A user undertaking is jointly and severally liable, on the basis of a service contract, for unpaid wages and other outstanding payments due to employees of a foreign service provider.

The liability of the user undertaking also extends to employees of undertakings that have entered into service contracts based on the original service contract. This applies even where there is no direct contractual relationship between those undertakings and the user undertaking. This is known as chain liability.

If the user undertaking is part of a group of companies, the parent company is jointly liable with the user undertaking.

The same applies to another company if it is under the control of the same party as the user undertaking.

The liability covers:

• unpaid minimum wages,

• other unpaid wage components,

• unpaid overtime pay,

• unpaid wages in the event of illness or accidents, and

• unpaid wage-related charges in Iceland.

However, the liability does not extend to unpaid holiday pay.

Claim for unpaid wages

If an employee has not received wages or other payments to which they are entitled, they may, subject to certain conditions, submit a written claim to the user undertaking.

Time limit for submitting a claim

The claim must be submitted to the user undertaking within four months of the date on which it fell due.

If the user undertaking knew or should have known that wages or other payments had clearly not been paid, a court may extend the four-month time limit to up to twelve months.

How should the claim be submitted?

The claim must be made in writing and may be submitted electronically or on paper.

It must specify:

• which payments are outstanding,

• when they fell due,

• the nature of the undertaking’s failure to pay, and

• how the employee wishes to receive a response from the user undertaking.

A claim is also deemed to have been submitted if the consultation committee pursuant to the Act on the Terms of Employment of Workers and Compulsory Pension Insurance has notified the user undertaking of the outstanding payments.

What happens when a user undertaking receives a claim?

Once a written claim has been received, the user undertaking must, without undue delay:

• notify the undertaking alleged to have failed to make the payments of the claim;

• request that it pay the claim or state its position within seven working days of receiving the demand for payment.

If the user undertaking considers there to be doubt as to the validity of the claim, intends to request an opinion from the consultation committee or considers that an exemption from liability applies, it must inform both the employee and the undertaking within seven working days. Its position must be provided in writing and include reasons.

If the user undertaking raises no such objection, it must pay the claim within 24 working days of receiving it.

Opinion of the consultation committee

Both the employee and the user undertaking may request an opinion from the consultation committee on the validity of the claim.

Once the committee has issued its opinion, the user undertaking must inform the employee and the undertaking of its final position within three working days.

User undertaking’s right of recourse

If the user undertaking pays the claim, it may deduct the amount paid from any payments it owes to the undertaking with which it has a contractual relationship.

If the case goes to court

If an employee brings legal proceedings in Iceland in respect of the liability of a user undertaking, they must:

• Bring the proceedings within eight months of the date on which the user undertaking communicated its position on the claim.

• Also bring proceedings against the undertaking that failed to pay the wages before the same court as the user undertaking.