Supreme Court rules in favour of equal treatment for foreign workers in shipyards

The Norwegian Supreme Court finally ruled, in March 2013, against nine shipyards who had fought the State's decision to make the industry's collective agreement generally applicable. This means that foreign workers will get the same wages and working conditions as indigenous Norwegians. The case has been lingering in the Norwegian court system since 2009, when the shipyards filed a petition against the State, but the Supreme Court has ruled in favour of the State on all counts.

Background

The Norwegian mechanism for making collective agreements generally applicable was set out in The General Application Act (169Kb PDF) of 4 June 1993and came into effect in 1994, around the same time that Norway became a member of the EU’s internal market. It was introduced to ensure foreign workers got the same wage and working conditions as indigenous Norwegian workers, as well as to prevent competitive imbalances in the Norwegian labour market. Such collective agreements apply to all employees, regardless of whether they are foreign or Norwegian.

However, this extension mechanism was not invoked until the EU was extended eastwards in 2004. Since then collective agreements in the building, manufacturing, electrical installation, green sector and cleaning industries have all been extended in some form or other. Whether or not an agreement is to be made generally applicable is decided by a government-appointed body, the Tariff Board. The board is composed of one representative from the employee side, one from the employer side, as well as three neutral members. The board's decisions on whether to extend agreements generally have been limited in regard to:

  • their time frame;
  • which type of provisions in the collective agreements should be made generally applicable;
  • which geographical areas or industries should be subject to extension.

Extension of collective agreement

The decision to make the collective agreement in the offshore and shipbuilding industry generally applicable was made in 2008. This was because of an increasing number of foreign workers in the industry, and there was evidence that the pay and conditions for some of these workers were well below those enjoyed by Norwegian workers. The employer side opposed the extension, but was voted down by the majority of the Tariff Board.

This meant that all workers at the yards would be covered by the same provisions on:

  • minimum pay;
  • working hours;
  • overtime pay;
  • compensation for work carried out away from home (also called out-of-town allowance);
  • compensation for expenses related to travel, food and/or accommodation.

The employer side argued that the out-of-town allowance and allowances for expenses related to travel, food and/or accommodation, in particular, were in breach of existing EU regulations. The out-of-town allowance is a fixed rate per hour, equalling 20% of the minimum pay rate in the collective agreement, for work involving overnight stays and accommodation. The provision pertaining to expenses derived from travel, food and/or accommodation also applies in cases where overnight accommodation outside the home is required. In such cases the employer shall, on agreement, compensate the necessary travel expenses at the beginning and at the end of the work assignment, and also allow for, and compensate, a reasonable number of home visits during the assignment. The employer shall also enter into agreements on compensating expenses relating to food and accommodation, according to the Regulations on partial general application of the Engineering Industry Agreement in the maritime construction industry (189Kb PDF).

Court proceedings

The nine ship and offshore yards involved issued a subpoena against the State in March 2009. The Confederation of Norwegian Enterprise (NHO) and the Federation of Norwegian Industries declared third-party representation to support the shipyards, while the Norwegian Confederation of Trade Unions (LO) and the United Federation of Trade Unions did the same for the State. The State won the first round in the municipal court of Oslo, with the yards then taking the case to the Borgarting court of appeal in Oslo, which decided to submit a request for an advisory statement from the European Free Trade Association States (EFTA Court). This was issued in January 2013, and went a long way to support the yards' claim (NO1202029I).

The State and the LO, however, argued that the EFTA Court went further than was warranted by current practice in the EU court of justice. The Court of Appeal carried out a hearing according to the principles established by the EFTA Court, but it nevertheless ruled in favour of the State, saying that the decision to make the collective agreement generally applicable was in keeping with the European Economic Area agreement. The yards then took the case to the Supreme Court, which also backed the State's view.

Out-of-town allowance

On the issue of out-of-town allowances, the Supreme Court found that a general application of such an allowance is both consistent with the EEA agreement Article 36 – equivalent to Article 56 of the Treaty on the Functioning of the European Union (TFEU) (1.4MB PDF) – as well as the posted workers directive (Council Directive 96/71/EC).

The Supreme Court said the purpose of the act is to ensure foreign workers have similar wage and working conditions as indigenous workers. The yards had alleged that the out-of-town allowance was of no real advantage to the workers concerned, because it increased the costs of using foreign workers and as such undermined their market position.

This argument was rejected by the Supreme Court. It concluded that the general application of the out-of-town allowance had not led to a drop in the demand for labour as such. The Supreme Court also pointed to the fact that a similar argument had been overruled by the European Court of Justice in the case of Wolff and Müller (C-60/03). Moreover, the Supreme Court stated that the out-of-town allowance awarded in this case did not exceed the levels necessary to achieve social protection for posted workers.

Compensation for expenses

The other key issue was that of compensation for expenses incurred for travel, food and/or accommodation. The EFTA Court assumed, in its statement, that this could not be paid under the posted workers directive, and that it therefore fell outside the range of provisions that may be made generally applicable under the directive’s Article 3 (1). The Supreme Court, on the other hand, did not agree with the EFTA Court, saying that the act of defining minimum pay should be settled by means of national law.

The Supreme Court took the position that it is difficult to secure minimum pay for foreign workers under an extended collective agreement, unless it also includes compensation for expenses incurred for travel, food and/or accommodation. The employers may make deductions for such expenses from the workers’ pay, which would reduce the minimum wage accordingly. The Supreme Court argued that it is possible to find support for such an understanding under Article 3 (7) of the directive, but did not close the case on the basis of this premise. The court felt that extending the provisions was in keeping with Article 3 (10) relating to ‘public policy provisions’. In its verdict, the Supreme Court drew on socio economic analyses as well as previous appraisals made by the ministry in other legislative processes.

In its ruling the court referred, among other things, to the Official Norwegian Report (NOU 2009: 10 (in Norwegian), which states the following:

The Norwegian wage negotiation model is characterised by a high degree of co-ordination compared to many other countries. There is a long tradition for such co-ordination in Norway. The main industrial organisations play essential roles in the wage settlement process…. The model rests on, among other things, the recognition that wage formation impacts significantly on the level of unemployment, while the development in real wages is primarily linked to the development in productivity…. A smoothly running wage formation system helps maintain a low level of unemployment, a high level of labour force participation and good framework conditions for businesses..

(Premise 159)

The Supreme Court made further reference to a statement made by Professor Ragnar Nymoen, who argued that if employers covered by one collective agreement are allowed to dodge, either by direct appointment or by use of posted workers, their obligations to pay their share of the total wage costs, it will change the balance of industrial relations and alter competitive relations between Norwegian and foreign workers, as well as between businesses. Travel, food and/or accommodation expenses may add up to a significant part of the total agreement-based hourly wage costs of an enterprise, and if not made generally applicable it is likely to have substantial detrimental effects including loss of coordination, reduced union density, weakening of the employee side, reduced societal relevance of the existing wage formation model and, finally, increasing wage differences.

Especially in the longer term, and if general application is reduced in sectors with a high level of employment, coordination will deteriorate on a broad front, and the collaborative work climate may suffer…. The legitimacy of collective bargaining may … partly or wholly disappear. In consequence, the Norwegian labour market model may no longer be able to provide a framework for regulating the relationship between employees and employers.

(Clause 164)

The Supreme Court based its premise on the assumption that there would be good reason to expect lower union density as fewer Norwegian workers would want to join unions, as a result of declining wages due to downward wage pressure exerted by social dumping. It would have the same effect on the organisational density of employers.

On this basis, the Supreme Court concluded that the general application of the provisions pertaining to the compensation of travel, food and/or accommodation expenses was important for the stability of Norwegian working life and the wage formation model, and as such was in compliance with Article 3 (10).

Commentary

The case received considerable attention in Norway, and was approached with some degree of anticipation pending the Supreme Court ruling. If the court had overturned the Appeal Court ruling the consequences would have affected the whole Norwegian extension mechanism, because decisions on whether to make the collective agreement applicable to other sectors also cover the issues of compensation expenses incurred from travel, food and/or accommodation. The NHO and the Federation of Norwegian Industries released a statement saying:

it has been important for the employer side to get the courts' views on some of the very real conflicts of opinions surrounding these questions. Now the Supreme Court has delivered its verdict and we take note of the court’s ruling

The leader of LO, Roar Flåthen, stated that LO is

very satisfied with the fact that the Supreme Court, with this verdict, has established that the mechanism of general application of collective agreements may still be employed as an effective tool against social dumping.

Alsos Kristin, Fafo

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