VIENNA (Reuters) - An Austrian law to deter companies from contracting out work to lower-cost eastern European firms breaches EU regulations, an industry body has argued in a filing to the European Commission, which has supported this view in a related court case.

Austria’s Association of Metaltechnology Industries said late on Tuesday it had filed the complaint over the law against companies that use cut-price labour, saying it makes it hard for Austrian groups to work with foreign contractors.

The association listed as a recent example Austrian engineering group Andritz ANDR.VI being fined around 22 million euros (19.86 million pounds) for using a Croatia-based contractor for a 7 million euro project in Austria.

Andritz has appealed against the fine.

Wages in Austria are typically higher than in its eastern neighbours, many of which are EU members. The government in Vienna is pushing for ever-tougher laws to discourage Austrian companies from hiring foreigners, a contentious goal given that within the EU the flow of services and workers should be free.

“The Association of Metaltechnology Industries has already filed a complaint in March ... with the EU Commission against the aspects of the (wage and social dumping law) that are contrary to (European) Union law,” the association said.

“The Andritz case shows ... that the assignment of (jobs to) external service providers is being rendered practically impossible,” it added.

Association chief Christian Knill said the way Austrian authorities interpret the law is a “permanent threat” to companies and he expected companies to exit the Austrian market gradually should such practices continue.

In a related case brought on behalf of Slovenian contractors, law firm Grilc Vouk Skof, which operates in Austria and Slovenia and also represents the Croatian firm in the Andritz case, said it had asked the Commission for an opinion on Austria’s law.

Grilc Vouk Skof sent Reuters a letter in German dated May 11 from the Commission to the European Court of Justice, where the law firm has lodged a Slovenian challenge against the Austrian law. It expects a decision later this year or in 2018.

The Commission said in the letter that the way Austria implements its law “breaches article 56 of the (treaty on the functioning of the European Union)”.

The Commission was not immediately available to comment on Wednesday on the Austrian law.

The article says “restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended”.