On 1 January 2017 the

Austrian Wage and Social Dumping Prevention Act (Lohn- und

Sozialdumping-Bekämpfungsgesetz – abbreviated to "LSD-BG") came into

effect. An enhanced liability regime for the principal shall reduce and ultimately

eliminate the undercutting of wages, in particular in the construction sector.

The last six months have shown increased awareness of potential liabilities by

principals and workers.

The Wage and Social Dumping Prevention Act has national and

international roots with provisions deriving from former Austrian legislation and

from directive 2014/67/EU, in particular article 12 on the subcontracting

liability. The following scenarios are covered by section 8-10 of the new Act:

of the principal for wages of posted workers from non-EU countries (sec 8);

of the principal for wages of posted or assigned workers for construction

services (sec 9), mainly based on art 12 of the EU directive;

of the contractor for wages of workers of the subcontractor from EU countries

(sec 10).

All three provisions are mandatory and cannot be opted out. While

section 8 and 10 had already been in effect in a similar form, section 9 is

entirely new. Construction companies have been facing challenges with the new

section 9 with case law about to develop in the next months. The following

shall provide a brief summary of this liability and ideas on how to tackle the

new issues in general contractor agreements in Austria.

9 requires a tripartite relationship: (i) the principal agrees on services with

(ii) the constructor who employs (iii) workers for the provision of the

services.

workers have the right to claim from the principal the wages as set out under

Austrian laws, regulations or collective bargaining agreements (legally, the

principal acts as surety provider with immediate recourse – Bürger und Zahler).

principal is only liable if they either knew or should have known about the

undercutting of wages. While knowledge is likely to be the exception and hard

to prove in court, the alternative may be easily triggered, especially if the

price for the services is comparatively low (in particular compared to Austrian

contractors). Courts, however, should be reluctant to apply section 9 too

easily as this would put principals under massive constraints in negotiations

forcing them to request more information before contracting and also increasing

transaction costs.

of Recourse: If section 9 applies, the principal has the right to deduct any

monies paid to the worker from the remuneration agreed on in the contracting

agreement. If the remuneration has been fully paid, the principal can also

reclaim the monies from the contractor.   

Workers must approach the Office for Leave and Severance Payments of

Construction Workers (Bauarbeiter-Urlaubs-

und Abfertigungskasse) which decides by informal letter sent to the

principal. If the principal refuses payment, the worker must file a lawsuit

against the principal within nine months in order not to lose his claim.

Contracting agreements should contain clauses covering the potential

liability under the Wage and Social Dumping Prevention Act, in particular on

the question what the principal can do if a claim is asserted. In addition,

agreements should cover the construction stage with continuing obligations of

the contractors to regularly provide information on their workers on the site

(name, address, social security number, etc). Such information allows the

principal to act fast and eliminate risks immediately.

Principals and contractors are well-advised to address the new liability

regime in their contractor agreements in order to reduce the risk of liability.

Lengthy proceedings may otherwise be the consequence.

Author: Klaus Pfeiffer

Attorney / Expert on Real Estate and Construction Law at DORDA Attorneys at Law