Free Movement v. Social Rights in an Enlarged Union - the Laval and Viking Cases before the ECJ

Author:Norbert Reich
Position:Visiting Professor (extraordinarius) Dr. Dr.h.c., University of Tartu

1. The Swedish Laval case and the English/Finnish Viking case as starting points - 2. Social rights as fundamental rights exempted from EC free movement rules? - 2.1. Possible exemptions of labour unions from article 49/43 EC - 2.1.1. Possible application of article 137 (5) EC - 2.1.2. 'Non-statutory-exemption' for trade unions derived from competition law? - 2.2. The importance of the Gustavsson ... (see full summary)


Norbert Reich

Visiting Professor (extraordinarius) Dr. Dr.h.c., University of Tartu

Free Movement v. Social Rights in an Enlarged Union - the Laval and Viking Cases before the ECJ

1. The Swedish Laval case and the English/Finnish Viking case as starting points

The two reference cases considered here concern the compatibility with EU law of industrial disputes and collective actions against EU companies exercising their free movement rights. The Swedish case, under a reference of the Arbetsdomstolen (Swedish Labour Court) of 15 September 2005 in litigation between Laval un Partneri Ltd (hereafter 'Laval') v. Svenska Byggnadsarbetareförbundet, Avdelning 1 of the Svenska Byggnadsarbetareförbundet, Svenska Elektrikerförbundet (in the material that follows, 'Bygnadds') 2 concerns the question of whether industrial action of Swedish labour unions against a Latvian company that wanted to perform a work contract under Swedish procurement rules through the use of posted Latvian workers falls under the 'freedom to provide service' rules of article 49 EC and, if this is the case, whether this action can be justified either under the posted workers directive, 96/71/EEC 3 , or under a specific Swedish law exempting labour unions from liability in taking action against foreign-based companies (the so-called Lex Britannia; see section 5.1 below).

The reference from the English Court of Appeal of 23 November 2005 in the litigation between (1) the International Transport Workers' Federation (ITWF) and (2) the Finnish Seamen's Union (FSU) versus (1) Viking Line ABP and (2) OÜ Viking Line Eesti (referred to below as the Viking case 4 ) concerns the question of how far labour unions can take social action against a reflagging of a shipping company from a 'high-wage' country (Finland) to a 'low-wage country' (Estonia); the ECJ was asked to decide also on the applicability of article 43 EC as well as Regulation 4055/86 5 in the litigation, including possible justifications. In more general terms, the case concerns the so-called FOC (flag of convenience) policy of the ITWF aimed at eliminating FOCs by establishing a genuine link between the flag of the ship and the nationality of the owner, and by protecting and enhancing the conditions of seafarers serving on FOC ships.

Both reference cases concern delicate matters of how to balance social policy objectives with economic freedoms that became apparent in the EU following the accession of ten (and now 12) new member countries. Most of these new member countries still have much lower wages, which give them a competitive advantage in the internal market but may easily be challenged (and indeed have been challenged by social action in the host countries) as provoking 'social dumping' on the more elaborate wage policies of old - in particular, Nordic - member countries. Both the Laval and (perhaps to a somewhat lesser extent) the Viking case have aroused strong political reactions in the Member States concerned, although these will not be addressed here. The aim of this article is more modest: it is intended to offer a legal analysis under existing EU law concerning how to solve these conflicts. It takes, as a starting point, the existing case law of the ECJ, which, however, has not yet really resolved the new types of conflict that arose in the Laval and Viking cases. Therefore, in deciding on the references, the Court must provide a truly constitutional answer concerning how to settle the existing - and possible future - conflicts between social structures in Member States that still remain within their own area of competence and the dynamics of EC law seemingly favouring the liberal spirit of free movement to the detriment of the social arrangements of Nordic countries with a strong welfarist tradition in particular, based upon the central role played by autonomous labour unions enjoying far-reaching action rights.

The analysis starts from the premise that the particular type of conflict that is before the ECJ in the Laval and Viking cases has not been regulated by the rather elaborate transition arrangements in the accession treaties. It must be remembered also that the actions are directed not against a Member State, as is the usual setting in free movement cases, but against labour unions, which are governed by private, not public law, and which enjoy, in the traditions of all Member States - whether old or new - a substantial amount of autonomy guaranteed by national and European constitutional provisions. Therefore, it must be analysed first how far this constitutional autonomy extends within the system of the EC free movement rules (see section 2). Only then should the question be answered of whether the relevant free movement provisions - namely, those concerning services (article 49 EC), regarding Laval, and on establishment (article 43/48 EC) in the Viking case - can be applied to social action by labour unions restricting free movement of posted workers with respect to reflagging by shipping companies (see sections 3 and 4). Should the answer be positive, one has to look for possible justifications, which will be different for Laval on account of the existence of the posted workers directive, 96/71 (see section 5), which is not applicable in the Viking case (see section 6). Finally, the recent opinions of Advocate General Mengozzi and Poiares Maduro of 23 May 2007 will be mentioned (in section 7).

2. Social rights as fundamental rights exempted from EC free movement rules?
2.1. Possible exemptions of labour unions from article 49/43 EC
2.1.1. Possible application of article 137 (5) EC

It could be - and has been - argued that labour unions taking social action in industrial disputes are exempted from the application of Community law in general and particularly from article 49/43 EC, which is directed against States only. Collective action by labour unions is, according to such an opinion, meant not to restrict freedom to provide services but to ensure adequate conditions of work and pay. Under article 137 (5) EC, the EU does not have jurisdiction in matters of strike, lock-out, and pay. In more general terms, it could be (and, again, has been) argued that Title XI on social policy leaves this area to Member States and allows only very limited intervention on the part of the EU. This seems to imply the non-applicability of the fundamental freedoms to industrial actions, arguments put forward in particular by the labour unions in both cases and by the supporting Swedish and Finnish governments, as well as, indeed, by most governments from 'old member countries' that had submitted observations to the Court.

In the face of such an argument, it should be clarified that the exclusion of Community legislation in the field of industrial action, on the other hand, does not preclude the presumption that the general principles of Community law always must be respected, as the Court has frequently held with reference to other prerogatives of Member States - e.g., with regard to direct taxation 6 , health provisions 7 , social security 8 , higher education stipends and loans 9 , war pensions 10 , or the property regime11. There is no reason to exclude a priori social policy matters from the application of free movement principles. Article 137 (5) only excludes Community legislation in the area of strikes and lock-outs, not the effects of primary law on industrial action.

2.1.2. 'Non-statutory-exemption' for trade unions derived from competition law?

One could refer also to the limited application of Community competition rules to collective bargaining and industrial action, which should be taken over by analogy to the EU freedoms. With regard to competition law, it is a matter of debate, under the influence of US/American antitrust law, whether there is an inherent 'non-statutory exemption' for collective action in industrial relations12. The ECJ, in its Albany judgment, took a somewhat more restrictive view:

Under an interpretation of the Treaty as a whole which is both effective and consistent [...] agreements concluded in the context of collective negotiation between management and labour in pursuit of such [social policy] objectives must, by virtue of...

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