New Fines for Employers of Undeclared Employees and Increased Protection for Outsourced Employees

A crackdown on undeclared employment and increased protection of outsourced employees are the two most important aspects of the new labor law of the Ministry of Labor, Social Security, and Social Solidarity (Law 4554/2018), which the Hellenic Parliament approved by vote.

Reformed Fine System for Undeclared Employment

The new law requires employers to pay a fine of 10,500 euros (GBP 9,400: USD 12,100) for every employee who is found to be unregistered in the personnel list of an employer during a Labor Inspectorate inspection.

When an undeclared employment relationship is discovered, the law presumes that it has lasted at least three months (with social security and taxes calculated accordingly), unless each of the parties can prove otherwise.

If the employer responds by lawfully employing the undeclared employee within 10 days of the inspection, the  law provides for the fine to be reduced. To prevent an employer from discharging another employee to balance hiring the undeclared employee, the law provides for the fine reduction only if the employer maintains the same number of employees throughout the term of the employment contract concluded with the previously undeclared employee. If the employer discharges an employee and would like to take advantage of the fee reduction, the employer is obligated to recruit another employee to restore the workforce to the original number of employees within 15 working days of the discharge. Employers found to be systematic offenders are not eligible for a fee reduction.

Furthermore, if an employer is found to have additional unregistered employees within the three years following the discovery of the employer’s first undeclared employment relationship, then the fine will increase by 100 percent for the first subsequent infraction and by 200 percent for each one after that.

Increased Protection for Outsourced Employees

The new law also specifies that, in cases in which the unregistered employee is employed by a contractor, both the principal and the contractor are jointly and severally liable for payment of the contractor’s employee’s wages, social security contributions, and dismissal compensation—for three years following the termination or expiration of the employment contract.

It is a legal requirement to have an express provision dealing with liability to make these payments in the contract between the principal and the contractor, as well as compliance with all labor and health and safety provisions.

Where a principal can demonstrate due diligence in connection with the contractor’s compliance with these obligations to employees, then the principal is entitled to recourse against the contractor for any sums it ends up paying the employees under the joint and several principle.

What constitutes due diligence is set out in detail in Law 4554/2018. It includes a requirement that the principal retain copies of social security contributions, payment slips, and receipts. A principal faced with a contractor’s noncompliance may ask the contractor to comply within 15 days. If noncompliance persists, then the contract may be terminated.

Law 4554/2018 requires contractors to display a personnel list at the principal’s premises, specifying the principal to which the employees are assigned.

The law renders null and void any agreement that purports to restrict these employees’ rights.

Written by Georgios C. Chatzigiannakis of NOMOS and Roger James of Ogletree Deakins