If the client agrees with the contractor to pay his wages without an invoice and without paying VAT, this constitutes a breach of a statutory prohibition (Section 134 BGB). The contract is null and void. The contractor has no claims for payment and the client has no claims for remuneration in the event of defects.
The problem
According to the previous case law of the BGH, the client can assert warranty claims in good faith (Section 242 BGB) even in the case of a “without invoice agreement “*. According to a ruling of the BGH of May 31, 1990**, claims for remuneration by the contractor are also not excluded. Rather, the contractor is entitled in good faith to demand compensation from the client for the unjustly obtained value (§§ 812, 818 para. 2 BGB). In short, payment and remuneration in the case of deficiencies had previously been legally secured for contractors and clients despite undeclared work. However, the facts of these decisions date back to a time before the Clandestine Employment Act came into force on August 1, 2004, which raises the question of whether this new legal situation has any influence on case law.
The case
The client agrees work services with the contractor, whereby the remuneration for the work is to be paid in cash and without payment of VAT. Variant 1: The service is defective. Is the client entitled to rectification? Variant 2: The client does not pay the final invoice and declares a set-off with a claim for damages due to alleged defects. Does the client owe the remuneration for the work or at least compensation for the value?
The decision
With regard to variant 1, the BGH ruled in its judgment of August 1, 2013 – case reference: VII ZR 6/13 – that the contract for work and services concluded between the contracting parties is null and void due to a breach of the Undeclared Work Act and thus a statutory prohibition pursuant to Section 134 BGB. According to the new version of the Undeclared Work Act (Section 1 (2) no. 2), anyone who does not meet their tax obligations for contracts for work and services within six months is performing undeclared work (Section 14 (2) UstG). This can be assumed in the case of an “without invoice agreement”. The nullity of the contract means that the client is generally not entitled to any claims for defects.
With regard to variant 2, the Higher Regional Court of Schleswig ruled in its judgment of August 16, 2013 -1U 24/13 – that the contractor is not entitled to a claim for remuneration for work because no effective contract for work was concluded in accordance with Section 134 BGB. Contrary to the opinion of the BGH cited in the ruling of May 31, 1990, the undeclared worker also had no claim to compensation. This contradicts the “clear wording” of the Clandestine Employment Act, which “is aimed precisely at the loss of the right to enrichment as an intended consequence”.
Practical advice
It is to be expected that the BGH will follow the opinion of the Higher Regional Court of Schleswig in its future case law, i.e. that it will not grant the undeclared worker any claim to compensation for the value of his work. The new version of the Undeclared Work Act means that, for the first time, even a breach of tax obligations in the case of contracts for work and services is considered “undeclared work”. Anyone who deliberately violates a prohibition law does not deserve protection from the consequences of the violation.
*BGH of 24.4.2008 – AZ: VII ZR 42/07; Baurechts-Report 5/2008 –
**BGH of May 31, 1990 – AZ: VII ZR 33/89; Baurechts-Report 11/90 –
Legal basis from STEIN in December 2013.