necessary revise these. The contractor should at least warrant that it will meet its obligations under the German Minimum Wage Act (and if applicable the German Employee Secondment Act). According to the risk, additional protective measures can make such. These can for example be special termination rights, the provision of a guarantee and auditing rights. Making the use of additional sub-contractors subject to prior consent can also contribute to risk minimization. Admittedly, however, all these things have to be checked carefully in each individual case.
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