Brussels, 09-10/03/2010

Europeanising labour markets require firm and fair ‘rules of the game’

Since 2005, the ETUC has been urgently calling, in a series of positions, for a framework of firm and fair rules, combining open borders and adequate protection of workers, to be developed both at national and EU level, to accompany the coming about of a genuine internal market in which goods, capital, services and workers can move around to the benefit of citizens, economies and societies.

According to the ETUC, a European labour market requires European ‘rules of the game’, combining open borders with adequate protection.
These key conditions are:
a) equal treatment of local and migrant workers, no unfair competition on wages and working conditions
b) respect for national collective bargaining and industrial relations systems
c) equal access of all workers to social benefits;
d)proper instruments and tools for monitoring and enforcement of labour standards

Recent developments have made the debate even more urgent, with the financial crisis now hitting the real economy, unemployment figures on the rise, public spending under pressure, and workers everywhere in Europe paying the price.

While from an economic perspective open borders and markets within the EU area are of major importance for a quick recovery of Europe’s competitive position, workers everywhere in Europe are increasingly questioning what is in it for them. There are currently serious problems with regard to the side-effects of the internal market and increased cross border mobility of companies and workers, which demand for urgent action to be taken as they are threatening social cohesion and the support for the European project. Not only financial markets, but also the real economy and labour markets need a huge effort of confidence building.

At national level, voices are getting stronger to focus on better ‘shielding’ national industrial relations and social protection systems against the ‘invasion’ by internal market law. Others stress the need to develop a response at EU level, demanding for European harmonized rules and/or (minimum) standards in the social field

In this context, the Posting of Workers Directive (PWD) plays a pivotal role. Once perceived as a key instrument to prevent unfair competition on wages and working conditions in situations of temporary cross border provision of services, it has now become the battle ground on which the fight about the social dimension of the internal market is fought.

Recent ECJ jurisprudence has exposed the weaknesses of the EU’s legal framework

Four recent ECJ cases[[Viking C-438/05; Laval C-341/05; Rüffert C-346/06; Commission v Luxembourg C-319/06. For summaries of the judgements, see: ]] have exposed the weaknesses of the current EU legal framework applicable to fundamental social rights and the free movement of workers and services.

They have created major social unrest and are endangering social partnership models.
a) the ECJ confirmed a hierarchy of norms, with market freedoms highest in the hierarchy, and the fundamental social rights of collective bargaining and action in second place;
b) the ECJ interpreted the Posting Directive (covering workers that cross the borders in the framework of services), in a very restrictive way, limiting the scope for Member States and trade unions to take measures and action against ‘social dumping’[[‘ social dumping’ is unfair competition on wages and working conditions leading to a spiral downwards]] and to demand better protection and equal treatment of local and migrant workers in the host country.

The ETUC consequently has called for a Social Progress Protocol , to be attached to the Treaties, to make absolutely clear that all free movement provisions of the Treaty must be interpreted in a way which respects fundamental rights, and to embed this in the broader concept of social progress and the harmonizing upwards of working conditions and social systems.
As the new EU Treaties (in Article 3 (3), subparagraph 3, TFEU) say very explicitly: “The Union shall work for (….) a highly competitive social market economy, aiming at full employment and social progress ”.
The Protocol would have as its objective to clarify the relation between the internal market and fundamental social rights.
Further work is necessary to investigate the possibilities for bringing our demands to confirm social progress as a clear and legally binding objective of the internal market on the European Union’s political agenda. Former Commissioner Monti, who is currently working on a review of the state of the internal market in relation to its social dimension, has been urged to take our demands on board.

In addition, the ETUC called for a revision of the EU legal framework covering the free movement of workers and services, and in particular for an urgent revision of the Posting Directive .

The Posting Directive must be revised to better achieve its aims

In the Resolution and attached Explanatory Memorandum in response to the Viking and Laval judgements, adopted in the ETUC Executive Committee of 4 March 2008, the ETUC expressed among other things the need to urgently revise the Posting Directive, and identified a list of key issues that would need to be addressed.
Since then, this demand has been further developed. In its resolution on “Conditions for free movement: more protection of workers and fair competition”, adopted in the ETUC Steering Committee of 28 April 2009, the ETUC demanded:
“the Directive on the Posting of workers to be revised with a view to restoring its primary objective: ensuring a climate of fair competition and respecting workers' rights. Several issues need to be addressed, including in particular the legal base, the definition of a posted worker and of a trans-national service, the possibility for Member States to include the protection of workers as a 'public policy' provision, and the respect of the role of trade unions in negotiating and enforcing collective agreements. Special attention must also be paid to public procurement procedures, and the possibility for public authorities to introduce social clauses demanding the observance of the locally applicable collective agreement.”

An ETUC expert group of trade union experts and academics, established beginning of 2009, was given the task to further develop the legal and technical aspects of these proposals. The expert group recently finalized its work. On the basis of the discussions in the expert group, eight proposals have been developed to revise and strengthen the Posting Directive (see below).

The political context

Recent developments at EU political level have put the ETUC under more pressure to come up with detailed proposals on the revision of the Posting Directive. At the same time, the political tide seems to be not very favourable to easily achieving the necessary improvements.

In his speech to the EP, on the 15-th of September, after a lot of political pressure had been put on him by especially the socialist group in the EP, Barroso said the following about Posting:
“I have clearly stated my attachment to the respect of fundamental social rights and to the principle of free movement of workers. The interpretation and the implementation of the posted workers Directive falls short in both respects. {That is why I commit to propose as soon as possible a Regulation to resolve the problems that have arisen. This Regulation will be co-decided by the EP and the Council. A Regulation has the advantage of giving much more legal certainty than the revision of the Directive itself, which would still leave too much room for diverging transposition, and take longer to produce real effects on the ground.
If we discover during the preparation of the Regulation that there are areas where we need to revisit the Directive itself, I will not hesitate to do so. And let me be clear: I am committed to fighting social dumping in Europe, whatever form it takes.”
A first assessment of what issues could possibly dealt with in a Regulation shows, that problems like manipulative use of posted workers in non-temporary situations, the use of letter box companies and the instrument of chain-liability could be addressed, as well as providing social partners and Member States with more scope for enforcement instruments and mechanisms (the keeping of documents, etc.).
However, the more contentious these issues are, the more difficult it would be to find agreement in EP and Council (which would make the exercise similar to finding agreement on a revision of the Directive itself).

Since then, a new Commission has been inaugurated, and a new Commissioner for Employment and Social Affairs, Andor, is in function. In his exchange with the European Parliament, has been rather careful and not very clear on his plans with regard to the Posting Directive. Commissioner Barnier for Internal Market, however, has said that he is in favour of an open debate on the Posting Directive, and certainly does not want to be associated to anything that leads to social regression.
In the meantime, the Commission’s services are engaged, together with Member States and with social partners as observers, in a high level expert group on the implementation of the Posting Directive, in which current problems are investigated, and potential alliances with Member States on this matter can be built up.

In the European Parliament, the power relations have changed since last year’s elections, with now a solid conservative majority in place, which will not make it easy to achieve majority support on social issues.

With employers, in recent discussions on the consequences of the ECJ cases (see point 9 on the agenda) we have not been able to achieve any progress on the Posting Directive or any other related matter.

On the other hand, the Spanish presidency has announced to organise a conference on the relation between fundamental social rights and economic freedoms, mid-March in Oviedo, Spain, to discuss among other things the Posting Directive, and has clearly stated its commitment to prevent any unfair competition based on the difference in salaries between countries and to take the necessary measures to guarantee the rights of workers within the framework of the freedom to provide services.

{In this context, the ETUC proposes {{to adopt a list of key issues to be addressed , taking note of the detailed proposals for amendments as elaborated by the expert group[[The report of the expert group is for the moment only a document for internal discussion within ETUC. ]], which should be seen as guidelines for the further work of the ETUC and its affiliates when it comes to campaigning for a revision of the Posting Directive which will better protect workers and ensure fair competition in the internal market for services.
} }}

Key issues and proposals for revision

According to the preamble of the Posting Directive, the abolition of obstacles to the free movement of workers and services is one of the objectives of the Community, and any restrictions based on nationality or residence requirements is prohibited.
However, ‘the promotion of the transnational provision of services requires a climate of fair competition and measures guaranteeing respect for the rights of workers ’.
To ensure clarity of the applicable rules, ‘the laws of the MS’s must be coordinated’ in order to lay down a nucleus of mandatory rules for minimum protection to be observed in the host country in such situations.
This “hard core” of clearly defined protective rules should be observed by the provider of the services, notwithstanding the duration of the worker’s posting’.

When the Posting Directive came about, it was generally understood as an important instrument to combat ‘social dumping’, i.e. unfair competition on wages and working conditions of workers by foreign service providers on a host country (labour)market.
In the meantime, it is increasingly the question if it still performs this important function, especially as a consequence of a long series of ECJ judgements, already starting before but culminating in the ‘famous four’ (Viking, Laval, Rüffert and Luxembourg).

The ECJ, in the cases Laval, Rüffert and Com vs Luxemburg, has interpreted the Directive in such a way, that it is now to be understood as a maximum Directive with regard to the matters that can be regulated, the degree of protection that can be required, and the methods that can be used to ensure that employment conditions must be equally observed by all national and foreign undertakings in the same region or sector.
When host Member States want to apply higher or different standards by law, or trade unions in the host Member State take action to demand better standards by way of collective agreements, in particular to prevent ‘social dumping’ and promote fair competition between local and foreign service providers, this may be seen as an infringement of Article 56 of the new Treaty on the Functioning of the EU, TFEU (49 EC Treaty), i.e. as obstacles to the free movement of services.
This seriously hinders Member States and trade unions in their legitimate ambitions to protect both local and posted workers, to ensure fair competition, and safeguard national industrial relations and collective bargaining systems.

Therefore, the ETUC aims at a revision of the Posting Directive, to strengthen it and better achieve its aims of guaranteeing fair competition and the respect for workers’ rights, while safeguarding the fundamental social rights of collective bargaining and collective action.

In order to better identify which revisions are necessary, and for which reasons, it is important to be aware of the current EU legal framework in which the Posting Directive is functioning.
The basic assumption in European law is that the posted worker is the worker of the foreign service provider, and the law applicable to his employment contract – which is normally country of origin law – does not change during the posting because of the temporary character of the posting.
When performing work in the host country, specific mechanisms are therefore necessary to:
ensure that the same rules apply to foreign and host country employers/companies, at least when it comes to key issues that have a strong influence on the competitive (dis)advantages of companies and the protection of workers (wages and working conditions);
ensure that this situation is not abused or manipulated to avoid or evade host country rules (the foreign company must be a real company established elsewhere, and not a letterbox company or a company in an artificial subcontracting chain; the posting must really be for a limited period only; the worker should really be habitually employed and residing in the home country, etc.)

The central and essential question is: to which extent, for which reasons, and under which circumstances can or must the employment contract (and possible collective agreement and other home country rules applicable to the parties to that contract, such as social security and tax rules) of the worker of a service provider moving cross border be 'overruled' by the rules (statutory or collectively agreed) of the host state?!

The Posting Directive is intending to do exactly that: it regulates if and under which conditions the host country rules regarding wages and working conditions (laid down in law or collective agreement) overrule the possible law and other rules of the country of origin (or any other country) applicable to the employment contract.
However, the next important question is, if the Posting Directive deals with this in an adequate way. Already before the “famous four ” ECJ cases, there were some doubts about the functioning of the PWD in practice, and the possible need for revision.
Since the four ECJ-cases, these doubts have become serious concerns, and the position taken by the ETUC has been since 2008 that a revision is now unavoidable.

In this revision, the following points should be addressed:

a) The objectives of the Posting Directive, i.e. respecting the rights of workers and ensuring a climate of fair competition, now only figuring in the preamble of the Directive, must be more clearly laid down in the body of the Directive. In particular, a reference to the social policy objectives of Article 136 of the Treaty, with their clear reference to the aim of ‘improving the living and working conditions of workers’, would help to ensure a more coherent interpretation of the Directive. Furthermore, the Directive deserves a broader legal basis , i.e. Article 137 of the Treaty.

b) The fundamental right to collective bargaining and collective action should be understood as allowing trade unions to approach and put pressure equally on local and foreign companies to improve living and working conditions of workers and to demand equal treatment of workers performing similar work on the same territory, regardless of their nationality or the place of establishment of their employer.
This should be clarified by introducing in the body of the Directive the equivalent of the Monti-clause .

c) What is essentially free movement of workers should be covered by the Treaty provisions written for this purpose, i.e. especially Article 39 with its strong equal treatment approach based on the host country principle.
The original aim of the Posting Directive, to only cover clear situations of temporary postings (when the workers of a service provider cross the border in the framework of a short term service, but keep their main place of residence and employment in the home country and will return to their country of origin afterwards) must therefore be more clearly translated into the scope of the Directive. It is also important to more precisely define what is or is not ‘transnational provision of services’, to prevent companies to manipulate applicable law and standards by the use of letterbox-companies.

d) The minimum character of the Posting Directive must be restored , i.e. the notion that the Directive provides ‘minimum-protection’ (the core of rights that must be applied), which does not prevent legal or collectively agreed standards to provide the workers concerned with more favourable conditions (the standards that can be applied), as long as equal treatment and non-discrimination of local and foreign companies is ensured.

e) The Directive should more clearly respect the different industrial relations models in Member States as well as the instrument of collective bargaining as a flexible and dynamic process, which – in the interest of both sides of industry as well as of society at large - cannot and should not be treated as just another form of regulation.

In addition, less rigid criteria should be developed to judge if a collective agreement can be upheld vis-à-vis a foreign service provider, for instance in situations in which the majority of local companies is in practice bound by the collective agreement.

f) Member States in their role of public authorities contracting out public works (public procurement ) should be allowed via social clauses to demand observance of locally applicable collective wages and working conditions by any company, local or foreign, tendering for the contract.

g) When it comes to Member States in their role as legislator, this means that the very restrictive interpretation of the notion of ‘public policy provisions’ must be revised , to include social objectives and the protection of workers.

h) Member States and social partners must be allowed to use effective monitoring and enforcement mechanisms, Member States and social partners must be allowed to use effective monitoring and enforcement mechanisms , for instance to check if the posted worker is really ‘habitually’ employed in the country of origin, and that it is intended that he/she returns at the end of the posting .

Beyond the Posting Directive

In the current EU legal framework, the Posting Directive plays a compromise role. It does not establish minimum standards nor harmonized rules, but sets coordination rules, which are at the same time inspired by the important political choice to protect host country social standards. In many countries, it is still an important instrument that provides protection to posted workers and protects (at least) minimum host country rules laid down in law and (generally binding) collective agreements. It can therefore not be missed. When revised, it will be better capable of playing this role.

However, several problems areas will not be solved by the aspired revision:

1) Article 56 TFEU (article 49 EC)
Generally speaking, the ECJ has interpreted the PWD in the context of the EU Treaty’s provisions of free movement of services (notably Article 56 TFEU/former 49 EC) as a ‘carve out’ from the general obligations of the Treaty to remove obstacles to free movement. Anything that goes beyond, and is not explicitly allowed, by the PWD is considered to be an obstacle to the right of free movement of the transnational service provider. It is therefore necessary to continue fighting for a clearer and legally binding social policy orientation of the internal market provisions.

2) Posting from outside the EU.
The Posting Directive only provides for coordination rules on applicable (minimum) standards within the EU’s internal market, without setting any standards in cases/countries in which there are little or no legal or collectively agreed standards in place. In recent times, new problems are arising to which this approach does not provide an appropriate response. This is for instance the case with service providers from outside the EU. ETUC and its member organisations must investigate these cases, in order to develop a proper policy response at national and EU level. The link with GATS must also be further assessed.
3) Public procurement and ILO Convention 94
ILO Convention 94 aims at preventing that public contracts exert downward pressure on wages and working conditions. The approach taken in ILC 94 is that conditions under public procurement contracts should not be less favourable than those established for the same work in the same area by collective agreement or similar instrument. 10 EU Member States have ratified this convention. The EU Commission and Council of Ministers included it in their call for ratification of all up–to-date conventions in 2006. The EU must therefore ensure that all Member States can continue to adhere to ILC 94, promote its ratification and implementation, and solve any ambiguities in EU legislation that might stand in the way.

ETUC calls on the European Commission to urgently address and solve the possible tensions between the Rüffert case, the Public Procurement Directive(s) and ILO Convention 94, and to promote its ratification by all EU Member States.

ETUC Resolution for download

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