Practical and Clear Overview of the Newly Introduced Wage Payment Rules in Subcontracting Relationships

Significance of the New Provision

An employee may now exercise their right to claim payment of wages also against a natural or legal person acting as a service provider in the territory of the Slovak Republic (the “Contractor”), whose direct subcontractor is the employee’s employer (the “Subcontractor”). It should be emphasized that the Contractor must be a direct contractor, i.e., the first contractor in any (sub)contracting chain immediately above the Subcontractor (with whom it has a contractual relationship). In addition, three (3) cumulative conditions must be met: (i) the claim must concern due wages that have not been paid to the employee; (ii) the due wages must be for work performed under Annex 1aa to the Labor Code, the performance of which constitutes the Subcontractor’s contractual obligation within the legal relationship between the Subcontractor and the Contractor; and (iii) the employee must submit a written request to the Contractor for payment of the wages within six (6) months from the wage due date.

Compliance with the above conditions can be illustrated with a practical example. A company whose business activity is the construction of family houses is contracted by a client to build a family house. The company, being the “Contractor,” engages subcontractors (“Subcontractors”) to carry out specific parts of the construction project – for example, one Subcontractor is responsible for the installation of electrical wiring, another for the excavation of a well and a pit for an outdoor swimming pool, and a third for the construction of the roof. There may be any number of Subcontractors with any division of tasks. Each Subcontractor employs its own workers through whom it performs the part of the construction project for which it was contracted – for example, the first Subcontractor employs electricians who will install the electrical wiring in the family house.

If the first Subcontractor fails to pay due wages to one of its employees (the electricians), the employee may exercise the right to claim payment of wages from the Contractor, i.e., the company engaged in building family houses. However, condition (ii) must also be satisfied – the employee must be performing one of the works listed in Annex 1aa to the Labor Code, which contains an illustrative list of construction works relating to the construction, repair, maintenance, alteration, or demolition of buildings, such as excavation, earthworks (moving soil), or, as in this example, electrical installation work, which falls under installation works. Finally, condition (iii) must also be satisfied – the employee must submit a written request to the Contractor for payment of wages within six (6) months from the wage due date.

It should also be noted that under Sec. 5(11) of the Labor Code, the above provision applies equally to the payment of wages to posted workers. However, under Sec. 252t(1) of the Labor Code, the right to claim payment of wages may be exercised only if the legal relationship between the Contractor and the Subcontractor arose after 1 August 2024. In our example with the electrician, this means that the Contractor and the Subcontractor (the electricians’ employer) must have concluded between them, after 1 August 2024, a contract whose subject matter is the installation of electrical wiring.

Wage Amount and Payment

The payment of wages depends on whether the employee submits a written request to the Contractor for payment of wages within six (6) months from the wage due date. This is a preclusive period, and therefore after its futile expiry, the right to claim payment of wages from the Contractor expires. If within this period the employee requests the payment of wages, the Contractor is obliged to pay the employee the wages within 30 days from the date of exercising the right to payment of wages. The amount of wages is limited by Sec. 130a(2) of the Labor Code, according to which the employee is entitled to the payment of wages from the Contractor only to the extent of the minimum wage. In this case, the minimum wage is the minimum wage valid at the time of performing work within the subcontracting relationship for each hour of work performed. In the event that the Subcontractor (employer) pays the employee a certain part of the wage, the amount of which, however, does not reach the amount of the minimum wage, the employee is entitled only to the payment of that part of the wage which is the difference between the minimum wage and the paid wage. The Contractor may subsequently, after paying the wages to the employee, demand from the Subcontractor compensation for the performance provided to the employee.

Continuing in the previously mentioned practical example – if the employee performs installation works in the given calendar month in 2024 in the scope of 100 hours, then his minimum wage is calculated so that the amount of EUR 4.31 (hourly minimum wage for 2024) is multiplied by the number 100 (number of hours worked for the given calendar month), which amounts to EUR 431. In the event that the Subcontractor (employer) pays the employee for the given calendar month only EUR 200, the employee is entitled to request payment of wages from the Contractor only in the amount of EUR 231. In the event that the Contractor pays it to the employee, the Contractor has the right to demand the amount of EUR 231 from the Subcontractor (employer). In this case, the minimum wage is therefore not the monthly minimum wage, which for 2024 amounts to EUR 750, but precisely the amount calculated according to the above formula. However, it must be remembered that the employee cannot in this way request the Contractor to pay wages for any work performed, but only for works that are listed in Annex No. 1aa to the Labor Code.

When the employee delivers to the Contractor a written request for the payment of wages, the Contractor may refuse the payment of wages if, when selecting the Subcontractor for the purpose of establishing a legal relationship between him and the Subcontractor, he could not, even with the exercise of due diligence, foresee that the Subcontractor would not pay wages to his employees. The assessment of the exercise of due diligence shall be carried out in such a way that the material factual circumstances are assessed in mutual context and with regard to the particularities of the situation, and may be based in particular on the circumstances listed in Sec. 130a(7)(a) et seq. of the Labor Code. These include, for example, factual circumstances such as whether the Subcontractor has no recorded arrears in insurance, taxes, customs duties, or whether the Subcontractor has been carrying out business activity for more than six (6) months.

If, therefore, in our example the Contractor did not check whether the Subcontractor has recorded arrears in insurance, and such arrears existed, then in such a case the Contractor probably did not proceed with due diligence in selecting the Subcontractor and could not refuse to pay the employee the wages.

Payment of wages depends on whether the employee submits a written request to the Contractor for payment within six (6) months from the wage due date. This is a preclusive period, meaning that once it expires without action, the right to claim payment from the Contractor is extinguished. If the request is submitted within this period, the Contractor must pay the employee’s wages within 30 days from the date the right to payment was exercised.

Request for Payment of Wages

The Labor Code in Sec. 130a(3) sets out the (essential) requirements of the request for payment of wages. The list of these requirements is illustrative, meaning that the request for payment of wages may also contain other requirements; however, we take the view that the given list represents a list of mandatory requirements that must be included in the request for payment of wages, otherwise it is invalid. We deduce this analogically from the knowledge of legal doctrine, which states for an agreement on posting under Sec. 54b of the Labor Code that the requirements listed in the illustrative list must be included in the agreement on posting.

The request for payment of wages must therefore contain:

1. Identification data of the employee;
2. Identification data of the employer;
3. The amount of wages for which the employee is requesting payment;
4. Information on the due date of the wages for which the employee is requesting payment;
5. The amount of the paid part of the wages for the performance of work within the subcontracting relationship, if paid by the subcontractor;
6. The period for which the employee is requesting payment of wages;
7. The type and scope of work within the subcontracting relationship performed by the employee; and
8. The method of payment of wages in cash or to an account in a bank or in a branch of a foreign bank, including the data necessary for payment of the wages.

The purpose of the mandatory inclusion of these requirements is for the Contractor to have all the necessary information regarding who is the employee’s employer, what amount is being requested, and on the basis of what work. In addition, the inclusion of these requirements is important because the Contractor can use them to assess whether the employee has acquired the right to payment of wages.

Upon delivery of the request for payment of wages, the Contractor has obligations both in relation to the employee and in relation to the Subcontractor. The Contractor is obliged to immediately inform the employee in writing about the payment of wages. In the event that the Contractor does not pay the employee the wages in full or in part, he is obliged to inform him of the reasons for non-payment. In relation to the Subcontractor, the Contractor is obliged to immediately inform him in writing of the employee’s exercise of the right to payment of wages and of the payment of wages to the employee, or, if not paid in full or in part, also of the reasons for non-payment.

The refusal to pay wages is linked to the fact that if the Contractor acted with due diligence when selecting the Subcontractor, he may refuse to pay the wages. In this case, the legislator made use of the possibility offered by Art. 12(5) of Directive 2014/67/EU of the European Parliament and of the Council of 15 May 2014, which provides that: “Member States may, in the cases referred to in paragraphs 1, 2 and 4, provide that a contractor who has fulfilled the obligation to exercise due diligence as defined in national law shall not be liable.”

The assessment of acting with due diligence is carried out by examining in particular the circumstances set out in Sec. 130a(7)(a) to (g) of the Labor Code, and the Contractor should be able to prove that he has made efforts indicative of acting with due diligence. Failure to meet any of the circumstances listed therein does not in itself result in the Contractor not having acted with due diligence. The explanatory memorandum expressly refers to examples that: (i) if the Subcontractor has an arrear in insurance in the amount of EUR 50, which has existed for more than 20 years; or (ii) if he has failed once to register an employee with the social insurance authority and was sanctioned for it; this does not automatically mean that in the future he will not pay wages to employees, and therefore the selection of him as a Subcontractor is not an act of due diligence.

Nature of the Dispute

The Labor Code in Sec. 130a(9) stipulates that a dispute over the payment of wages is considered an employment dispute, and therefore a dispute with the protection of the weaker party. An employee in a dispute over the payment of wages enjoys increased protection provided to him by selected provisions of Act No. 160/2015 Coll., the Civil Dispute Procedure Code, as amended (the “Civil Dispute Procedure Code”).

In a dispute over the payment of wages, the court may, pursuant to Sec. 319 of the Civil Dispute Procedure Code, also carry out evidence that the employee has not proposed, or even procure or secure evidence without a proposal. Furthermore, pursuant to Sec. 320 of the Civil Dispute Procedure Code, the employee may submit or indicate all facts and evidence to prove his claims not only until the announcement of the resolution on the conclusion of the taking of evidence, but until the announcement of the decision on the merits of the case.

Lastly, pursuant to Sec. 321 of the Civil Dispute Procedure Code, the provisions on a default judgment shall not apply, and pursuant to Sec. 318 of the Civil Dispute Procedure Code, in relation to the employee there is a broader duty of instruction (manuduction) regarding the possibilities of representation and his procedural rights and obligations beyond the general duty of instruction of the court.

Application (In)admissibility for Sole Traders

A criticism of this provision may be that if, at the end of the chain of subcontracting relationships, there is a sole trader who has not been paid an invoice for work performed, he cannot claim payment of his remuneration in the manner described above; but exclusively through an action to fulfil an obligation under Sec. 137(a) of the Civil Dispute Procedure Code, and only against the subcontractor with whom he is in a contractual relationship.

We consider the impossibility of applying this regulation to sole traders to be correct, because a similar regime should not and cannot be applied in commercial law relationships. Commercial law relationships are inextricably linked to business risk, which represents not only the risk of loss or economic loss, but also the risk of non-fulfilment of obligations. In the commercial law context, an entrepreneur is considered a professional who should act prudently, and thus take care within his contractual relationships, among other things, to secure his obligations to the greatest extent possible, whether through security instruments offered by commercial or civil law, or in a non-nominate manner.

Sole traders therefore have no choice but to ensure that they conclude contracts drawn up by a lawyer and to require an adequate advance payment before commencing any work. At the same time, it is appropriate to contractually regulate sanctions in relation to their business partners, which will protect them in the event of non-payment of, for example, remuneration for work, so that in the contract for work there are stipulated modified default interest rates, or even contractual penalties, for late or incomplete payment of remuneration for work.

Conclusion

The possibility of claiming payment of wages from a subcontractor is certainly a means that brings greater protection of the employee into labor law, and we consider this step to be a step forward. We understand that some may criticize the application inadmissibility for sole traders (entrepreneurs), but we believe that the negative impacts in the event of non-payment of remuneration to a sole trader can be effectively reduced to a minimum with the help of a lawyer. However, the employee is not an entrepreneur and in an employment relationship is the weaker party, and therefore his interest in proper and timely payment of wages is clearly an interest that deserves stronger protection. At the same time, greater protection of employees is at the expense of contractors, who must be much more prudent not only in the selection of subcontractors but also in the subsequent regulation of contractual relationships with them. However, the more prudent they are, the better it will be for them.

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Sources

BARANCOVÁ, H. et al. Labor Code. 3rd ed. Bratislava: C. H. Beck, 2022, 1624 p.

Explanatory Report to Act No. 178/2024 Coll., amending and supplementing Act No. 311/2001 Coll., the Labor Code, as amended.

Resolution of the Constitutional Court of the Slovak Republic of July 4, 2017, file no. III. ÚS 460/2017.

References

1. BARANCOVÁ, H. In BARANCOVÁ, H. et al. Labor Code. 3rd ed. Bratislava: C. H. Beck, 2022, p. 601.