Minimum wage in the logistics sector

by lawyer David-Christopher Sosna

Since the law regulating a general minimum wage - the Minimum Wage Act (MiLoG) - came into force on 16 August 2014 and provides for the introduction of a cross-industry minimum wage of EUR 8.50 on 1 January 2015, this topic has dominated the logistics industry. And for good reason. On the one hand, the logistics sector in particular is affected by the provisions of the Minimum Wage Act due to its international structures and often complex contractual chains. On the other hand, particularly important provisions of the MiLoG, such as the scope of application or the liability to take action, still leave many questions unanswered for companies in the logistics sector. The resulting legal uncertainties in the application of the law pose numerous problems for the industry. Even a technical discussion held in the meantime between the responsible federal ministries has not contributed to the hoped-for clarification of the situation.

1. Scope of application of the MiLoG in an international context

Almost all logistics service providers use subcontractors, often also those based abroad, to fulfil transport and forwarding orders. In practice, this raises the question of the extent to which the provisions of the MiLoG also cover the use of subcontractors based abroad. Section 20 of the Minimum Wage Act stipulates that employers based in Germany and abroad are obliged to pay their "employees employed in Germany" the statutory minimum wage of EUR 8.50 per hour. However, the law does not specify the exact requirements for "domestic employment".

If, for example, a foreign transport company carries out transport services from Poland to Germany on behalf of a logistics service provider based in Germany, it must be clarified for the contractual partners whether the driver of the foreign subcontractor can claim the minimum wage for this activity. The situation is even more complicated if the foreign subcontractor carries out the transport from Poland to Belgium and only crosses the Federal Republic of Germany in transit without calling at loading or unloading points in Germany. In both cases, the question arises in practice as to whether the foreign subcontractor's drivers are deemed to be "employed in Germany". An expert discussion held by the ministries in September 2014 has further exacerbated the situation for companies: according to the ministry, the Minimum Wage Act should cover all activities of domestic and foreign contractors on German territory without exception, regardless of the type or extent of the activity. Should the courts confirm the ministry's view, this would have far-reaching consequences for all companies involved in the transport industry. This is because cabotage transport operations carried out by foreign transport companies within Germany as well as pure transit transport operations without loading or unloading in Germany would then be covered by the Minimum Wage Act without exception. Foreign subcontractors would therefore have to pay their employed drivers the minimum wage for the domestic German part of the journey.

As there is no specific link to the German economy, at least in the case of pure transit transport, the meaning of these regulations can rightly be questioned. In addition, logistics service providers face problems when implementing these regulations, as the law itself does not contain any further specifications on how the working time attributable to the domestic German part of the route is to be recorded and converted into an hourly wage.

For freight forwarders based in Germany, the explosive nature of this is obvious. As clients, these companies are also liable for ensuring that their subcontractors pay the statutory minimum wage to their employees. In accordance with Section 13 MiLoG, foreign employees can sue the German-based freight forwarder placing the order before the labour courts for back payment of the minimum wage.

2. Liability risks: Shipper liability unresolved

A further practical problem arises in the area of recourse liability, which is regulated to the detriment of the client of work or services. In principle, the following applies: The logistics service provider who is contractually obliged to provide work or services and does not provide these services itself, but has them provided by subcontractors, is liable under Section 13 MiLoG for compliance with the minimum wage in all operations of the subsequent subcontractors. This liability risk naturally affects every freight forwarder whose legally defined business area is ultimately the organisation of transport and, in particular, the commissioning of suitable subcontractors. Employees of the domestic and foreign subcontractors used can therefore assert claims directly against the freight forwarder placing the order.

Unexpectedly, shippers - i.e. traders and producers - are now also becoming the focus of recourse liability, which in turn could cause logistics companies to breathe a sigh of relief. While shippers were previously exempt from the pass-through liability in Section 13 MiLoG due to their lack of "general contractor status", an extension of liability to the shipping industry seems possible. On the one hand, this is due to the fact that, according to the wording, the liability in Section 13 MiLoG simply covers every client of work or services and, unlike the parallel provision in Section 14 of the German Posting of Workers Act (AEntG), does not expressly refer to the general contractor. On the other hand, shippers themselves are often obliged to deliver "free domicile" due to their contractual relationship with the consignee, which includes the transport service accordingly. As the shipper in this situation is contractually obliged to provide the transport service to the consignee, but the transport organisation is usually transferred to the freight forwarder, the shipper fulfils all the characteristics of a general contractor. In this respect, an extension of liability to shippers would be justified. As the law is not very meaningful on this point, the courts will have to decide on the scope of liability.

3. What counts as working time and can different wage components be taken into account?

From 1 January 2015, employers are legally obliged to pay a minimum wage of EUR 8.50 (gross) per "working hour". The law does not explain how the working time relevant for calculating the minimum wage is calculated. Nor has it been clarified with legal certainty to what extent different wage components can be offset against the minimum wage. In all likelihood, the provisions of the Working Hours Act (ArbZG) will be used to determine the working hours subject to remuneration. Whether the special provision for road haulage in Section 21a (3) ArbZG will apply remains unclear for the time being. Here, too, the courts will have to decide.

When calculating the minimum wage, companies must also check the extent to which various remuneration components can be offset against the minimum wage entitlement. Taking into account the case law on the Posted Workers Act, it can be noted as a rule of thumb that payments that are functionally equivalent to wages (e.g. 13th monthly salary) can be offset against the minimum wage, whereas other payments that are intended to remunerate so-called "extra work" must be paid in addition to wages (e.g. overtime pay). The creditability of remuneration components is relevant because companies may run the risk of miscalculating wages and paying employees wages that are below the minimum wage.

4. Reporting and record-keeping obligations are being amended by ordinances

There is currently movement in the area of the newly introduced customs reporting and recording obligations. The provisions in Sections 16 and 17 MiLoG require logistics service providers to record the start, end and duration of the daily working hours of all employees and to keep these records for a period of two years. Employers based abroad are also obliged to submit the transport services to be carried out in Germany to the competent customs authority in writing in advance. The responsible federal ministry has recently presented a draft of the Minimum Wage Reporting Ordinance (MiLoMeldV) and the Minimum Wage Recording Ordinance (MiLoAufzV). The aim of these ordinances is to simplify the statutory provisions governing reporting and recording obligations.

5. Risk avoidance

In view of the considerable liability risks that the new Minimum Wage Act entails, logistics companies are now required to take suitable measures - for example when drafting subcontractor agreements - to exclude or limit the liability potential as far as possible.

From
David-Christopher Sosna, lawyer
Specialist lawyer for transport and forwarding law
Law firm ESSER & SCHWERDLING
Am Alfredusbad 2,
D-45133 Essen
kanzlei@esser-schwerdling.de
Tel.: +49 201/18 53 50

The following checklist is intended to provide an overview of the measures that logistics companies should take now:

CHECKLIST:

• Careful selection of subcontractors
• Plausibility check when obtaining offers
• Obtain information from a business database
• Adjust insurance cover
• Conclude combined indemnification agreement with subcontractor:
  (assurance of compliance with MiLoG + indemnification against third-party claims)
• Provision of a realisable security by the subcontractor
• Granting of contractual inspection and control rights for the client
• Obtain information from the central trade register
• Granting the client a special right of cancellation
• Agreement of a contractual penalty clause