European Court ruling on the Laval case will restrict right to industrial action

At the end of 2007, the European Court of Justice delivered its verdict on the Laval case, restricting the use of industrial action in relation to the free movement of services. The main parties involved in the case were the Swedish Building Workers’ Union and the Latvian construction company Laval. The court ruling was surprisingly in favour of the Latvian company, having major implications for the Swedish labour market and the social partners.

Background

In May 2007, one of the eight legal advisors to the European Court of Justice ( ECJ), Pablo Mengozzi, issued his opinion on the Laval case. The opinion held that a service provider from another European Member State should subscribe to the pay provisions of collective agreements in the host country, while any collective action taken against a service provider from another EU country must be carried out in a manner that is proportionate to the attainment of its objectives.

The Swedish trade unions involved in the case – the Swedish Building Workers’ Union (Svenska Byggnadsarbetareförbundet, Byggnads) supported by the Swedish Electricians Union (Svenska Elektrikerförbundet, SEF) – perceived the preliminary judgement positively. On the other hand, the Confederation of Swedish Enterprise (Svenskt Näringsliv) was more uncertain of the preliminary judgement’s impact, since the question regarding proportionality of collective action was finally to be determined by the Swedish Labour Court (Arbetsdomstolen) (SE0706029I).

ECJ ruling overturns preliminary opinion

In December 2007, the ECJ released its final ruling on the Laval case (EU0801019I). The essence of the ruling was that the Swedish trade unions’ blockade and sympathy actions to combat social dumping against the Latvian construction company Laval un Partneri Ltd represented a restriction on the freedom to provide services, where it makes the provision of such services ‘less attractive’. Therefore, such industrial action does not fall within Community law, more specifically within the provisions of Council Directive 96/71/EC concerning the posting of workers in the framework of the provision of services. Furthermore, the ruling restricts Swedish trade unions’ right to take industrial action to force foreign companies into signing collective agreements when operating in Sweden. It is now the responsibility of the Swedish Labour Court to adjust the ECJ’s ruling to national regulations. The final verdict from the national Labour Court will be concluded during 2008.

Current debate among social partners

The Swedish trade unions were shocked by the final ruling from the ECJ which overturned the preliminary Advocate General’s opinion. They are worried that the ECJ’s ruling will allow foreign companies – which pay their workers lower wages and offer poorer working conditions than are provided for in collective agreements in Sweden – to compete with Swedish companies, thus placing the Swedish labour market model under pressure.

Following the judgement, the trade unions will encounter problems in defending the terms and conditions of employment laid down in the country’s collective agreements. One problem for foreign companies in this respect is that no statutory minimum wage exists in Sweden and that they are sometimes referred to complicated collective agreements. In the case of the Swedish construction sector, Byggnads would have to develop a simplified agreement providing for employment conditions and minimum wages that foreign service providers in the industry can adopt.

Meanwhile, the First Vice-President and Negotiating Secretary of the Swedish Trade Union Confederation (Landsorganisationen i Sverige, LO), Erland Olauson, underlines that the ECJ’s ruling does have a major impact on the Swedish trade unions and their collective agreements. According to Mr Olauson, under the condition that Byggnads draws up a collective agreement in which minimum wage levels are clearly defined and does not force foreign companies to abide to the industry’s current collective agreement, the trade unions still have the right to take industrial action. LO also demands that the government takes the initiative to amend the legal provisions stipulated by the EU directive on posted workers.

Svenskt Näringsliv’s expert on labour law, Lars Gellner, welcomes the restriction on the right to take industrial action which hinders the free movement of services. Industrial action must have a legal objective, says Mr Gellner. Furthermore, he emphasises that the judgement’s focus on the ‘danger’ for employment and working conditions is crucial as, in the Laval case, ‘there were no Swedish employees’ contracts in danger’.

The Swedish Minister for Employment, Sven Otto Littorin, although stressing that the implications of the ECJ’s ruling are still to be investigated, claims that changing labour legislation may become necessary. He also believes that the judgement does negatively affect the trade unions’ right to take industrial action. Finally, the Swedish Labour Court will decide on the case, applying the guidelines that the ECJ establishes in its ruling. In the meantime, Minister Littorin has invited trade unions and employer organisations to join discussions on finding a solution.

Commentary

It will take about one year before the Laval case will come to a close. Although the ECJ has given its final ruling in this case, the Swedish Labour Court will finally decide on how this ruling will be implemented in the national context. Until the court makes a decision, negotiations will take place between the social partners involved. As a result, discussions on the Laval case will continue throughout 2008.

Thomas Brunk, Oxford Research

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