EurWORK European Observatory of Working Life

Unions fear ECJ ruling in Laval case could lead to social dumping

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At the end of 2007, the European Court of Justice released its ruling on the Laval case. It states that the Latvian company, Laval, which posted workers to Sweden, is not required to adhere to the collective agreement within the Swedish construction industry. This decision relates directly to the scope of the EU directive on posted workers. According to some commentators, the ruling goes against the directive’s aims and could represent a landmark in the promotion of wage dumping.

Background to the Laval case

Since 2004, the Laval case along with the Viking case has been of significant interest in industrial relations circles across Europe. Although the case involves the terms and conditions of employment of only 14 Latvian construction workers (LV0501101F), the ramifications of the dispute between the Latvian construction company Laval un Partneri Ltd and the Swedish Building Workers’ Union (Svenska Byggnadsarbetareförbundet, Byggnads) is far more wide-reaching.

Central to the dispute between Laval un Partneri and Byggnads is the issue of social dumping. Having won a public tender in Sweden to renovate a school near Stockholm, the Riga-based construction company Laval posted workers to Sweden. Estimates suggest that these posted workers earned around 40% less than their Swedish counterparts. Concerned that the posting of cheaper labour to Sweden would threaten the position of Swedish construction workers, the trade union encouraged Laval to comply with the local terms and conditions of employment laid down in the collective agreement (SE0706029I).

The eventual refusal on the part of Laval to sign the existing collective agreement led Byggnads, supported by the Swedish Electricians’ Union (Svenska Elektrikerförbundet, SEF), to picket Laval building sites on 2 November 2004 (SE0412101N). In response, Laval called on the Swedish Labour Court to rule the action unlawful. According to the Swedish trade unions, Swedish legislation relating to collective agreements allows organised labour to resort to industrial action to force an employer irrespective of where it is based into signing a collective agreement. The Swedish Labour Court responded by seeking guidance from the European Court of Justice (ECJ) on whether the trade unions’ actions circumscribed EU law, more specifically the provisions of Council Directive 96/71/EC concerning the posting of workers in the framework of the provision of services.

Opinion of Advocate General

The opinion delivered by Paolo Mengozzi, one of eight legal advisors to the ECJ, proved supportive of the Swedish trade unions’ position (EU0706029I). A central aspect of Mr Mengozzi’s opinion, which was issued in May 2007, was that the Swedish trade unions’ actions did not compromise the legal provisions set out in Directive 96/71/EC on posted workers.

In replying to the Swedish court’s request, Mr Mengozzi responded on three points. Firstly, he highlighted that industrial action falls within the scope of Community law. Hence, trade unions are required to respect the right of undertakings as allowed by Directive 96/71/EC to provide services. Secondly, the right of Swedish social partners to negotiate employment terms and conditions is not viewed as circumventing Directive 96/71/EC, notably preventing its adequate implementation.

Finally, Mr Mengozzi concluded that Byggnad’s blockading of the Laval building site was acceptable as this was ‘motivated by public interest objectives, such as the protection of workers and the fight against social dumping, and is not carried out in a manner that is disproportionate to the attainment of those objectives’.

The legal advisor’s opinion was widely welcomed by European trade unionists and their supporters. According to the President of the Party of European Socialists in the European Parliament, Poul Nyrup Rasmussen, the opinion ‘removes the sword hanging over European collective bargaining and offers the chance of a decent deal to women and men who travel to another country for work’.

This preliminary ruling could have represented an important precedent for other European trade unions to follow and an acknowledgment that trade unions’ organisational horizons were no longer governed by national borders. According to the President of the Latvian Free Trade Union Confederation (Latvijas Brīvo Arodbiedrību savienība, LBAS), Pēteris Krīgers, such a strategy would require trade unions to improve their cross-border communication channels. Latvian trade union representatives were concerned that their Swedish counterparts had not informed them of their industrial actions. This was a particular concern since the 14 Latvian workers in question were members of the LBAS-affiliated Latvian Trade Union of Construction Workers (Latvijas Celtnieku Arodbiedrība, LCA).

ECJ ruling overturns Advocate General’s opinion

However, the recent ECJ judgement represents a surprise reversal of Mr Mengozzi’s position. Although the ECJ recognises the right of trade unions to undertake collective action, it pointed out that such industrial action did represent a restriction on the freedom to provide services, where it makes the provision of such services ‘less attractive’. Therefore, such collective action could only be conducted under EU law where it was to pursue a legitimate aim and was justified by overriding reasons of public interest.

Like the earlier preliminary opinion, the ECJ focused on the issue of ‘public interest’ to guide it in its eventual decision, in particular whether the restriction of certain freedoms is warranted to promote the interests of the public. In contrast to the Advocate General’s opinion, the ECJ held that in this case industrial action should not be considered as promoting public interests, even if the blockade of the building site where Laval’s workers were posted was designed to combat social dumping in the Swedish labour market.

The ECJ reached its ruling by arguing that collective action is permissible, as provided for by the EU directive on posted workers, in cases where an undertaking fails to comply with the minimum protection standards applicable within the host Member State. In the case of Sweden, no minimum standards applied since there was no legal provision for the collective agreement to be incorporated into Swedish law. To suggest otherwise would question the principle of proportionality, in other words, not exceed what is required to achieve its aims.

The ECJ based its decision on the fact that industrial action can not be allowed

where the negotiations on pay, which that action seeks to require an undertaking established in another Member State to enter into, form part of a national context characterised by a lack of provisions, of any kind, which are sufficiently precise and accessible that they do not render it impossible or excessively difficult in practice for such an undertaking to determine the obligations with which it is required to comply as regards minimum pay.

According to the ECJ, to do otherwise would force an undertaking to surpass the minimum standards acknowledged within the posted workers’ directive and, as a consequence, would make it less ‘attractive’ for companies to provide such services outside their borders.

Commentary

The ECJ ruling amounts to what the European Economic and Social Committee (EESC) calls a ‘dynamic compromise’. The ECJ does not rule out the right of trade unions to resort to collective action. On the contrary, the court considers that this is a fundamental right of all EU citizens. However, such action is required to respect certain parameters set by EU legislation – parameters, as some commentators suggest, placing the rights of companies and their business activities above those of workers.

BusinessEurope welcomed the ruling, noting that the recent judgement will contribute to improving the development of an internal market. Referring to the judgement as ‘balanced’, the European employer organisation noted that the ECJ has provided ‘legal clarity, which was greatly needed to achieve the correct implementation of the posting of workers directive’.

According to the European trade union organisations, however, such parameters potentially open the door to the promotion of social dumping. Expressing its concern with the recent ruling, the European Trade Union Confederation (ETUC) stated that this narrow interpretation of the posted workers’ directive could have negative ‘implications for trade unions’ ability to promote equal treatment and protection of workers regardless of nationality’. All the signs suggest that this recent ruling will lead to heated discussion about revising Directive 96/71/EC on posted workers. The Swedish government has also indicated that it is considering tightening up its legislation relating to pay negotiations as a means of closing the current loop hole.

Michael Whittall, Technical University Munich

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