Labor inspectorate: employers accept fines for using third-country nationals

The illegal employment of third-country nationals – people from outside the EU, European Economic Area (EEA) and Switzerland – is a revenue model for employers. They accept the risk of fines. For them, that risk does not outweigh the financial benefit of using cheap labor. This is evident from research by the Labor Inspectorate, which outgoing Minister of Social Affairs and Employment Karien van Gennip (CDA) sent to the House of Representatives last Friday. To counter this, the inspectorate advocates indexation of the fines in line with increased prosperity and inflation.

The study into violations of the Foreign Nationals Employment Act (Wav) shows that employers save an average of 60 percent of costs by illegally hiring third-country nationals. By hiring someone off the books, they do not have to adhere to legal requirements such as the minimum wage, nor do they have to pay premiums or payroll taxes. In almost all 24 cases investigated by the Labor Inspectorate, the fine amount was lower than the calculated financial benefit of the employer. In 90 percent of the cases, the costs of the fine were recouped within a year.

In one of the cases, the inspectorate describes a third-country national who works in the kitchen of a catering business six days a week for more than nine hours a day. He says he receives 1,000 euros per month for this, which amounts to an hourly wage of 4.30 per hour – much lower than the minimum wage in the sector. The company is fined 8,000 euros, while the annual financial benefit is more than 38,000 euros. The inspectorate estimates that these types of violations, which also include international students working in the catering industry without a permit, occur tens of thousands of times a year.

‘finger pointing’

In addition to the catering industry, construction, the food processing industry and cleaning are sectors in which a lot of undeclared work takes place. The social costs of these practices, such as the pressure on public services such as healthcare, education and homeless shelter, are difficult to calculate, the inspectorate states. But with a ‘pointing of the finger’ she manages to put an annual figure of “easily tens of thousands of euros” per person.

The current fine amount of a maximum of 8,000 euros was introduced in 2005 with the Wav. Because the fine amount is still the same, it now concerns a relatively smaller part of the income. The government increased the fine to 12,000 euros in 2013, but two years later the Council of State overturned it again, due to a lack of differentiation according to the nature of the violation. In 2022, the Administrative Jurisdiction Department ruled that a fine of 8,000 euros may be imposed “only in the case of intent and gross negligence”. The degree of culpability of the employer in the violation must be taken into account.

Lawyer Pieter Krop, who specializes in enforcement and European migration law, fears that the government has learned few lessons from the past and is still focusing strongly on coûte que coûte increasing fines. He advocates a proper proportionality test in the case of a new increase and more distinction between the type of violation in the fine policy. “There is a difference between employers who see it as a good thing trade off and well-intentioned small businesses that made a mistake.”

Proportionality test

According to him, this difference should be clearly reflected in the policy rules, also because since the Benefits Affair, administrative judges have looked much more strictly at all government decisions. If such a proportionality test is not sufficiently taken into account, Krop expects that he and his colleagues will often go to the administrative jurisdiction department of the Council of State.

According to Tesseltje de Lange, professor of European migration law at Radboud University, it is “not strange in itself” to index the fines so that “a fine amount has some deterrent effect.” But according to De Lange, such an incentive for employers to treat their people decently is certainly not the only way to prevent employers from engaging in exploitative practices.

Another way would be to increase the chance of being caught: investing more in enforcement and, if necessary, using criminal law by calling on the help of the justice system. The annual report of the Labor Inspectorate published last month showed that only five cases of labor exploitation were forwarded to the Public Prosecution Service in 2023. A law is in the works to make criminal prosecution easier. This should serve “for when it is really wrong”, such as with large-scale, deliberate exploitation, says De Lange. The risk of careless, but not malicious, entrepreneurs bashing” by going after them is also lurking, according to her.

In addition to the risk that the government focuses blindly on increasing fines, the migrants and their well-being are often forgotten, De Lange sees. “They are left to fend for themselves on the street corner, but I rarely hear the Labor Inspectorate about this, while the government is responsible for this according to European standards and international treaties of the International Labor Organization ILO.” That worries her. Without better protection and tougher enforcement, migrants may feel forced to operate even more under the radar, “for example by only working at night,” De Lange said.

A completely different way to solve the problem of labor exploitation is to regularize those who work illegally: establishing criteria for granting a residence permit to those who carry out the work. De Lange emphasizes that there is an economic demand for much work that is done illegally. She cites the cleaning sector as an example: “Try to find enough people who want to do that work.” She also sees that such a regularization is “not the most politically feasible option now”, but it has happened in other European countries such as Italy and Spain. “So it is a normal option to think about.”

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