EU Court limits Member States’ law-making powers

In June 2008, the European Court of Justice delivered a further ruling in relation to undertakings operating in other EU Member States. The ruling holds that the legislative powers of Member States must be interpreted narrowly and limited to those issues where a public policy necessity is demonstrated. The court states that responsibility for monitoring compliance with directives lies primarily in the country in which the undertaking is established.

Since the end of 2007, the European Court of Justice (ECJ) rulings in the Viking case (C-438/05) (127Kb PDF) (EU0706029I), the Laval case (C-341/05) (137Kb PDF) (EU0801019I, SE0801019I) and the Rüffert case (C-346/06) (EU0805029I) have focused on the extent to which one EU Member State’s pay and conditions can be imposed on undertakings established in another Member State. In its latest ruling on 19 June 2008, in the case of Commission of the European Communities v Grand Duchy of Luxembourg (Case C-319/06), the ECJ sets tight limits on the rights of Member States to impose legislative or collective bargaining terms on such undertakings.

Background to Luxembourg state case

The case concerns a Luxembourg law that went beyond the terms of Directive 96/71/EC, on the posting of workers in the framework of the provision of services, by imposing additional obligations on other Member States’ undertakings wishing to operate in Luxembourg. These obligations included the following:

• the terms of all collective agreements should apply;

• cost of living adjustments relative to pay should be honoured;

• equal treatment should be shown in relation to part-time work and [fixed-term work](/search/node/areas OR industrialrelations OR dictionary OR definitions OR fixedtermwork?oldIndex).

Moreover, the law imposed stringent reporting and monitoring obligations on such undertakings, including the requirement to establish an agency resident in Luxembourg. The Luxembourg state highlighted that these were ‘mandatory provisions’ falling within national public policy, as allowed under Directive 96/71/EC.

Arguments of Commission

However, the European Commission brought a case to the ECJ arguing that the Luxembourg law was in breach of Directive 96/71/EC for the following reasons:

• it went beyond the scope of the directive;

• it failed to legislate on minimum work periods and minimum rest periods;

• it imposed unnecessary reporting conditions on potential service providers;

• it required of potential service providers that they establish agency residence in Luxembourg.

Court rulings

On the first point, the ECJ held that, under Article 3 of the directive, Member States must ensure that, in relation to posted workers, terms and conditions established by law or by universally applicable collective agreements apply. This is provided that such terms and conditions represent minimum terms on working hours, holidays and pay, or conditions related to the supply of temporary agency workers, health and safety, protection for pregnant women or equal treatment between men and women, and that this list is exhaustive. The ECJ accepted that there can be derogation from the fundamental principle of freedom of movement but only where it amounts to a public policy provision necessary in the public interest. Furthermore, the court held that it could not be left to individual Member States to define what constitutes public interest, which has to be a ‘genuine and sufficiently serious threat to a fundamental interest of society’. However, the Luxembourg state had failed to produce hard evidence of the latter.

On the second point, the Luxembourg government agreed that the complaint was justified and that it had subsequently legislated to guarantee working time rights. The ECJ ruled that the Luxembourg state had not done so in time, and the complaint was upheld.

On points 3 and 4, the ECJ ruled that the reporting requirements on other Member States’ undertakings were not sufficiently clear, that they were likely to create uncertainty and that they imposed additional administrative and financial burdens on such undertakings. In this regard, the court considered that the monitoring of compliance was the responsibility of the Member State in which the undertaking was established, leaving it to that state to impose the necessary reporting requirements. To require monitoring from both the origin and destination state would dissuade undertakings from exercising their freedom to provide services, according to the ruling.

Reactions of social partners

The General Secretary of the European Trade Union Confederation (ETUC), John Monks, has described the ruling as turning the posting directive ‘from an instrument that was intended to protect workers, companies and labour markets against unfair competition on wages and working conditions into an aggressive internal market tool’. Mr Monks has called for a revision of the directive and for the adoption of a Social Progress protocol, ‘confirming the primary goal of the EU as being the improvement of living and working conditions of its workers and citizens, and not a race to the bottom’ (see press release on 19 June 2008). Representing the employer side, BusinessEurope has not issued any public statement on the ruling.

Sonia McKay, Working Lives Research Institute