Management's personal liability
Under Austrian law, managing directors are personally liable for adhering to labor law provisions, including employee protection, employment of third-country nationals, and compliance in relation to minimum wage and social insurance requirements. This liability applies even if the non-compliant behavior is caused by someone outside of management, such as an employee. In the event of an offense, each managing director faces full fines, and if there are multiple directors, the fines are multiplied. Additionally, the company is jointly and severally liable with the managing director for each fine and any procedural costs. Monetary fines are just the start. Depending on the nature and severity of the offense, it can result in an entry in the administrative criminal record, a ban on providing services, a ban on employing third-country nationals, and even the revocation of the business license. These consequences can lead to a loss of revenue and, in the worst case, the shutdown of business operations.
How can management steer clear of fines and more severe consequences? The key is to establish a robust control system and designate one or more responsible officers.
Establishing an effective control system
Fines and other sanctions can be avoided if management can demonstrate that an effective control system is in place and that any breach of labor law provisions is an isolated incident. But what measures must a control system include to be deemed "effective"? This question has frequently been addressed in administrative court proceedings. Below is an overview of measures that have proven particularly effective according to case law:
- Develop guidelines that clearly outline the fundamental principles for each area of compliance (e.g., employee protection, employment of foreigners, payment of legally mandated minimum salary/wage).
- Assign responsibility to qualified employees who will implement and oversee the regulations.
- Define specific instructions and implementation measures to ensure managers and employees organize work processes in a way that minimizes legal violations.
- Conduct regular training sessions for employees responsible for enforcing the said guidelines.
- Perform regular compliance reviews to ensure adherence to the regulations, including implementation measures by management.
- Establish deterrent sanctions to prevent future offenses.
- Maintain detailed documentation of all steps, instructions, discussions, and sanctions.
- Continuously update regulations and implementation measures to reflect changes in the legal framework and new internal processes.
Example of an effective control system for the employment of third country nationals
In the context of the employment of third country nationals, this entails
- Establishing fundamental rules tailored to the specific requirements of third country nationals
- Assigning immigration specialists to handle the recruitment process, ensuring they are regularly trained to verify the validity of residence and work permits, identify and secure necessary permits, and employ only those with valid authorizations
- Designating managers to verify the valid authorizations of foreign workers in their teams, and requiring them to notify the HR department and management of any missing authorizations
- Conducting audits multiple times a year by the management
- Issuing warnings to the responsible immigration specialist in case of missing authorizations, and mandating further training
- Documenting all discussions, training materials, and sanctions in writing
- Adjusting regulations and providing additional training to immigration specialists if audits indicate areas for improvement
Appointment of responsible representatives
Companies can appoint a responsible representative to avoid multiple penalties. This representative, rather than the management, is primarily accountable for compliance with labor law provisions and is liable for any breaches.
Typically, employees are appointed as responsible representatives. The appointment requirements vary depending on the specific labor law issue. The appointed representative must have the authority to issue orders to ensure compliance. For instance, a wage and social dumping representative must have the authority to verify classifications in the collective agreement, reclassify employees if necessary, independently increase pay, and decide on overtime payments in disputes.
In practice, finding and motivating a suitable person for this role can be challenging. While it is possible to agree that the company will cover any administrative penalties, such agreements are not enforceable. Therefore, it is crucial to establish a functional and effective monitoring system.
Conclusion
Companies should determine which labor law issues are most critical to their operations and develop a comprehensive set of measures that align with the standards of an effective control system. If the management team includes multiple individuals, it is advisable to appoint a responsible person for each identified labor law issue, ideally the relevant manager or division head.
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