In the light of significant shortfalls in social security contributions, a loss of taxation income resulting in reduced protection and decreased social security claims of affected persons, and the simultaneous distortion of competition, the German federal government has aimed to strengthen the Illegal Employment Audit Division (Finanzkontrolle Schwarzarbeit) of the German Customs Authorities (Zollverwaltung, FKS) in order to put more effective measures in place to prevent “illegal employment, social benefit abuse and illicit labor”.

The federal government’s draft bill of 20 February 2019 ties in with a law passed in the 18th legislative period which strengthens the control of illicit labor and illegal employment, and with the regulations for the prevention of fraudulent child benefit claims.

The law in question (Prevention of Illegal Employment and Social Benefit Fraud Act, “Gesetz gegen illegale Beschäftigung und Sozialleistungsmissbrauch”) was passed by the German Lower House of Parliament on June 06, 2019, and entered into force on July 18, 2019.

Fundamentally, the new act contains additional powers and responsibilities which are designed to take account of the aims of the act, that is, to further the purpose of the act.

In detail, the act contains the following significant provisions:

  • Extension of the control powers of the FKS with regard to sham employment and sham self-employment
  • Extension of the control powers of the FKS “with regard to indications of illegitimate receipt of child benefit” and the “creation of a duty of immediate notification to the family benefits office”
  • Provisions to promote information exchange between public authorities working on related issues
  • Creation of control powers of the FKS to investigate the suspected illicit offering of illegal labor in public spaces
  • Creation of control powers to prevent exploitative working conditions
  • “Improvement of the scope for uncovering illegal employment and illicit labor in the case of anonymous offers and advertising activities”
  • Extension of the control and investigative powers of the FKS with regard to controlling sham self-employment, including in cases where there is no evidence of the specific place of work
  • Extension of the circumstances which constitute an administrative offense
  • “Creation of control and investigative powers of the FKS with regard to the provision of accommodation agreed under collective agreements and the conditions of accommodation agreed under collective agreements in accordance with the German Employee Secondment Act (Arbeitnehmer-Entsendegesetz)”
  • Extension of the investigative powers of the FKS for the effective control of serious economic crime
  • “Extension of the sector catalog for the duty to carry identification documents in the Illicit Labor Prevention Act”
  • “Strengthening of the procedural rights of the FKS”

This is the theory. The list of changes is extensive, and not conclusive in every detail.

The legislator can only meet the constant changes in the illicit labor market by creating appropriate powers. It is the only way to effectively control illicit labor and social benefit fraud.

A substantial point of the debate in the German Lower House of Parliament of the act which has now come into force concerned the fraudulent claim of child benefits by foreign EU nationals. The question whether the refusal to pay the child benefit to foreign EU nationals who are looking for work in Germany is breaching EU law is a point of controversy.

What matters in the end is whether the state makes the appropriate personnel resources available to ensure that law and order are enforced. In the absence of adequate personnel, any hardening of legal provisions and extending of executive powers will prove to be a blunt sword, unfit for fighting new and changing dangers.

The effectiveness of the new act in practice therefore very much remains to be seen.

From our member office in Germany: RNSP Roos Nelskamp Schumacher & Partner Law Firm I Benius Group