New agreements pave the way to tackle social dumping

New collective agreements in Denmark’s transport and construction sectors will help combat social dumping and discrimination against foreign nationals. Although the main goal of the employees – complete ‘joint and several liability’ from contractor to subcontractors – was not achieved, the new agreements extend the powers of unions to prevent social dumping and promote closer cooperation between social partners.

Private sector wage agreements in the early spring of 2010 were signed in Denmark in the wake of the global economic crisis and were predicted to be low-cost settlements in favour of the employers in order to sustain the competitiveness of companies. It was anticipated that wage increases would be minimal and it was difficult to guess what employees would receive as a trade-off. The trend-setting Industry Agreement, which sets the pace for private sector bargaining, was signed at the end of February and it granted only nominal wage increases in order to leave space for increases at company level, where actual wage rises are negotiated. New benefits to employees included the introduction of severance pay and earlier access to pensions. Both new measures were transferred to the agreements that followed (DK1003011I).

Negotiations in the transport sector were keenly anticipated. The transport sector is a ‘normal-wage’ area where wages, unlike those in ‘lower-wage’ areas such as industry, are settled once and for all at the central sector level. In addition, the transport group of the largest union in Denmark, the United Federation of Danish Workers (Fagligt Fælles Forbund, 3F) was due to negotiate for the first time with the enlarged Confederation of Danish Industry (DI – organisation for hvervslivet, DI), which had recently merged with the Confederation of Danish Commercial Transportation and Service Industries (Handel, Transport og Service, HTS) (DK0802029I). This meant that the already powerful DI would not only negotiate the Industry Agreement with the Central Organisation of Industrial Employees in Denmark (CO-industri), the trend-setting agreement for the manufacturing sector of which 3F is a part, but would also negotiate the main agreement for the transport sector with 3F.

Traditionally, the members of 3F’s transport group vote against the final settlement proposal. If that tradition was to be followed this year, the negotiations would almost surely have ended in extensive general conflict. There was no reason to believe that DI would give up its demand for low pay increases. Thus, instead of demanding several improvements in the usual way, 3F chose to focus on solving one low cost issue: the problem of social dumping in both transport and construction. This was in reality the result of a process that took several months. The chief negotiators of 3F held several meetings with company shop stewards (who represent both the union and the employees in the company) and local clubs in order to gain support for the strategy.

Social dumping in the 2010 agreements

The problem of social dumping is fairly widespread in transport and in construction where the bulk of foreign workers, especially from Poland, are often working in conditions that are significantly below the standard of the sectoral collective agreement. However, it has been an almost insuperable task for the unions to take action against employers hiring low-wage foreign workers or one-man hauliers who agree to work on conditions below the collectively agreed level. The unions were simply not able to trace them.

Furthermore, those employers eventually taken to court always left the country before the case was settled. The unions have never received an iota in fines or unpaid wages. The unions in construction, 3F and the Union of Wood, Building and Industry Workers in Denmark (Forbundet Træ Industri Byg, TIB), claim that over the past five years they have built up debts of DKK 27.5 million (€3.7 million) in fines and unpaid wages. This situation has caused frustration and a general feeling that Danish labour market regulation is being undermined.

Against this background, two demands in particular were put forward to tackle contravention of well-established wage and working conditions:

  • the establishment of employer liability for agreed wages and terms and conditions of employment with subcontractors – the so-called ‘third party liability’;
  • the implementation of a joint employer liability for agreed wages and employment in all sub-contractors – the so-called ‘joint and several liability’ as it exists in Norway, for example (NO0902039I). The main contractor will be made liable for the obligation of the subcontractor to pay wages, as well as the obligation of the subcontractor’s subcontractor.

The employers in DI were flatly against any discussion about ‘third party, or joint and several liability’ in relation to their members, claiming that these issues cannot be handled in the collective bargaining system. However, the social partners agreed on various terms to narrow the possibilities of social dumping, most importantly in industry, transport and the construction sector.

Industry sector

In the industry sector, social dumping was not a direct issue on the bargaining agenda to the same extent as in transport and construction. The question of ‘joint and several liability’ is not really a problem for industry. However, new employees now receive a pension contribution from their employer after two months of employment, compared with nine months under the old pension rules. This is seen by the social partners as a measure to prevent wage dumping and short employment contracts in order to avoid pension payments.

This amendment to the pension rules brings industry in step with the construction sector, where pension entitlements were similarly modified in 2007.

Transport sector

The largest pace-setting agreement in the normal-wage area was agreed in the transport sector following negotiations over two days in early March 2010 between 3F/Transport and DI. The settlement covers 14,500 drivers, warehouse workers and port workers over the next two years and sets the pattern for a further 50,000 members of 3F in the transport sector. The pay increase followed the pattern of the Industry Agreement – that is, low increases over two years (DK1003011I). The agreement’s key elements to monitor and oppose social dumping included the right of 3F:

  • to monitor pay slips and other information about working conditions in member companies of DI if they suspect discrepancies in relation to the agreement, such as underpayment;
  • to access information about a subcontractor to a member company of DI. The problem here comes not so much from foreign companies but from smaller Danish hauliers performing tasks for major haulage contractors on terms that undercut the agreement.

3F and DI agreed that the problem of social dumping by foreign hauliers is first and foremost a problem of increased monitoring and enforcement of the rules of cabotage, the rules about how long a foreign contractor delivering goods in Denmark can stay in the country providing services within the borders. At present, this is a police task. However, DI and 3F share a common wish to prevent the transport sector being undermined by a ‘grey market’ of one-man companies or other small businesses that only achieve competitiveness by skimping on wages and working conditions. DI therefore undertook to obtain government recognition of the need for legislative initiatives in four areas:

  • increased police control of foreign haulage contractors’ activities in Denmark – so-called cabotage;
  • the establishment of a new Haulage Licence Authority (Godsbevillingsnævn), which may remove licences from road hauliers who do not comply with the licence requirements, including payment of wages according to the agreement;
  • increased public monitoring of compliance with the licence requirements;
  • the introduction of a provision in the Act on transport of goods that requires recognised hauliers to compensate for earlier unpaid wages in line with the agreement.

The new licence authority will only deal with cases involving employers not covered by the collective agreement. For employers covered by the collective agreement, conflicts over inadequate wages will continue to be dealt with in the labour law system.

Construction sector

After the transport agreement had been signed, the ’third-party liability’ required by the unions in construction was a lost cause even before the beginning of the negotiations. 3F’s construction group and TIB have instead, in their agreements with the Danish Construction Association (Dansk Byggeri), introduced a recommendation that construction companies will stipulate in their contracts that the subcontractor shall be subject to the relevant agreement of the Danish Confederation of Trade Unions (LO). At the same time, in cases where there is a suspicion that the agreement has been broken, the Danish Construction Association is obliged to attend an organisational meeting on site with the participation of all stakeholders within 48 hours. This also applies in the case of subcontractors who have signed an adoption agreement. All relevant information, including pay slips, must be provided. The parties also agreed to establish a permanent arbitrator, so that cases where they do not agree can be settled quickly – within seven to 10 days. The Danish Construction Association also has an interest in keeping the market under regulation in order to protect its member companies from unfair competition from bogus self-employed contractors and employers hiring foreign workers for low wages.

These new measures should also be considered in conjunction with the pending amendment of the register of foreign service providers (Registeret for udenlandske tjenesteydere, RUT). This change implies a duty on both professional and individual employers to ensure that foreign companies have registered before they sign any contract. And last but not least, the unions’ own control was significantly facilitated when in March 2010 they received an answer from the EU that union scrutiny of the RUT was not against EU regulation and was a matter for national regulation. Since the establishment of the RUT register on 1 May 2008, it had been assumed that union scrutiny of the register was against EU rules, and this assumption had never been questioned. Access to the RUT is a valuable and significant tool to help construction unions monitor companies and tackle social dumping, and it is remarkable that the EU was not approached about the matter a great deal earlier.

Commentary

Agreement on the ultimate goal of a ‘joint and several liability’ scheme seems remote. The problem of social dumping will not be solved overnight by the new measures and this will be a continuing challenge that requires new initiatives. But it is important that the agreement-signing organisations make a joint effort to secure and develop the Danish labour market regulation model. It seems that an entirely new form of cooperation is building up, by which the parties directly through their collective agreements create tools that involve firm public control of companies – whether through police checks on foreign hauliers’ compliance with the terms of their driving licence or the Labour Inspectorate’s (Arbejdstilsynet) oversight of foreign companies in the RUT.

Thus, the increased pressure on the collective bargaining system, created by the EU and by globalisation, seems to have created a new dynamic in the efforts of the social partners to adapt the system to the new conditions. Dealing with foreign labour in accordance with the rules and preventing social dumping are significant factors in this.

Carsten Jørgensen, FAOS

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