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Denmark increases fight against social dumping

| Text: Marie Preisler

More fines for foreign companies and labour clauses in public contracts - these are the newest weapons in Denmark’s fight against social dumping. They will have an impact on social dumping but won’t eradicate it, thinks expert.

Social dumping is still a major problem in Danish workplaces. That is why the government will tighten the control of foreign companies even further. 

From 1 July 2013 the Danish Working Environment Agency can fine foreign companies if they are working in Denmark without the necessary documentation. Authorities will also be given better tools to check whether foreign companies are paying tax to Denmark. And public companies will be using more labour clauses in public building and construction contracts to make sure foreign workers get the same pay and working conditions as Danish workers. 

These new measures will help fight social dumping, says Søren Kaj Andersen, who as a labour market researcher and head of the Employment Relations Research Centre FAOS studies social dumping.

“There is no doubt this tightening of the rules will help reduce social dumping. Fines, increased control and recruitment clauses are good tools which will have an effect. Especially when combined with the so-called 48 hour meetings,” he says.

The 48 hour meetings were introduced in 2010 as part of the labour agreement within the construction industry. When a Danish labour agreement is not fulfilled, the trade union can call a meeting with the employer within 48 hours. This prevents some conflicts and puts pressure on some foreign companies to sign the agreement.

Joint controls 

The new measures are part of a recent white paper from the Social Democrat-led Danish government, which has made the fight against social dumping a central policy. The rules have already been tightened once, and in 2012 the government agreed with the Red-Green Alliance, whose support they need in parliament, to spend 100 million Danish kroner (€13.4m) on initiatives against social dumping until 2016.

The coalition partners already outlined their targeted fight against social dumping in their government platform, and soon after taking office the government published its first measure which would secure faster and more efficient control of foreign companies to make sure they followed Danish rules. Police, tax authorities and the Working Environment Agency were given extra resources to carry out joint controls of foreign companies within the construction industry, in the hotel and restaurant trade, in the cleaning industry and in other sectors where there is social dumping.

The controls are carried out like this:

- The Working Environment Agency checks whether working environment conditions are acceptable, and whether the company follows its obligation to report to the so-called RUT register - the Register of Foreign Service Providers. Since 2008 foreign companies which provide services and post workers to Denmark have been obliged to report various information to RUT.

- Tax authorities check whether the company is following the rules on VAT and other taxation. 

-  The police checks whether the company’s foreign workers have valid work and residence permits. 

Further tightening of rules necessary

The new joint control visits to workplaces have demonstrated that foreign companies make many mistakes: rules on working environment and taxation are being broken, there are mistakes in the companies’ reporting to the RUT register and some foreign workers are in Denmark without valid work and residence permits. 

That’s why continued controls are necessary, thinks the Minster of Employment, Mette Frederiksen (Social Democrats):

“In the fight against social dumping it is necessary to get to the bottom of the problem. This is about working environments and about the correct registering of companies. But it is also about making sure no tax evasion is taking place. That’s why we must cooperate across different authorities,” the Minister has said.

Faster fines

The new white paper, which is expected to be published before the summer recess, suggests a further tightening of the control of foreign companies. Already foreign companies providing services in Denmark must report a range of details to the RUT register. If they fail to do this, the police can issue fines. But this is a slow process, and often companies have left Denmark before the fine has come through the system. 

That is why the Working Environment Agency is now being given a mandate to issue on the spot fines - so-called administrative fines. This has long been desired by the social partners. They welcome administrative fines as an important element in the fight against social dumping.

Tax authorities will be given more resources to control the finances of foreign companies which operate in Denmark for shorter periods of time. Some foreign companies are not correctly registered in Denmark nor in their home country, and are actively seeking to circumvent the rules in order to avoid paying VAT, tax and social contributions.

More use of labour clauses

The government is also tightening the rules on public tenders to make sure the public sector does not contribute to social dumping. Metroselskapet, which is building Copenhagen’s metro, has come under severe criticism for using sub-contractors employing foreign workers on very low wages. The government wants to prevent such practices by including labour clauses in contracts to make sure the winning company is obliged to offer its workers wages and working conditions which are in line with collective agreements.

Labour clauses are already a prerequisite for contracts covering state construction work worth more than 37.5m Danish kroner (€5m), and regions and municipalities are being encouraged to do the same. This summer the spending limit disappears. Labour clauses must then be used by all state authorities which are not in competition, e.g. A/S Storebælt, Femern A/S,, Metroselskabet I/S, DSB and Banedanmark. 

More measures yet social dumping remains

The fight against social dumping does not stop here. The government also wants to see whether the control of labour clauses can be strengthened and it will push for a politically binding agreement with municipalities for an increase in the use of labour clauses.

The government has also established a working group to look into whether people who work on building sites can be made to carry ID cards - a solution used in Norway. It is also investigating whether the social partners can be given access to a new EU information system which links the countries company registers. This system would help trade unions find out where a company is really based.

However, Søren Kaj Andersen warns against believing social dumping can be eradicated. 

“Social dumping will remain a challenge and a theme for many years to come. It is a fundamentally attractive proposition for people in many of our neighbouring countries to come here and work, and for employers here to get work done by cheap foreign labour - so any loophole will be exploited,” says Søren Kaj Andersen.

Denmark and Sweden worst hit

He considers Denmark and Sweden to be particularly vulnerable to social dumping, because both EU countries lack a legal minimum wage or similar protection. This means social dumping is not illegal, and it makes it extra difficult to fight. 

FAOS has published a range of surveys detailing the use of foreign labour in Denmark and social dumping, and the surveys do not leave any doubt about the fact that social dumping is taking place within many different trades. Yet there is no precise definition of social dumping, and it is not clear whether it is on the increase. Most foreign workers in Denmark enjoy the same conditions and earn wages not dissimilar to those of Danish workers, says Søren Kaj Andersen.

New ways of hiring

Social dumping has always existed. What’s new is that low paid labour now comes to Denmark from countries which are further away. Earlier Polish, German and Baltic workers typically drove or traveled by ferry to Denmark to work as berry pickers and in breweries. Today cheap air fares mean people from the easternmost regions of the EU can travel relatively easily to Denmark to work.

The way in which foreign workers are hired is also new. Foreign workers used to work for Danish employers. Today an increasing number of foreign workers are posted workers employed by a foreign company, as temporary staff or as sole traders. These ways of hiring might mean social dumping, but not always, says Søren Kaj Andersen.

Denmark increases its fight against social dumping:  
  • A foreign company must declare its VAT number to RUT to allow tax authorities control over whether it provides services across borders.
  • Shorter deadlines for reporting to RUT
  • Public access to more information stored by RUT
  • The Working Environment Agency can issue fines to companies which break their duty of notification
  • More resources for SKAT (the Danish tax authority) to control what tax foreign companies pay
  • Increased use of labour clauses in public tenders
  • Better controls to ensure foreign trucks observe the Danish highway code - so-called cabotage.

Source: The Ministry of Employment


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