EU: ECJ sets limits on industrial action rights

In December 2007, the European Court of Justice (ECJ) ruled in the Laval case, which is widely seen as a key test of the balance between workers’ rights and companies’ economic freedoms in the EU. To the disappointment of trade unions, the ECJ found that industrial action by Swedish unions aimed at forcing a Latvian construction firm posting workers to Sweden to sign a collective agreement constituted an unjustified restriction on the freedom to provide services guaranteed by EU law.

On this page:
Facts of the case
Posted workers
ECJ ruling
Significance
Reactions in Sweden and Latvia
Wider response

The European Court of Justice issued its judgment in case C-341/05 (on the ECJ website), Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet, Avdelning 1 of the Svenska Byggnadsarbetareförbundet, Svenska Elektrikerförbundet , on 18 December 2007.

The Laval case, referred to the ECJ by the Swedish courts, has attracted enormous interest from trade unions, employers and governments (many of which made submissions during the ECJ hearings) across Europe. In Sweden and other Nordic countries, the case is seen as an important test of the future viability of their collective bargaining-based industrial relations systems, in the face of the free movement of capital, labour and services within the enlarged EU. For new EU member states in central and eastern Europe, the case raises important issues about whether or not their companies can compete in western European markets without facing “protectionist” barriers. More broadly, with relevance for the whole EU, the case tests the balance between workers’ rights (in this case, to take industrial action) and economic freedoms (in this case, to provide services in other countries).

Facts of the case

In May 2004, the city of Vaxholm (to the north-east of Stockholm) awarded a contract to carry out refurbishment and repair work at a school to Laval un Partneri, a Latvian-headquartered company (the contract was awarded through Laval’s wholly owned Swedish subsidiary L&P Baltic Bygg AB). Laval started to perform the work at the school using 35 of its employees temporarily posted to Sweden from Latvia.

In June 2004, the Stockholm branch of the Swedish Building Workers’ Union (Byggnads) approached the company and negotiations began over the rates of pay for the posted workers and over Laval signing up to the collective agreement for the Swedish building sector. The union was concerned about “social dumping” – that is, companies importing cheap labour from Latvia and undercutting Swedish pay and conditions – and sought a pay rate based on Swedish construction industry norms.

However, the parties were unable to reach an agreement and talks broke down in September 2004. In September and October, Laval signed collective agreements with the Latvian building workers’ trade union, of which two-thirds of the posted workers were members.

Byggnads decided to organise a “blockade” of Laval’s sites, which is the standard practice of Swedish unions where employers refuse to sign agreements and lawful under the terms of the relevant legislation (the Co-determination Act). Notice was given to the company and the state Mediation Authority in October, in line with the relevant legislation, and the blockade came into effect on 2 November. The blockade involved preventing the delivery of goods to the sites, picketing and prohibiting the Latvian workers from entering. The Swedish Electricians’ Union (Elektrikerna) decided to take sympathy blockade action (preventing electricians from working on the sites) and, following the relevant notice, this began on 3 December. No members of Byggnads or Elektrikerna were employed by Laval.

Attempts by the Mediation Authority to resolve the dispute failed and on 7 December Laval brought a case in the Labour Court, seeking a declaration that the action by Byggnads and Elektrikerna was illegal and an order for the unions to desist. In an interim judgment, the court ruled that the boycotts were legal. However, it decided that the case raised a number of issues of EU law that needed to be resolved before it could issue its final judgment. It therefore referred two questions to the ECJ for a preliminary ruling, asking essentially if industrial action such as that taken against Laval is compatible with the rules in the Treaty establishing the European Community (TEC) on the freedom to provide services (art. 49) and the prohibition of discrimination on the grounds of nationality (art. 12), and with the provisions of the EU Directive on the posting of workers (96/71/EC) (on the EUR-lex website). Meanwhile, in February 2005 the Vaxholm city authorities and Laval agreed to terminate their contract and the work ceased. The next month L&P Baltic Bygg AB was declared bankrupt.

Posted workers

The 1996 posted workers Directive seeks to prevent “social dumping” by ensuring that a minimum set of rights is applied to workers posted temporarily by their employer to work in another EU country. The essential principle is that the core working conditions and pay in effect in a member state should be applicable both to workers resident in that state and to those from other EU countries posted to work there. The conditions concerned are those on: maximum work periods and minimum rest periods; minimum paid annual holidays; minimum rates of pay; the conditions of hiring-out of workers, in particular by temporary work agencies; health, safety and hygiene at work; protective measures for pregnant women, women who have recently given birth, children and young people; and equality of treatment between men and women and other anti-discrimination provisions.

The Swedish legislation implementing the Directive applies the minimum conditions covered by the Directive, apart from minimum pay rates, which are set by collective agreements. The Directive stipulates that, if terms and conditions of employment covered by the Directive and set out in collective agreements (rather than legislation) in the host country are to apply to undertakings established in another member state, then these collective agreements must be “universally applicable”.

However, a number of member states, including Sweden (as well as Denmark and the UK) do not have a system for declaring collective agreements universally applicable. The Directive allows such countries, by an act of the public authorities, to make service providers from other countries subject to collective agreements that are de facto universally applicable, either because they are generally applicable in the sector and region concerned or because they have been concluded by the most representative social partner organisations at national level. Implementing the Directive through the application of collective agreements should ensure equality of treatment between undertakings established in the host country and in another member state.

ECJ ruling

The key points of the ECJ’s complex 12,000-word judgment in the Laval case are as follows:

• The posted workers Directive does not allow the host member state to make the provision of services on its territory conditional on the observance of terms and conditions of employment that go beyond the Directive’s mandatory set of minimum protective provisions.
• The right to take collective action must be recognised as a fundamental right that forms an integral part of the general principles of Community law, but the exercise of that right may be subject to certain restrictions. The fundamental nature of the right to take collective action does not make Community law inapplicable to such action, taken against an undertaking established in another member state that posts workers in the framework of the transnational provision of services.
• The right of trade unions in Sweden to take collective action aimed at forcing undertakings based in another member state to enter negotiations of unspecified duration in order to set minimum wage rates and to sign a collective agreement – the terms of which go beyond the minimum protection guaranteed by the posted workers Directive – is liable to make it less attractive, or more difficult, for such undertakings to carry out construction work in Sweden, and therefore constitutes a restriction on the freedom to provide services.
• A restriction on the freedom to provide services may be justified only if it pursues a legitimate objective compatible with the Treaty and is justified by “overriding reasons of public interest”. If that is the case, the restriction must be suitable for securing the attainment of the objective that it pursues and not go beyond what is necessary to attain it.
• The right to take collective action to protect workers in the host country against possible social dumping may constitute an overriding reason of public interest. The blockading of sites by a trade union in the host country, with the aim of ensuring that workers posted from another member state have their terms and conditions of employment fixed at a certain level, falls within the objective of protecting workers.
• Signing up to the collective agreement for the Swedish building sector entails obligations for an employer that exceed the minimum protective provisions of the posted workers Directive, or are not referred to by the Directive. Collective action seeking to impose such an agreement on an undertaking established in another member state constitutes an obstacle that cannot be justified with regard to the objective of protecting workers.
• With regard to host-country trade unions seeking to impose, through collective action, negotiations on pay on undertakings established in another member state that posts workers temporarily to the host country, Community law does not prohibit member states from requiring such undertakings to comply with their rules on minimum pay by “appropriate means”. However, collective action such as that in the current case cannot be justified in the light of the “public interest objective” if the pay negotiations sought “form part of a national context characterised by a lack of provisions, of any kind, which are sufficiently precise and accessible that they do not render it impossible or excessively difficult in practice for such an undertaking to determine the obligations with which it is required to comply as regards minimum pay”. Such a situation applies in Sweden.

The ECJ therefore concluded that art. 49 of the TEC and the posted workers Directive preclude a trade union, in a member state in which the minimum protective terms and conditions of employment laid down in the Directive are, with the exception of minimum pay rates, contained in legislative provisions, from attempting, by means of collective action in the form of a blockade, to force a service provider established in another member state to enter into negotiations on the rates of pay for posted workers and to sign a collective agreement whose terms are more favourable conditions than those resulting from the relevant legislative provisions (implementing the Directive) and in some cases relate to matters not referred to in the Directive.

The ECJ also found that some aspects of the Swedish Co-determination Act breach the TEC’s provisions on free movement of services. The Act prohibits industrial action taken with the intention of having a collective agreement concluded by other parties set aside or amended. However, this prohibition applies only where a trade union takes action in respect of terms and conditions to which the Act is directly applicable. In practice, this means that the prohibition is not applicable to industrial action against a foreign undertaking that is temporarily operating in Sweden and brings its own workforce. The ECJ ruled that the restriction of this prohibition to action over terms and conditions to which the Act is directly applicable (essentially those of Swedish employees) contravenes Community law.

Significance

The essence of the ECJ’s judgment is that collective action – in this case, a blockade – by which a trade union in one country seeks to force a foreign company providing services in that country to enter into pay negotiations and sign a collective agreement constitutes a restriction on the freedom to provide services. In this case, this restriction is not justified with regard to the public interest of protecting workers.

Broadly speaking, this constitutes a defeat for trade unions and the governments that supported their position (such as that of Sweden) and a victory for employers’ organisations and the governments that supported Laval’s position (such as those of various central and eastern European countries, plus to some extent the UK).

Trade unions can draw some consolation from the fact that the ECJ confirmed that the right to take collective action is a fundamental right that forms an integral part of the general principles of EU law, as the court found in the Viking case (C-438/05) earlier in December. However, both the Viking and Laval judgments provide that this right must be balanced with employers’ economic freedoms, with the latter taking precedence in some circumstances.

In Viking, the ECJ ruled that industrial action taken by a trade union with the aim of inducing a foreign company to sign a collective agreement is a restriction on that company’s freedom of establishment within the EU. Such a restriction can be justified on the grounds that it protects workers, but only provided that the action is appropriate for achieving the legitimate objective pursued and does not go beyond what is necessary to attain that objective. This judgment defined limitations on unions’ rights to take action against foreign employers exercising their economic freedoms within the EU, requiring that such action must be justified on specific grounds. The Laval ruling confirms and strengthens these limitations, stipulating that seeking terms and conditions in excess of the minimum provisions of the posted workers Directive is not a valid justification. It does, though, underline that action to protect workers against possible social dumping can be justified in some circumstances.

Reactions in Sweden and Latvia

The Swedish employment minister, Sven Otto Littorin, said that he was “disappointed” with the ECJ ruling and reiterated the Swedish government’s position that Swedish collective agreements should form the basis for wages in Sweden. However, he accepted that the judgment could force the government to make changes to the law, such as imposing some restrictions on unions’ rights to take industrial action.

Hans Tilly, the president of Byggnads, while claiming the ECJ’s recognition of unions’ industrial action rights as a “victory”, expressed concern that the court found that “as Sweden has implemented the [posted workers] Directive through legislation this means we do not have the right to claim that our Swedish collective agreements apply to foreign companies. We therefore demand that the government takes initiatives to ensure that the same conditions apply to Swedish and foreign companies operational in Sweden.”

The Swedish Trade Union Confederation (LO), to which Byggnads is affiliated, took a similar position. It said: “According to the ECJ the Swedish Act on the posting of workers prevents trade unions from upholding equal collective agreements for Swedish and foreign companies operating in Sweden. If the Swedish law is not changed, Swedish and foreign companies will operate under different conditions in the Swedish labour market, which opens the way for changes for the worse.” It therefore called on the government to amend Sweden’s posted workers legislation.

By contrast, the Confederation of Swedish Enterprise welcomed the “clear” judgment and its safeguarding of free movement of services within the EU, calling it a “great victory” for Laval: “The judgment means increased legal security for foreign companies that wish to come here and carry out work. The judgment is therefore an important, welcome contribution to increased mobility over borders for companies.” Lars Gellner, the confederation’s head of labour law, argued: “What the court has established is that industrial action is part of EU law, and that it is not superior to EU law.”

The Latvian government sees the ECJ ruling as supporting its position that, while trade unions are entitled to take collective action, in this case the action was discriminatory and breached EU rules on free movement of services.

Elina Egle, the director general of the Employers’ Confederation of Latvia (LDDK), expressed satisfaction with the ECJ decision and its support for the free movement of services and “free and fair competition”. She said the court had found that attempts by Swedish unions to force foreign service providers to sign collective agreements are “not admissible” and that the Swedish unions’ action against Laval was discriminatory and unjustified.

Wider response

The European Trade Union Confederation (ETUC) expressed disappointment at the ECJ’s “unexpected” decision – the Advocate-General’s opinion in the case, issued in May 2007, had given greater weight to unions’ collective action rights. It sees “positive features” in the ruling, such as upholding the fundamental nature of the right to strike and the right to take industrial action against social dumping. However, it regards the judgment as challenging the “very successful flexible system” of collective bargaining in Sweden and certain other Nordic countries. Further, the ECJ’s “narrow” interpretation of the posted workers’ Directive could have “negative implications” for other countries’ systems.

The ETUC also fears implications for unions’ ability to “promote equal treatment and protection of workers regardless of nationality” and is concerned that “unions’ ability to guarantee these objectives is threatened by the free movement of services principle”.

Poul Nyrup Rasmussen, the president of the Party of European Socialists (PES) group in the European parliament (EP), said he was “deeply frustrated” by the Laval judgment, and that Europe had “shot itself in the foot”. He saw the ruling as unclear, on the one hand recognising unions’ right to take collective action, but on the other hand creating uncertainty over “which agreements should be respected”. Rasmussen argued that the decision “could provide cover for bad employers and wage cutters” and risked sending the message that “Europe is more interested in competition between workers than in raising living standards for all families”. He called on the European Commission to take action “to avoid negative consequences from this unclear ruling”. The commission’s initial response to the ruling has been to describe it as “very nuanced” and say that it will examine the content very carefully.

Philip Bushill-Matthews MEP, the employment spokesperson for the UK Conservatives group in the EP, commented: “It is good to see the European Court of Justice upholding a key principle of the single market: the trade union movement should stop trying to block progress in this area but should learn from this judgment to move with the times.”

According to Richard Arthur of Thompsons Solicitors, a leading UK trade union law firm: “The ECJ’s ruling runs roughshod over trade union rights which have been almost universally recognised throughout the European Community, and in numerous international treaties and instruments, for many decades.” He added: “It is absurd for the ECJ to say that the right to take industrial action is a ‘fundamental’ right forming an integral part of the general principles of Community law, and then to rule that that right is superseded where an employer complains that the union is seeking terms and conditions in excess of the minimum provided by the posted workers Directive. The posted workers Directive is intended to set a minimum level of protection for workers posted to separate states. It is ludicrous to suggest that a union is not entitled to take industrial action in support of demands in excess of that minimum level.”

Finally, the Laval ruling might conceivably have even wider consequences for the future of the EU. Member states are in the process of ratifying the EU reform treaty signed in Lisbon in December 2007 and in Ireland there will be a national referendum on the issue (no other member states are planning such a referendum). The Irish Congress of Trade Unions (ICTU) is currently deciding its position on the treaty and has stated that its support is being undermined by a number of recent “negative” developments, including the Laval judgment, hinting that they may lead it to campaign for a “no” vote.

According to David Begg, the ICTU general secretary: “Europe is leading the world in developing legislation … to guarantee that companies can have certainty about how to conduct business across borders. This activity is privileged over the rights of workers. While business rights are being codified and strengthened, workers can only expect loose frameworks and vague approaches to enforcement.” The reform treaty must be ratified by all member states in order to come into force, and an Irish “no” would halt the process and throw the EU into further uncertainty.

This article was written by Mark Carley, editor of European Employment Review.

European Rmployment Review 409 (EER 409) contents