EurWORK European Observatory of Working Life

New agreement to combat social dumping

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A collective agreement by Danish social partners in the construction sector has introduced measures to combat social dumping. The agreement, between the United Federation of Danish Workers (3F) and employer association Danish Craft (Dansk Håndværk) on January 1, obliges employers to contract out work only to firms covered by a Danish collective agreement. It also stipulates that employees must get a higher rate for non-piecework than the collectively agreed minimum.

Background

At the end of January 2011 the Danish social partners in a small part of the construction sector decided to introduce new measures to combat social dumping in their collective agreement. The renewed collective agreement, signed between the United Federation of Danish Workers (3F) and the employer association Danish Craft (DHV), covers around 500 small and medium-size enterprises in construction, handicrafts, and the wood industry. The agreement obliges the employer to contract out work only to companies covered by a Danish collective agreement.

From 3F’s perspective this agreement was a major breakthrough. In the general collective agreement renewal in spring 2010 (DK1003031I) the main employer organisation in the construction field, the Danish Construction Association (Dansk Byggeri) had refused to negotiate on these issues, arguing that committing members to do business exclusively with subcontractors covered by Danish collective agreements would violate EU competition regulation. The Association also refused to raise non-piecework wages saying that this would entail an inappropriate general wage increase.

Challenges for social partners

The social partners have experienced problems with service providers who, although possibly Danish financed and doing business in Denmark, mainly employ workers from Eastern and Central EU-countries.

Shortly before the enlargement of the EU in 2004, migration experts estimated that Denmark would receive between 35,000 and 50,000 extra labour migrants in the next 30 years. Denmark introduced a transitional scheme, allowing workers from the new EU10 countries to work in Denmark so long as their work was covered by a collective agreement or a similar agreement. In spite of this, more than 30,000 work permits were issued between 2004–2008. Service providers and their posted workers from the new member countries have had free access since the accession in 2004.

It has never been clear how many foreign posted workers are in Denmark, although the government’s special registration measures were recently strengthened. Now, private households and companies will be fined if engaging a service provider who is not correctly registered. Danish unions have access to the information in the register, helping them to find and conclude collective agreements with foreign service providers.

The few recent studies on social dumping in Denmark show that posted workers are likely to suffer wages and working conditions significantly below collective agreement standards.

First agreements

The collective bargaining round in 2007 was the first opportunity for the social partners to combat social dumping from labour migration. However, only a few measures were agreed to. The most remarkable one was the improvement of pension rights for migrants who were also granted back-dated pension payments. At present, around 12% of Danish wages consist of pension payments, so securing migrants this benefit was important in order to level wages. Additionally the initiative served as an important tool for controlling wages paid to labour migrants

By the time of the collective bargaining round in 2010 the financial crisis had set in. Nevertheless, especially in the construction sector, there still seemed to be a high level of foreign labour, while Danish employees were increasingly being laid off. In cities unemployment rates exceeded 10%. Furthermore, small Danish construction enterprises increasingly lost out on contracts. The employer organisations were thus faced with pressure from unions as well as from small companies. Both groups wanted action to tackle low wages leading to unfair competition.

The unions demanded a ‘chain liability’ scheme in cases of subcontracting, obliging the main Danish entrepreneurs to do business only with organised subcontractors and to guarantee that ordinary wages were paid at all subcontracting levels.

As has been mentioned, members of the Danish Construction Association rejected this idea, arguing that it would breach EU competition regulation. Instead it was agreed to strengthen, control and streamline administrative procedures in cases of non-organised subcontractors. One practical measure included the so-called ‘48-hours meetings’. This speeds up investigations when there are doubts as to whether a subcontractor is covered by, or respects, a collective agreement. Meetings are undertaken at construction sites and copies of wage slips must be presented to unions within 48 hours, together with a plan on how to rectify the situation (DK1003031I).

The new initiatives

The new 3F/DHV agreement places responsibility on the employer to do business only with subcontractors covered by a collective agreement. This initiative reflects the predominant Danish approach to social dumping, by developing internal measures to solve the problem. By doing this, the social partners avoid direct legislative interference in the autonomous Danish labour market model. An employer-member of DHV who breaches the new clause can be sanctioned at a level developed by practice at the national labour court. This new obligation, however, is not a chain liability model in the real sense, as it does not include any responsibility for the main contractors’ pay deficits concerning wages or taxes.

The new 3F/DHV collective agreement also increases the minimum wage when a job is carried out under non-piecework conditions, such as on an hourly rate basis, because it recognises that the minimum wage constitutes a form of social dumping when it is used as the regular wage.

Apart from developing an active response to social dumping within a minor collective bargaining field, it is expected that the 3F/DHV-agreement will bring ‘chain liability’ back on the agenda at the 2012 collective bargaining rounds. Pressure may be put on the Danish Construction Association to catch up with the social dumping initiative of 3F/DHV and maybe even go further. Such a step might entail a genuine chain liability model – requiring common responsibility at all levels - comparable to the ones found in eight other EU-countries.

Other elements of the agreement

The agreement will cover 2,800 members of 3F when it comes into force on 1 March 2011. Its other main points are:

  • The agreed minimum hourly rate increased by a total of €0.38 (DKK 2.85) to €15.31 (DKK 112.85).
  • The maximum payment for sickness and maternity leave increased by €0.46 (DKK 3.50) to €18.70 (DKK 139.50) per hour.
  • Same payment for parental leave, which is extended from nine to 11 weeks.
  • New severance offers one, two or three months' salary after three, six and eight years of service.
  • The parties create a fund to strengthen cooperation. Employers pay €0.006 (DKK 0.05) per hour worked, to the fund that aims at supporting members of 3F and responsible companies in the fight against social dumping

Klaus Pedersen, FAOS, University of Copenhagen

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