The Scope for Collective Bargaining in Posting and Procurement––What Might Come From Recent Court of Justice Case Law and the Proposed Reform of the Posting of Workers Directive?

By Prof Tonia Novitz, Professor of Labour Law (University of Bristol Law School).

Modern Times, starring and directed by Charlie Chaplin
Modern Times, starring and directed by Charlie Chaplin

Workers posted from one European Union (EU) Member State to another would seem to be in need of urgent social protection. Recent evidence produced by the European Commission indicates that, between 2010 and 2014, the number of workers posted from one EU State to another increased by almost 49% (in total approximately 1.9 million workers). More importantly, posted workers tend to earn substantially less than local workers, with reports of income of less than 50% than that usually paid in a given place for the same job. Further, there are indications that, in certain sectors, such as the construction industry, posted workers may be at greater risk of harm through violation of health and safety standards. The reasons may seem obvious, since the language, laws and legal system of a host State are likely to be foreign to posted workers who can also be left without effective local trade union representation.

In the Laval case (C-341/05), the capacity for minimum wages (and other work-related benefits) to be set for posted workers by collective bargaining by trade unions in the host State was cast into doubt. Collective bargaining (and the collective action that generated such bargaining) was considered to be too unpredictable in terms of effect and outcome, creating an unjustifiable barrier for the free movement of service providers. It was only in the case of ‘social dumping’, a nebulous term of uncertain reach, that collective action aimed at conclusion of a collective agreement could be permitted in respect of a particular group of posted workers. Instead, the Court relied on Article 3(1) of the Posting of Workers Directive 96/71/EC (PWD), which envisages only the setting of minimum standards in relation to certain matters. This may be done by ‘law, regulation or administrative provision’ but also by ‘collective agreements or arbitration awards which have been declared universally applicable…’ in accordance with Article 3(8) insofar as they concern’ activities listed in the Annex largely pertaining to the construction industry. EU States may also take the option to give such legal effect to universally applicable collective agreements in other sectors in accordance with Article 3(10). Through this prescriptive treatment of the appropriate limits of collective bargaining, what had been seen by some as a ‘floor of rights’ in PWD came to be a ‘ceiling’. If the national measures taken in respect of protection of the rights of posted workers did not fit within the ambit of the precise terms set out in the PWD, then they were impermissible, despite the apparent scope in Article 3(7) for a more generous interpretation of the Directive ‘more favourable to workers’.

This had repercussions also for public procurement. In the case of Rüffert (C-346/06), it was found that a regional authority could not rely (in the course of subcontracting) on local legislation which required contractors to pay the minimum wage established by a sectoral collective agreement. The agreement had not been declared of universal application. In addition, the Court observed that there was insufficient evidence that the agreement was even capable of being universally applicable. That it was a local agreement was not per se a problem, were it ‘generally applicable to all similar undertakings in the geographical area and in the profession or industry concerned’ in accordance with the first indent of Article 3(8) PWD. However, the collective agreement covered only a part of the construction sector, applying only to public and not private contracts. The undertaking could, of its own accord, sign a local collective agreement, but could not be required to do so in this instance as a condition for bidding for the contract.

The obvious problem is that, since 2008 when Rüffert was decided, universally applicable collective agreements are no longer a feature of post-crisis industrial relations. A key facet of austerity policies, whether pursued in accordance with Memoranda of Understanding as part of a bailout package or independently by States seeking to attract foreign direct investment by demonstrating new forms of flexibility in wage-setting, has been the dismantling of national and sectoral collective bargaining systems. With this has gone the legal application of ‘universally applicable’ collective agreements on which such many EU States’ industrial relations systems once relied. In other words, lawful collective bargaining in connection to the establishment of basic binding terms and conditions for posted workers has become almost impossible. The increase in the number of posted workers and the alarming evidence regarding their treatment makes the new status quo highly problematic. So does the recent case law of the Court of Justice or the proposals of the European Commission reflect these concerns and address this problem?

Certainly, the Sähköalojen v Elektrobudwa case (C-396/13) shows unprecedented sympathy for the engagement of local trade unions in the protection of posted workers’ interests. In that instance, despite contracts being ostensibly governed by the law of the home State which prohibited such a practice, posted workers were able to assign their pay claims to a local Finnish trade union so as to bring these before the host State (i.e. Finnish) courts. While Advocate General Wahl relied on the Rome I Regulation in this respect, the Court reached this conclusion on the basis of interpretation of Article 3(1) of the PWD. Such an approach is also arguably consistent with the recognition of trade union representation in relation to such claims offered in Article 11 of the Enforcement Directive 2014/67/EU. In RegioPost (C-115/14), the Court took a first step away from Rüffert, so as to allow legal effect to regional legislation which directly set minimum wages to be applied in the context of public procurement decisions. Notably, there was at that time no collective agreement setting a minimum wage which the legislation was applying. That decision retreats from the view that differentiation between private and public sector contracts is problematic, in reliance on the specificity of public procurement legislation (Directive 2004/18). Moreover, it was stressed that the first subparagraph of Article 3(8) of the PWD only applied to collective agreements or arbitration awards and not legislation, so it might seem to still be illegitimate for collective agreements to make such a distinction. Ultimately, neither Sähköalojen nor RegioPost really make any inroads into the established (albeit irrational) position on the legal effect of collective agreements. This is despite the unrestricted reference to ‘collective agreements’ and their potential influence in setting the terms of award of public contracts under Article 18(2) of the Public Procurement Directive 2014/24 (PPD), which is not of course the relevant legislation discussed in RegioPost, but could be expected to be in the contemplation of the Court.

In this respect, the proposals made by the European Commission in March 2016 for reform of the PWD are interesting. First, when a collective agreement has been concluded and made ‘universally applicable’ by the State, this will set mandatory standards for posted workers in all sectors, not just that of construction. This innovation seems likely to have limited effect apart from enabling greater ‘equality of treatment’ in a very few States. (The Commission apparently anticipates only Denmark, Ireland and Luxembourg.)

What is more exciting is the second proposal regarding ‘subcontracting chains’, whereby Member States will have the option to apply remuneration established at company level and other applicable collective agreements to any subcontractor even where posting of workers is envisaged. Moreover, the reference to ‘minimum rates of pay’ in Article 3(1) is to be replaced with ‘remuneration’, suggesting scope to bargaining over and above a bare minimum wage for remuneration composed of a variety of elements which would be applied equally to employees and subcontractors of a corporate entity. This would enable the PWD to reflect the more dynamic wage-setting realities in the contemporary labour market.

Attention to ‘subcontracting’ reinforces the more limited provision in Article 71(6) of the 2014 PPD, which sets out potential for ‘joint liability between subcontractors and the main contractor’ and replacement of the subcontractor with the original ‘economic contractor’ where there is breach of Article 18(2) and therefore grounds for exclusion under Article 57 PPD. The Commission’s proposal regarding the PWD might also seem to be indicative of EU engagement with external international standards relating to supply chains being established in the World Bank by the International Finance Corporation (IFC) Performance Standards. The drawback is that the reform proposed by the Commission seems only to be restricted to remuneration, overlooking the often crucial role which trade unions play regarding regulation of working time and more broadly health and safety, which is expressly recognised by IFC ‘Performance Standards 2’. Nevertheless, it would be a beginning. In any case, where posting exceeds twenty four months, under the new proposed Article 1 of the PWD (in reliance on the Rome I Regulation), posted workers will in any case have all the legal entitlements of domestic workers to be represented by trade unions in collective bargaining. We will now have to wait and see whether the proposal is adopted. This may depend on how very hostile the EU and its Member States are to standards set by collective bargaining whether in relation to public or private contracts.

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