UK construction sector to face wages claims from EU sub-contractors

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The “Posted Workers Directive” is an obscure bit of law. It provides that when an employee is sent by his employer from one EU country to another on a temporary basis, to work on a construction contract for example, then for that period the employee enjoys many of the statutory employment rights of the country he is posted to.

So, for example, if a Polish company sends an employee to Finland to work on a contract to build an office block there, then the employee, while he is in Finland, gets to enjoy the Finnish minimum rights relating to matters like minimum rest periods, paid annual holidays, national minimum wage and protection from discrimination, despite his employment with the Polish company continuing.

This is not the same as migrant workers who move between EU states with a view to finding work and being permanently employed in their new country. The “home country” employment contracts of those covered by the Posted Workers Directive continue throughout their posting – but they are temporarily protected by many of their “host” country’s mandatory employment laws while they are posted there.

The Posted Workers Directive has, however, come in for criticism. The Directive was designed to stop “social dumping” i.e. to stop wages in one country being undercut by cheaper labour being imported from other parts of the EU. So, where workers are posted to the UK by, for example, a Portuguese glazing company, those workers should receive UK trade rates if these they are better than those back in Portugal. But it is not being enforced, meaning that there is a strong perception (although one not backed up by Government research) that disputes like the 2009 Lindsey oil refinery wild-cat strikes, where 800 local contract workers walked out after an Italian contractor used several hundred European workers on site, are but the tip of the iceberg.

To combat this the EU has adopted the Posted Workers Enforcement Directive which must be implemented by the UK no later than 18 June 2016. The new Enforcement Directive contains a number of measures but one will particularly impact the construction industry.

Posted workers in the construction sector will now be able to take the contractor one up the supply chain from their direct employer to the Employment Tribunal to claim wages up to the National Minimum Wage (NMW). Previously they had to claim from their direct employer if their pay dropped below this level. So in the above example, the Portuguese glaziers could sue the UK contractor directly if they were getting less than the NMW – not just their employer in Portugal. In the UK this subcontracting liability will be limited to the construction sector and then only to the contractor one up the supply chain from the posted worker’s direct employer.

Although the Government has said that there will be a “due diligence” defence – if the contractor can establish that it conducted checks on the sub-contracting employer can avoid liability – there is no guidance yet on how this will work in practice. More worryingly, the details of this defence will not be written into the domestic legislation implementing the directive.

This Enforcement Directive will doubtless mean that indemnity clauses in construction contracts will have to be revisited to expressly include claims under the Enforcement Directive. Greater checks by contractors on a sub-contractor’s employment record, confirmation of rates of pay, and looking into its employment tribunal and court claims history will also become more common.

Although few contractors welcome new regulation, especially small contractors, there are relatively few posted workers in the UK, and Government research suggests that, despite high profile disputes like the 2009 Lindsey refinery strikes, abuse is low. Further, a contractor’s liability will be limited to the National Minimum Wage rather than ALL contractual pay. With proper use of contractual indemnities, the impact on contractors can be contained, but as ever it’s important to get your contracts right from the outset.

Martin Pratt

Martin Pratt Partner

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