Government secures right to take industrial action against foreign service providers

As a consequence of the so-called Laval verdict issued by the European Court of Justice in December 2007, the Danish government set up a commission with the strong participation of the social partners to analyse the consequences of the verdict for the national rules concerning industrial action. In June 2008, the commission issued a final report in which it recommended an amendment to the Danish act on the posting of workers.

In December 2007, the European Court of Justice (ECJ) passed a verdict in the so-called Laval case from Sweden that focused on the trade unions’ right to take industrial action against a foreign service provider in order to protect against social dumping (EU0706029I, SE0804029I, SE0505104N). As the Danish industrial relations system is comparable to the Swedish one in several ways, the Danish social partners and government representatives followed closely the process and the result of the ECJ Laval verdict. The case was discussed thoroughly among the social partners and government both from a principal and a specific viewpoint (EU0801019I, DK0511102F, DK0709019I).

Influence of Laval case on Danish industrial relations

The Danish social partners and the government concluded that it would be advisable to clarify in advance how to deal with a situation similar to the Laval case if it occurred in Denmark. The Danish Labour Court had previously extended access to take sympathy actions to all employees at a construction site in order to put pressure on an eastern European construction company. Nevertheless, a direct request from an employer would force the Labour Court to present vital questions about the Danish labour market model to the ECJ, as in the Swedish case.

In general, the Danish government and the parliament were against the Laval verdict. In addition, they saw a risk that the verdict would stir up emotions in Ireland before the referendum on the Lisbon Treaty in June 2008. In Danish national politics, both the left-wing and right-wing parties, which normally support the government, opted for a protocol to the Lisbon Treaty protecting the Danish labour market model and the right to take industrial action. This protocol was seen as a basic condition for the parliament in order to ratify the treaty. However, this idea did not receive widespread support. Instead, the political agreement between a large majority of parties in parliament concerning the ratification of the Lisbon Treaty was slightly adjusted in order to underline the common desire to support the Danish labour market model. Furthermore, the government set up a commission, with strong representation from the social partners, to analyse the Laval verdict and determine whether changes in Danish legislation were needed in order for the Danish industrial relations system to deal with the verdict. Bearing in mind the risk that there could be a relevant Danish case before the ECJ in the near future, the commission was asked to report on its findings before the end of June 2008.

Report from the Laval commission

On 19 June, the Laval commission presented its report. In general, it found that the Danish industrial relations system was in line with the EU acquis communautaire. Nevertheless, at the same time, the representatives of the social partners and the government unanimously found that Danish labour market regulation would benefit from some clarification and codification in relation to this issue.

The main focus for the commission was whether or not Denmark had implemented correctly Council Directive 96/71/EC concerning the posting of workers in the framework of the provision of services, since the Danish act on the posting of workers has no explicit reference to wage and working conditions in the collective agreements.

The commission concluded that the Laval verdict must be interpreted so that a wage-setting system based on collective agreements concluded by the most representative social partners – according to Article 3.8 of the posted workers directive – must be implemented by national regulation based on the principle of equal treatment. The commission noted that the directive does not harmonise national regulations on work and employment conditions. Moreover, the commission found that the Laval verdict does not contain any obstacle for trade unions’ continuous enforcement of minimum wage conditions, as long as the criteria are transparent to foreign service providers.

Recommendations of Laval commission

In its report, the commission presented a possible amendment to the Danish act on the posting of workers. First, the amendment sets out that the most representative social partners (representativeness criteria) have the right to take collective industrial action covering the entire Danish territory (entirety criteria). Secondly, the amendment proposes that industrial action should not be taken before a foreign service provider has been informed about the content of the relevant collective agreement (reference criteria), as clearly and precisely (transparency criteria) as possible in explaining the minimum wage requirements.

Notes to the amendment specify that the Danish Labour Court should be vested with competencies to determine whether a foreign service provider in each specific case has been treated in accordance with the four criteria mentioned above.

The transparency criteria do not require the foreign service providers to pay their workers any specific tariff. According to the amendment, reference to ‘piece rate tariffs’ or ‘performance-related pay schemes’ might be sufficient. Reference to statistics that serve as a basis for wage setting also meets the transparency requirement. In this way, the wage level required by a foreign service provider can exceed the minimum wage level stated in many Danish collective agreements. On the contrary, the tariffs cannot include locally negotiated wages, which would normally be agreed at company level in Denmark. As the Danish regulation has been increasingly decentralised, a large part of the wages and other benefits are agreed locally. In the construction sector, which at present is by far the largest field of activity in Denmark for foreign service providers, about one third of the wage is negotiated at company level.

Determining the minimum wage

The notes to the amendment clearly indicate that other issues, in addition to pay, are relevant and included when setting the minimum wage. Danish collective agreements are increasingly including issues other than wages, such as special holidays and parental leave benefits. Such benefits can be taken into account when determining the minimum wage. Other issues, such as insurance schemes and vocational training funding, are left out of the minimum wage setting. The amendment notes also highlight that pension and holiday payments already stipulated in the service providers’ country of origin should be deducted from the minimum wage claimed by foreign service providers in Denmark.

So far, the proposed amendment to the Danish act on the implementation of Directive/96/71/EC is still only a proposal from the tripartite commission. As the proposal operates within the core field of social partners’ exclusive competence, it would be customary to expect that the amendment bill will pass government procedures, as well as be approved by the Danish parliament.

Reaction to commission’s proposal

The proposed amendments to the Danish act on the posting of workers has generally been received positively as it preserves the core values of the Danish collective bargaining system, maintaining the social partners’ almost full competences towards foreign service providers. Some local trade unions, especially in the construction sector, have complained that local wages cannot be included in the minimum wage demanded by foreign service providers. In this regard, the trade unions fear a division of collective agreements into two classes_._ Others have found that it would be more obvious to introduce an erga omnes (universal) system on minimum wages starting with the construction sector. Such a system is considered better to counteract the fact that only a few hundred out of more than a thousand eastern European service providers, registered as active in Denmark, have signed Danish collective agreements. Moreover, some experts have expressed doubts about the criteria on transparency and referencing contained in the proposed amendment. For instance, they doubt that the requirements fulfil the demands for precision and accessibility of the minimum wage as defined by the ECJ in the Laval case.

Next steps

The amendments to the act on the posting of workers will be read in parliament in the autumn of 2008 and are expected to pass through without significant debate. The challenge seems rather to rest with the social partners. Their duty and responsibility will be to convert general benefits – such as special holiday pay or maternity leave payments – in present collective agreements into wage tariffs, leaving out local wage amounts and benefits that foreign posted workers do not profit from. As pointed out in the Laval verdict, this could include insurance premiums and vocational training contributions. This procedure requires a kind of technical renegotiation of present collective agreements, with the risk of bringing up old disputes. It remains to be seen if the social partners in all relevant industries can agree to take on this task. In the construction sector, a few employers have already proposed that the employers reject this challenge, while trade unions in such cases are willing to act unilaterally. It will be up to the Danish Labour Court to judge if these outcomes meet the relevant requirements and for the ECJ to reflect on whether the adjusted Danish model will correspond to EU legislation with regard to the freedom rights of foreign service providers.

Klaus Pedersen, FAOS