Sweden: Impact of the Laval ruling on industrial relations

The impact of the Laval ruling regarding posted workers and the subsequent amendments to Swedish law have been far-reaching. This article gives a short overview of the political developments in Sweden, as well as the social partners’ views on different ways of handling the new circumstances for industrial relations resulting from free movement and tougher competition.

Background

The Laval court case has been a topic of discussion in Sweden for more than a decade, with politicians, trade union representatives and employers debating as to whether the Swedish economic model is threatened. The case

The issue began in 2004 when Latvian construction company, Laval Un Partneri Ltd, posted workers to Sweden to renovate a school in Vaxholm. The Swedish Building Workers’ Union (Byggnads) approached Laval to sign a collective agreement – an offer that Laval refused. This collective agreement would have been more favourable to the posted workers than the terms required to protect such workers under the Posted Workers Directive, and also contained a clause for setting pay that would not allow Laval Ltd to determine in advance what the pay would be. Consequently Byggnads, backed by the Swedish Electricians' Union (SEF), took action by calling a blockade of the construction site.

Laval claimed that the blockade infringed its right to free movement of services and, after an initial ruling by the Swedish Labour Court stating that the blockade was legal, the court referred the matter to the European Court of Justice (ECJ). The ECJ's preliminary ruling in 2007 stated that the union had gone too far in its actions and that Swedish law had to be changed. 

Lex Laval and the Enforcement Directive

In 2010, three years after the ECJ ruling, changes were made to the regulations regarding posted workers (Posting of Workers Act 1999:678). The new law came to be known as Lex Laval.

The amendments set new rules governing how an organisation can use industrial action against an employer with the aim of achieving a collective agreement for posted employees. The regulations state that the issue must concern either minimum terms in a Swedish central branch agreement, or the terms valid for leave, working hours, pay and similar conditio. Industrial action can also be used if the terms in the collective agreement are better than those already in force according to Swedish law. Furthermore, organisations have to submit the conditions that apply to posting in their collective agreements to the Swedish Work Environment Authority (AV).

In 2012, a Swedish parliamentary committee was given responsibility for evaluating Lex Laval. Its report, which has a deadline of 31 May 2015 , will include proposals for new amendments with the purpose of strengthening the status of collective agreements (in Swedish). The Ministry of Employment has previously stated that one possibility is to give trade unions the right to demand a confirmation agreement from the employer of the posted worker ensuring that there is an agreement in the parent country that protects the worker. 

Proposals for adapting Swedish law

Simultaneously, an evaluation has been conducted for the Ministry of Labour (in Swedish) with the aim of proposing how to implement the Enforcement Directive in Swedish law. It also assesses whether Swedish law is consistent with the Enforcement Directive and puts forward the legislative proposals needed to adapt Swedish legislation to the directive. The proposals contained in the final report, published in February 2014, include:

• enforcing administrative penalties for failure to comply with the provisions on the posting of workers;
• introducing stronger means to recover those penalties;
• increased ability for posted workers to assert their rights in Sweden;
• greater protection against reprisals by the employer if the worker brings legal action in a Swedish court about the terms and conditions of employment to which the worker is entitled;
• clearer definitions of posting;
• better access to information and greater cooperation.

Responsibility of the main contractor

An accident in November 2014 in which two posted workers lost their lives on a construction site sparked a debate on health and safety for those posted workers not covered by Swedish collective agreements. Earlier in 2014, the social partners had reached an agreement on making the main contractor ultimately responsible for all employees of their subcontractors and the new rules came into force in January 2015.

Meanwhile, in the wake of the accident, the government also extended the scope of the Enforcement Directive to include the evaluation of possible legislation regarding the responsibility of the main contractor. The report, expected to include a list of other sectors in need of main contractor responsibility, had a deadline of 31 March 2015. 

While agreeing on the main purpose of this type of legislation, the government's moves were not received with great enthusiasm by the social partners. A spokesperson for the Swedish Construction Federation (BI) said the new directive amounted to unnecessary meddling from the government, especially since a bipartite agreement had already been reached between the trade unions and the employers.

Views of the social partners

In their election campaign, the Social Democrats declared their intention to repeal Lex Laval. However, after the election in September 2014, the new Social Democrats–Green Party coalition government changed its mind. It now aims to change the law rather than repeal it and has commissioned a new study into the issue. The changes to the law are, according to the Minister of Employment, Ylva Johansson, measures to protect and strengthen the status of collective agreements.

The news that Lex Laval was not to be repealed was met with disappointment from the Swedish Trade Union Confederation (LO). LO President, Karl-Petter Torwaldsson, argued that Lex Laval prevented trade unions from fighting for Swedish collective agreements when dealing with foreign companies operating temporarily in Sweden. LO says legal amendments made in 2010 in relation to posted workers go even further than the ECJ ruling demanded (in Swedish).

In a report about the posting of workers (in Swedish, 1.45 MB PDF), LO claims that a number of companies, particularly in the construction sector, act as if 'posted' while in reality they are permanently established in Sweden. This is a way for the companies to avoid Swedish legislation and regulations with regard to corporation tax, social security contributions, costs for occupational retirement provision, and so on. And, in agreement with the trade unions, the International Labour Organization’s Committee of Experts on the Application of Conventions and Recommendations (CEACR) found Lex Laval to be in violation of the freedom of association.

In contrast, the employers’ side showed some support for Lex Laval. The Confederation of Swedish Enterprises (SN) supported Laval in the process. It considers the rulings, both by the ECJ and in the Swedish Labour Court, as reasonable with regard to the free mobility within the EU (in Swedish, 961 KB PDF).

Possible extension of collective agreements

Trade unions have argued that tougher international competition and new rules on taking industrial action have made upholding collective agreements more challenging.

Within the Swedish system, it is not possible to extend collective agreements by decree or legislation, and traditionally there have been few who have argued for such an arrangement. In recent years, however, there have been some signs that the firm resistance to extensions might be softening and some have begun arguing in favour of extensions (in Swedish). The issue is by no means uncontroversial in Sweden, as extensions would signify a significant departure from the Swedish model as it is organised today and, unsurprisingly, the debate clearly shows that there is no consensus on the subject.

The major dividing lines are between sectors, rather than between employers and trade unions, most likely due to the different extents to which different branches of industry are affected by the free movement of services.

The transport industry is one example of a sector that is experiencing what it considers to be an unfair wage competition. Both the Transport Group (the sector's main employers’ association) and the Swedish Transport Workers Union (Transport) would like to investigate the possibilities of extending collective agreements (in Swedish). They are looking to Norway – where extensions were introduced in order to combat social dumping – as a source of inspiration

Commentary

The effects of the Laval ruling cannot be looked at in isolation. Many other factors may well have a bearing on the changes which have come about in Swedish industrial relations. However, researchers have detected a slight shift in influence between the social partners. And while the bipartite nature of the Swedish model remains steadfast, there are some, albeit small, signs of increased government intervention. Furthermore, the current discussions about repealing or amending Lex Laval are likely to remain a topic of debate especially since the final report from the parliamentary committee is expected in May 2015.