Sweden/EU: ECJ case challenges Swedish system
The European Court of Justice is currently considering the Laval case, which relates to industrial action by Swedish trade unions against a Latvian company. The case raises important issues about Sweden's industrial relations model in today's enlarged EU and may have wider implications across Europe.
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In January 2007, the European Court of Justice (ECJ) held an oral hearing in a Swedish case that has become a cause célèbre for many European trade unions and for some of the new EU member states in central and eastern Europe. The outcome of case C-341/05 (Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet, Avdelning 1 of the Svenska Byggnadsarbetareförbundet, Svenska Elektrikerförbundet) is regarded in Sweden as being critical for the future of the country's collective bargaining-based industrial relations model, in the face of the basic principles of free movement of capital, labour and services within the enlarged EU. The case has wider implications for industrial relations across Europe and the issues raised have also been highlighted by another case, Viking, which is at a similar stage before the ECJ (see box).
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 Latvia-headquartered company (the contract was awarded through Laval's wholly owned subsidiary L&P Baltic). Laval started to perform the work at the school using a number of employees temporarily posted to Sweden from Latvia.
In June 2004, the Stockholm branch of the Swedish Building Workers' Union (Byggnads) approached the company to negotiate a collective agreement. As Laval was not a member of the sectoral employers' organisation for the Swedish construction industry, Byggnads sought an "application agreement" with the firm, which would essentially have meant that it was covered by the basic terms of the sectoral collective agreement. It is normal practice for Swedish unions to seek such agreements with unorganised employers. A number of meetings were held, but talks broke down in September, at the same time that Laval instead signed a collective agreement with a Latvian trade union, followed by another agreement in October.
Byggnads decided to organise a boycott (or "blockade") of Laval, which is the standard practice of Swedish unions where employers refuse to sign agreements (Sweden: Union boycotts under attack) and is lawful under the Co-determination Act. In line with this, notice was given to the company and the state Mediation Authority in October 2004, and the boycott came into effect on 2 November. The Swedish Electricians' Union (Elektrikerna) decided to take sympathy boycott action and, following the relevant notice, this began on 3 December. Before the end of the year, another seven unions had joined the sympathy boycott - in later proceedings before the Labour Court, Laval's lawyer estimated that a total of 45,000 enterprises and 1.2 million employees were involved in the boycott.
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 the court could issue its final judgment. It therefore referred two questions to the ECJ for a preliminary ruling. Meanwhile, in February 2005, the Vaxholm city authorities and Laval agreed to terminate their contract and the work ceased.
Questions for the ECJ
First, the Swedish Labour Court asked whether it is compatible with the rules of the Treaty establishing the European Community (TEC) on the freedom to provide services and the prohibition of discrimination on the grounds of nationality, and with the provisions of the EU Directive on the posting of workers (96/71/EC), for trade unions to attempt, by means of industrial action in the form of a blockade, to force a foreign temporary provider of services in the host country to sign a collective agreement in respect of terms and conditions of employment, if the host country's legislation to implement the 1996 posted workers Directive (EER 274 p.14) contains no express provisions concerning the application of the terms and conditions of employment in collective agreements.
The posted workers Directive seeks to prevent "social dumping" by ensuring that a minimum floor of rights is applied to workers posted 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 background to the question referred by the Swedish court is that the Directive stipulates that, if the terms and conditions of employment covered by the Directive and set out in collective agreements 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 countries such 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. According to the European Commission, most member states that could avail themselves of this possibility did not declare it explicitly when transposing the Directive into national law. 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.
In it second question, the Swedish court refers to Sweden's Co-determination Act, which prohibits industrial action that is taken with the intention of circumventing a collective agreement concluded by other parties. In this case, Laval claimed that, as it had a collective agreement with a Latvian union, the Swedish unions' boycott action against it was illegal. However, pursuant to a special provision contained in part of the Act known as the lex Britannia, this prohibition applies only where a trade union takes measures in respect of industrial relations 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 active in Sweden and which brings its own workforce.
The Swedish court asked the ECJ if the TEC's rules on the freedom to provide services and the prohibition of discrimination on the grounds of nationality, and the provisions of the posted workers Directive, constitute an obstacle to an application of this rule - which, together with other parts of the lex Britannia, also means in practice that Swedish collective agreements take precedence over foreign collective agreements already concluded - to industrial action in the form of a blockade taken by Swedish trade unions against a foreign temporary provider of services in Sweden. Laval argued that the rule is discriminatory and represented a limitation of its freedom.
Debate in Sweden
The Labour Court's decision to refer these questions to the ECJ, and the issues raised, have been the subject of heated debate in Sweden. Trade unions generally see the case as a threat to the Swedish model - whereby industrial relations are largely regulated autonomously by the social partners - and its rules on industrial action. Many union leaders and academics maintain that Sweden, when joining the EU in 1995, was granted the right to handle its industrial relations independently, including its collective bargaining system and the right to strike that is enshrined in its constitution. The unions are very much opposed to any "juridification" of industrial relations.
Unions see national rules on industrial action and conflicts (and industrial relations generally) as being outside the scope of EU intervention, and argue that Sweden's current system is highly successful, with relatively little action occurring and the social partners resolving disputes largely among themselves. Unlike in many countries, the "normal" courts are kept out of labour conflicts - the Labour Court is composed of both professional judges and nominees of social partner organisations.
The European Commission's position on the application of collectively agreed terms and conditions to posted workers to implement the 1996 Directive is also of concern to Swedish unions. For example, the commission has stated that legal certainty for undertakings established in other member states can be impaired by the implementation of the Directive's provisions in this area being left to a host-country system that "cannot be predicted in advance since it is the result of negotiations between the social partners". Swedish unions believe that the commission considers statutory national provisions on minimum wages and other issues as necessary to enable truly free movement of services with the EU. This would be an attack on the bargaining-based system in Sweden (and other Nordic countries). Swedish unions are also opposed to a statutory minimum wage, which they fear would lead to lower pay in some areas.
With regard to the second specific issue referred to the ECJ, unions warn that if the ECJ were to rule that foreign collective agreements could take precedence in Sweden over Swedish collective agreements, Swedish EU membership could be called into question. Polls indicate that a majority of members of the Swedish Confederation of Trade Unions (LO) already have doubts about EU membership and, it is claimed, an ECJ ruling to this effect might make this the majority view across the Swedish population.
In 2005, the Confederation of Swedish Enterprise (SN) reached a deal with LO on encouraging foreign employers operating in Sweden to join one of the sectoral employers' associations affiliated to SN and thus become covered by Swedish sectoral collective agreements (EER 381 p.12). However, in the current case, SN is supporting Laval and reportedly paying its legal costs. SN is strongly in favour of limiting trade union rights to organise sympathy strikes and boycotts, and of introducing a requirement of "proportionality" in industrial action.
The centre-right government that came to office in October 2006 (Sweden: Major labour reforms ahead) is essentially supporting the trade union position on the Laval case, as did its social democrat predecessor. Sven Otto Littorin, the minister of labour, has stressed that if any change is required in the Swedish bargaining system it should be decided by the national parliament and not by the ECJ. Despite its reforming agenda, the government is unlikely to make any basic changes to the bargaining system. It is opposed to any kind of government incomes policy, which might be the alternative to free collective bargaining on pay. However, it is not out of the question that the government could introduce legislation: requiring that industrial action should be "proportional" to the scope of the conflict; limiting the right to take sympathy action; or allowing boycotts only against firms where the unions involved have members.
Wider interest
The Laval case has caused a stir far beyond Sweden. The government of Latvia, as the home country of the company concerned, sees the Swedish situation as an example of western European protectionism against competition from the new member states in central and eastern Europe. It regards the action of the Swedish unions as being in breach of art. 49 of the TEC, which guarantees the free movement of services, and art. 12, prohibiting discrimination on grounds of nationality, as well as of the posted workers Directive.
Other new member states have also made submissions to the ECJ supporting the Latvian position. The old member states have generally supported the Swedish government - with the apparent exception of the UK (see box). The EU commissioner for the internal market and services, Charlie McCreevy, caused controversy when he appeared to back the Latvian position.
In its submission to the ECJ, the European Trade Union Confederation (ETUC) argued that the industrial action taken in the Laval affair and the Swedish model of collective bargaining are "in full conformity with the principles and requirements" of EU law. For the ETUC, the right of workers and their organisations to negotiate collective agreements - and to take industrial action in cases of conflict - is a fundamental right, enshrined in international conventions, including the EU Charter of Fundamental Rights. These rights are not limited by the rules relating to the free movement of services nor by those relating to the right of establishment in the EU. Trade unions, the ETUC states, are also entitled to take industrial action to secure the fundamental principle of equal pay for equal work. Moreover, the use of collective agreements to implement EU legislation was "accepted at the time of Sweden's accession in 1995". The European trade union movement is committed to a labour market model based on principles of openness, equality and flexibility and its "overriding aim is to prevent inequality between European workers".
The ECJ Advocate General is thought likely to issue an opinion on the Laval case before the summer and a final ruling is expected by the end of 2007.
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Also in January 2007, the ECJ held an oral hearing in International Transport Workers' Federation and Finnish Seamen's Union v Viking Line ABP and OU Viking Line Eesti (case C-438/05), which raises many similar issues to those at the heart of the Laval case and has attracted similar Europe-wide attention. The Viking case relates to an announcement in 2003 by a Finnish shipping line, Viking, that it would "reflag" the Rosella, a ferry operating between Helsinki and Tallinn, as an Estonian vessel. This would have allowed it to replace the largely Finnish crew, who were covered by a collective agreement with the Finnish Seamen's Union (SM-U), with Estonian seafarers, and to negotiate lower-cost pay and conditions with an Estonian union. The SM-U, backed by the International Transport Workers' Federation (ITF), of which it is a member, threatened industrial action in an attempt to prevent the reflagging. While the dispute at hand was resolved within the Finnish Labour Court and mediation system, the company brought a case in the UK, where the ITF has its headquarters, seeking to prevent future action on the issue. The Commercial Court of the High Court of England and Wales granted an order requiring the ITF and the SM-U to refrain from taking any action to prevent the reflagging. The ITF and the SM-U appealed against this judgment and, in November 2005, the Court of Appeal decided that the case raised questions of EU law that should be referred to the ECJ. It also set aside the order granted by the Commercial Court against the ITF and the SM-U. The essence of the complex issues referred to the ECJ is whether the provisions of EU law on free movement and "economic freedoms" in the single market take priority over the fundamental rights of workers, as protected by the Treaty establishing the European Community and laid down in national labour law. Further, given that industrial relations/social policy is largely a competence of member states, the extent to which EU powers can encroach on national sovereignty by making a member state's policies in this area subject to the EU's economic freedoms is also in question. The European Trade Union Confederation
believes that the outcome of the Viking case will have a "landmark
impact on workers' rights and trade unions' ability to negotiate
effectively for the protection of workers and to defend social rights".
The case "addresses whether a company can deprive workers of the basic
right to collective action, by formally relocating its assets in a country
where salaries and benefits are lower". The European Commission and
numerous member states have made submissions to the ECJ in the case. In
its submission, the UK government reportedly argued that there is no
principle of EU law that gives social policy priority over the rights
guaranteeing free movement, and that collective action, including strikes,
is not a fundamental EU right protected by law. |
