Implementation of the Posting of Workers Directive – Consequences for Lithuanian companies

An overview of the German government’s current draft law of the 21.02.2020 and the possible consequences for Lithuanian companies.

In the “Corona” period, many other legal issues quickly fade into the background, but these are likely to have a significant impact on the Lithuanian economy at the latest after the crisis. One of these is Directive 2018/957/EU, which is currently being incorporated into a national law in Germany, among others, and which should come into force by the end of July 2020 at the latest.

The main objective of the directive reform was “equal pay for equal work in the same place”, i.e. applying equal pay conditions within a member state, irrespective of whether a domestic or a posted worker is employed. Many Lithuanian companies regularly post workers to Germany. The following key aspects of the reform should therefore be of particular interest to Lithuanian companies that regularly post employees to other EU countries:

• Expenses for board and lodging must be borne by the employer and must be in line with the standards of the host country
• Application of generally binding collective agreements
• Instead of – as in the past – only provisions on “minimum wages”, the provisions on all elements of “remuneration” are to apply in future
• in case of doubt, the entire daily allowance will be considered as a posting allowance and not as part of salary
• in the case of postings lasting over twelve months, the entire labour law of the host country applies

However, the directive gives member states a certain amount of leeway, including the possibility to declare not only national but also regional collective agreements as applicable.

Minimum working and employment conditions

What is new in the draft compared to the previous legal situation is that national working conditions now also apply to employment relationships between a Lithuanian employer and its personnel employed in Germany with regard to the following aspects:

• the salary (no longer just the minimum wage)
• requirements concerning accommodation provided by the employer, directly or indirectly, whether for payment or free of charge, for workers who are posted away from their normal place of work
• equal treatment of the sexes
• allowances or reimbursement of travel, accommodation and subsistence expenses for workers who are away from their place of residence for professional reasons

Validity of generally binding collective agreements

The EU directive allows member states to apply regional collective agreements to posted workers. However, the draft law does not make use of this possibility. Accordingly, only collective agreements that are valid nationwide and declared to be generally binding are to apply to employees posted to Germany — i.e. regional collective agreements would not be applicable. This would be advantageous for foreign companies. However, the draft is currently being heavily criticised, especially by trade unions. In addition, the Committee for Labour, Integration and Social Policy and the Economic Committee of the Bundesrat (the upper house of parliament) have expressed their support for the applicability of regional collective agreements in a recommendation dated 23.03.20. Due to the Corona crisis, the topic of the law on the posting of workers was postponed by the Bundesrat and the recommendation was therefore not dealt with. It is therefore not yet possible to foresee in which direction the final law will tend. It is clear, however, that if regional collective agreements apply to posted workers, this could have significant disadvantages for Lithuanian companies — regional collective agreements usually contain stricter and more specific regulations, and the need for advice on which collective agreements to apply is likely to increase.

Remuneration and secondment allowances

Remuneration within the meaning of the draft means all components of the remuneration which an employee receives from their employer in cash or in kind for work performed. Remuneration includes, in particular, the basic salary and allowances and supplements, including overtime rates. If an employee receives an allowance (posting allowance) from their employer based abroad for the duration of work performed in Germany, this can generally be offset against the employee’s remuneration. However, this is not possible if the secondment bonus is considered as being used to reimburse the expenses actually incurred by an employee during secondment (secondment expenses). These secondment expenses should in particular include travel, accommodation and subsistence. However, if the terms and conditions of employment applicable to the employment relationship do not clearly specify which components of a secondment allowance are considered for reimbursement of secondment expenses and which are part of the salary, it must be assumed in case of doubt that the entire secondment allowance is considered as reimbursement of secondment expenses. This will most likely result in the flat-rate daily allowance rate regulated by law in Lithuania no longer being credited to the German minimum wage, as has been the case until now; instead, it would be treated as reimbursement of posting expenses.

Long-term posted workers

According to the draft, the following applies in principle: If an employee is employed in Germany for more than twelve months by an employer domiciled abroad, after twelve months of employment in Germany, all working conditions which are prescribed at the place of employment in legal and administrative regulations and in generally binding collective agreements apply to this employment relationship. The only exceptions are the procedural and formal requirements and conditions for concluding or terminating the employment relationship, including post-contractual non-competition clauses, as well as regulations on company pension schemes.

This period may be extended to a maximum of 18 months following written notification by the employer to the competent authority (stating the reasons for exceeding the 12-month period of employment).

Where an undertaking replaces a posted worker by another posted worker carrying out the same activity in the same place, then calculation of the periods of 12 or 18 months will be based on the sum of the posting periods of the individual posted workers concerned – e.g. the period of 12 months will be reached when 2 workers have carried out the same activity for 6 months at the same place.

Possible effects on Lithuanian companies

The impact on Lithuanian companies could be enormous:

• Lithuanian daily allowances are no longer expected to be accepted as part of the foreign minimum wage
• Postings could become administratively more complicated, as a closer examination of the applicable working and economic conditions will be required from the outset
• Accommodation and meals must be of the same standard as in the host country; if a worker is posted to an EU country with a higher standard of living, this can significantly increase expenses
• There is a higher risk of incorrect classification and application of host member state legislation and collective agreements
• In the case of postings of more than one year for the same job, regardless of the individual worker, it will be necessary to check in advance all applicable laws and bureaucratic requirements of the host country

The effects could be intensified if, contrary to the draft legislation, regional generally binding collective agreements were also applicable to posted workers.

Sources:

• Draft law implementing Directive (EU) 2018/957 of the European Parliament and of the Council of 28 June 2018 amending Directive 96/71/EC concerning the posting of workers in the framework of the provision of services
• Directive (EU) 2018/957 of the European Parliament and of the Council of 28 June 2018 amending Directive 96/71/EC concerning the posting of workers in the framework of the provision of services
• Recommendations of the Committee on Labour, Integration and Social Policy and the Economic Committee, Printed Paper 84/1/20
• Federal Council, Plenary Minutes 988

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