Cutting through complexity

International assignments in light of the revised Posting of Workers Directive

By Sachka Stefanova-Behlert and Dr. Thomas Wolf

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Introduction

International employee assignments are a complex matter. Since the implementation of the Enforcement Directive 2014/67/EU, which provides a mechanism for the implementation of the Posting of Workers Directive by introducing assignment-related registration obligations for posted workers and companies, international employee assignments throughout Europe have become even more complex. Not only have the companies to comply with existing social security and tax obligations, but also to ensure that employee assignments within Europe are registered in a timely manner with the relevant labor authorities. Otherwise they may be exposed to severe sanctions and fines in some EU countries. Further, companies are required to observe far more than a formal procedure when fulfilling registration obligations. They must make sure that mandatory local employment laws apply to their assigned employees. Mandatory laws and the level of protection for posted workers may vary from one country to another. In particular, some Member States require companies not only to comply with typical mandatory working provisions, but also with more far-reaching provisions.

The current Amendment Proposal for the Posting of Workers Directive 96/71/EC, which was approved by the European Council on October 23, 2017 and is expected to come into force at the beginning of next year without any further modifications, will bring about considerable changes with the aim of increasing the level of protection for posted workers and harmonizing practice throughout Europe.

In light of the existing registration mechanisms of Enforcement Directive 2014/67/EU, which has been already implemented in all Member States, it is a pressing challenge for companies to review and, if necessary, adjust their employee assignment practice in Europe.

Main changes

The Posting of Workers Directive 96/71/EC shall generally apply to all assignments within the European Union regardless of sector. Specific rules will be laid down for the transportation sector, though.

Equal remuneration

One of the main revisions aims to strengthen the principle of equal payment for equal work. Under the revised Directive, posted workers shall receive the same remuneration as comparable local workers in the host country. According to the current version of the Directive, companies must comply with mandatory working conditions, such as maximum work periods and minimum rest periods, minimum paid holidays and safety regulations, for example. With regard to remuneration, the payment of minimum wages has to be ensured. By contrast, under the revised Directive, posted workers shall receive the same remuneration as the comparable local workers in the host country. This includes any allowances and bonuses and not just the minimum wage. In addition, posted workers need to be reimbursed for expenditure resulting from travel, board and lodging in the future.

Maximum duration of posting to be 18 months

Postings are by definition temporary and this is nothing new. For decades, there have been legal disputes about the permissible and appropriate duration of a temporary posting. The revised Directive finally settles these disputes by limiting the duration of inter-European assignments to 12 months with the option of extending for a further six months upon notification from the service provider to a total of 18 months. The Directive does not contain any additional requirements for granting the extension. Consequently, the period of 18 months is likely to become the significant benchmark for assignments.

As the posting of workers shall now not exceed 12 months, the revised Directive foresees different labor law regimes before and after the expiration of the 12 months. Within the 12 months, the mandatory working conditions described above are to be complied with. Upon expiration of the 12-month period, companies must adhere – in addition to the minimum working conditions as set forth in the Directive – to any other working conditions applicable in the host country on the basis of national laws, regulations or administrative provisions, or universally applicable collective agreements or arbitration awards. Formal provisions, provisions on the conclusion and termination of employment relationships as well as provisions on supplementary company pension schemes shall be exempted and shall not be mandatory. In the event of extension, the same applies after 18 months.

Practical impact and recommendations

Revision of the contractual arrangement  for assignments

Many companies use domestic secondment agreements when posting workers abroad. This practice goes back to the Rome I Regulation 2008/593/EC which allows parties to choose almost freely the applicable law in the event of temporary employment in a host country (cf. Article 8 of Rome I Regulation). This rule is now considered to be superseded by the revised Posting of Workers Directive which is perceived to be lex specialis in relation to Article 8 of Rome I Regulation. Consequently, the companies must comply with any working conditions applicable in the host company as soon as the assignment exceeds 12 months, or 18 months in the event of an extension, regardless of the parties’ choice of law. The choice of law may only matter with regard to the questions of termination law and company pension scheme, which are no less important. However, the enhancement of applicable local working terms beyond the minimum requirements and the reduction of the choice of law makes the domestic secondment agreement as a contractual tool for assignments less attractive and more problematic. By contrast, the conclusion of a local contract from the beginning for any assignments longer than 12 months appears to be more beneficial for companies. It ensures compliance with the provisions of the Directive and also creates legal clarity for the companies regarding the applicable law by avoiding any clash of jurisdictions. Further, the choice of law offers no protection for companies seeking to avoid the more beneficial effect of local termination law for the employees. The latter is explicitly stipulated in Rome I Regulation. In other words, the conclusion of a local contract is the preferable option for assignments of more than 12 months.

Social security considerations

This contractual tool does not hinder the retention of social security coverage and benefits of the home country in most assignments.

Unfortunately, the EU legislator has failed to synchronize the permissible duration of postings under the Posting of Workers Directive with the existing social security legislation (cf. Regulation 2004/883/EC and 2009/987/EC). This contains a 24-month limit for social security freedom for posted workers. This is confusing. In any case, the revised Directive 96/71/EC shall not have any impact on social security matters, in particular on the duration of postings, for social security purposes.

Labor law registration obligations

The implementation of the Enforcement Directive urges companies to deal thoroughly with the question of applicable laws in the host company. This results clearly from the existing registration obligations with the local labor authorities and the notable financial exposure for companies in the event of noncompliance. Indeed compliance with registration obligations has become imperative for current assignment practice.

Another aspect companies need to be aware of is the fact that neither the Posting of Workers Directive – in its current or revised version – nor the Enforcement Directive distinguish between posted workers and business travelers. The concept of business travelers has not been considered at all. Any obligations resulting from both Directives, compliance with formal registration obligations and substantive requirements are likely to apply to business travelers too. Based on current practices of local authorities, there is a strong trend in EU Member States to subject business travel to registration obligations and requirements for compliance with local working conditions regardless of the duration. As a consequence, there is barely any room left for companies to influence the character of the assignment and the resulting obligations. By contrast, given the existing registration periods in some countries, companies should plan assignments well in advance in order not to jeopardize their implementation.

Summary

If the Posting of Workers Directive is adopted in its revised form, it will have a significant impact on EU-wide assignments. In particular, companies are well advised to review their assignment practice and adjust the contractual arrangement to the new regulations of the Directive. This is especially compelling in light of the obligations to register posted workers with local authorities and prove compliance with local working conditions. The Enforcement Directive is already in place. The revised Posting of Workers shall apply in 4 years at the earliest. Nonetheless, companies should become acquainted at the early stage of planning with the local working conditions whenever they assign employees abroad.

sstefanovabehlert@kpmg-law.com

twolf@kpmg-law.com