The first German Minimum Wage Act (MiLoG) came into force at the start of 2015 and at the end of January the first wage payments should have taken place to all employees under this legislation. However, it is widely reported that some employers are not yet complying with the requirements of the MiLoG and are making smaller payments, despite the new regulations. Foreign employers are also trying to get around the provisions of the MiLoG. Foreign haulage companies in particular are complaining about the fact that the MiLoG applies to foreign truck drivers.
Another reason to take a good look at the new requirements and their impact on foreign employers!
The legislation on the minimum wage has to be viewed in conjunction with the other acts under the agreed composite Act Strengthening the Autonomy of Collective Bargaining (Tarifautonomiestärkungsgesetz – TarifAutStG), a major pillar of the coalition agreement between the SPD and the CDU/CSU. This Act specifies a minimum wage of €8.50 per hour for all employment contracts falling within the scope of the Act. The MiLoG also contains new reporting requirements which the employers concerned must fulfill or face a fine.
2. Applicability to foreign employers?
The minimum wage of €8.50 and the reporting requirements mentioned only apply to contracts which also fall within the scope of the MiLoG.
However, the MiLoG only represents the lower limit for the statutory minimum wage. The MiLoG does not apply if another Act under the TarifAuStG, such as the Employee Secondment Act (Arbeithnehmerentsendegesetz) or the Temporary Employment Act (Arbeitnehmerüberlassungsgesetz), takes precedence. Collective agreements within the scope of these Acts must not undercut the minimum wage stipulated in the MiLoG, but “better” minimum wages will still apply to the employees concerned.
One of the most important questions for foreign employers is whether the German legislation also affects employment contracts between these employers and their employees if they require their employees to work in Germany temporarily.
The MiLoG itself remains silent on this question. Unlike the Arbeitnehmerentsendegesetz, it does not contain any specific provisions for foreign employees, merely referring to its application to all “employees”. However, this does not mean that the MiLoG does not apply to unregulated cases. Under the Arbeitnehmerentsendegesetz, statutory provisions regarding minimum wages also apply to foreign employment contracts. This is true even if these laws came into force after the Arbeitnehmerentsendegesetz and/or apply on a subsidiary basis only.
This conclusion is not contrary to European conflict-of-law rules either. This is because the applicable employment law for an employment contract with an international dimension is normally determined according to the Rome I Regulation. In principle, the Rome I Regulation allows contracting parties a free choice of law for national employment law. However, the chosen law must not cancel out the mandatory statutory requirements for the protection of employees which would apply to the contract if the law in question had not been chosen. Under the Rome I Regulation, Dutch employment law would apply to Dutch employers whose employees only work in Germany temporarily, so that the choice of Dutch employment law (as is the case for most Dutch employment contracts) is possible without restriction.
Nevertheless, the MiLoG still applies to these foreign contracts alongside the chosen national employment law. The reasoning behind this, according to the legislators, is that this is an “overriding mandatory rule”. The Rome I Regulation allows Member States to apply laws which they consider to be necessary for domestic, economic or social purposes to foreign employment contracts too. As the German federal government cited such reasons for establishing a nationwide minimum wage, the MiLoG is applicable.
However, the fact that the MiLoG applies to foreign employment contracts has attracted widespread criticism in view of fundamental European freedoms. Member States are required to ensure cross-border trade. Although the MiLoG applies equally to German and foreign companies, its provisions could be seen as discriminating against cross-border trade. While the legal literature largely presumes compatibility with freedom to provide services under the TFEU (Treaty on the Functioning of the European Union) , foreign companies are objecting strongly to the new German legislation. Resistance from several associations of business-owners and employers, as well as Member States, is now so strong that there is every likelihood that infringement proceedings will be brought against the German federal government before the European Court of Justice.
Several countries, including Poland and the Czech Republic, are also protesting to the minister responsible, Andrea Nahles, against the application of the minimum wage to foreign truck drivers merely using German motorways as a transit route. The government has announced that checks will be waived for this category of employees . The European Commission has also adopted an employer-friendly approach, asking the German federal government about the domestic, economic and social purposes justifying the application of the MiLoG to foreign companies.
In the opinion of the author, setting a nationwide minimum wage definitely serves a domestic economic purpose, whose fulfillment justifies the application of the MiLoG to foreign employment contracts. Despite the reservations, it currently is to be expected that the Act will apply to foreign employment contracts. This also applies to employment contracts with so-called “transit drivers”. These are only temporarily exempt from checks; no decision has yet been made on a permanent exemption. The reservations of foreign companies and other Member States regarding incompatibility with fundamental European freedoms are certainly well-founded. However, it should be borne in mind that infringement of a fundamental freedom does not mean that the law is automatically inapplicable. This requires a ruling of the European Court of Justice to this effect. At the same time, not every overriding of a fundamental freedom constitutes an infringement. Overriding may be justified by the fact that a regulation is necessary for reasons of “public policy”. If it is to be assumed that the MiLoG serves an overriding domestic purpose in accordance with the provisions of the Rome I Regulation regarding overriding mandatory rules, grounds of public policy are also to be confirmed with respect to the freedom to provide services under the TFEU within the context of uniformity of regulations.
In conclusion, it can be maintained that, despite the major reservations of foreign business-owners, the MiLoG currently also applies to foreign employment contracts. The only exception to this at present is so-called “transit transport” through the Federal Republic of Germany. However, this exception is not based on a legal loophole, but on the allowance of a temporary exemption by the German federal government.