The battle for the Danish model

05 Jan 2009

feature: legislative changes in the wake of laval.

Feature: Legislative changes in the wake of Laval.

Legislative changes in the wake of Laval
Laval caused Nordic concern when it was delivered by the European Court of Justice last year. Now the Danish Government has come to the rescue of the Danish labour market model with a new Bill. The question is if the new Bill will do the trick.
Last year at Christmas, the European Court of Justice (ECJ) delivered a judgment that sparked instant controversy. 18 December 2007 was the day of the Laval ruling – ‘ a licence for social dumping’ was how the European labour movement described its far-reaching implications.
The events that led to the landmark judgment unfolded in the local authority of Vaxholm in Sweden. There, a Latvian construction company Laval un Partneri, represented by its subsidiary Baltic, had won a contract to refurbish a school and posted a team of Latvian workers to Sweden. But the work deadlocked as the Swedish building workers union demanded the same rates of pay for the Latvian workers as those set out in the Swedish collective bargaining agreement – and then tried to force through their demand by mounting a blockade and organising solidarity action.
Believing the collective action to be illegal, the Latvian company issued proceedings in the Swedish Labour Court, which decided to consult with the ECJ. It had one question of fundamental legal importance in particular: Are trade unions allowed to force employers using posted EU workers into negotiations for a collective bargaining agreement or would that be at odds with the freedom to provide services that is enshrined in the EC Treaty?
In other words, the ECJ was asked to decide which principle should outweigh the other: the free movement of services. Or the right of nation states to allow the social partners to agree working conditions and minimum rates of pay through collective bargaining – and, ultimately, collective action.
Danish Model in peril
Community law prevailed in this instance. Thus, Laval favoured Community lifeblood over the long cherished labour market practice that is not exclusively Swedish, but represents an entire concept in Danish: the Danish Model seemed to be under threat. Under the Danish Model, wages and working conditions are determined in often local collective bargaining contexts and enforced through the right of collective action.
The Danish Government set up a committee on which the social partners were represented to map out the implications of Laval and find a solution that would be consistent with Community law but also safeguard the Danish Model. The Laval Committee issued its report in June. The Bill has just been passed by the Danish Parliament.
The new Act is an attempt to rescue the Danish Model by guaranteeing the right of collective action. The guarantee is subject to the condition that trade union demands to foreign employers must be founded on national collective bargaining agreements that are sufficiently precise and accessible.
The question is if the new measure will deliver this objective – or if it will only provide a short respite for Denmark to keep its traditional model of collective bargaining and action.
A fight for lifeblood
Laval sparked controversy last Christmas when it was delivered because the ECJ took sides in a clash between fundamental rights that have a strong history behind them.
On the one side of the scales there is a labour market model which is synonymous with the entire Danish system in the labour market and a favourite of politicians and the social partners alike: the Danish Model. The Danish Model is characterised by a low degree of codification with respect to pay and working conditions. Instead, the social partners will agree working conditions through collective bargaining. The collective bargaining agreements will often be industry-specific and will very often be supplemented by local collective agreements that can be adapted to reflect local circumstances at individual employers. An important feature of the Danish Model is the right of collective action. This right, which encompasses the right to organise blockades and strikes on the part of the trade unions and lockouts and boycotts on the part of the employers, ensures that agreement is reached and that pay and working conditions in Denmark are maintained at a high standard.
But the Danish Model may clash with another pivotal principle that represents a part of the EU’s very reason for being: the free movement of goods, services, capital and people. That clash is evident in Laval: the ECJ found that forcing the Latvian employer to enter into a collective agreement constitutes an obstacle to the free movement because the agreement would impose greater obligations on the employer than those defined through Swedish legislation – and obligations that the foreign employer had difficulty realising in advance because the Swedish trade union wanted to negotiate instead of simply demanding that certain conditions were met.
Free movement first
Laval included an interpretation of the Posting of Workers Directive. Under the Directive, foreign businesses posting workers in Sweden, or in Denmark, must observe our laws or generally applicable standards with respect to employment and working conditions. This means that posted workers are entitled to the minimum rights applicable in Denmark.
The problem is, however, that many of the standards applicable in the Swedish and also in the Danish labour market are not codified or generally applicable. They have been agreed through national or local collective bargaining agreements, except for certain minimum standards with respect to holiday, childbirth and working time.
With Laval, the European trade unions, and thus also those in Denmark, felt that the ECJ was sending a dangerous signal. The Posting of Workers Directive enables member states to specify minimum standards that will apply to all employers in the member state in question. Laval held that if the individual country has not used that option, it cannot force foreign employers to sign collective bargaining agreements that are more favourable for the workers than the generally applicable minimum standards.
The bottom line is that the accessibility and attraction for a foreign employer to perform work or services in other member states seem to override the right of nation states to have a labour market model with a local collective bargaining process and a right of collective action.
The Bill: guarantee subject to conditions
To rescue the Danish Model, the Danish Government set up a committee, which issued its report in June 2008. The report assessed Laval's precise implications on the Danish labour market. It contained suggestions for what a bill could look like that would throw a lifeline to the right of collective bargaining and action. The Bill was introduced in October. Now it has been passed – exactly 1 year after Laval.
The new Act secures the right to take industrial action against foreign employers by adding a provision in the form of section 6 a to the Danish Posting of Workers Act. The provision is intended to stave off social dumping by ensuring that ‘ collective action may be taken to secure posted employees a pay that amounts to what Danish employers must pay under the national collective bargaining agreements for the performance of similar work’, according to section 6 a(1).
Subsection 1 also refers to subsection 2, which sets out a number of conditions for the right to take industrial action. The operative word is that industrial action will be legal only if the foreign employer has referred to national collective bargaining agreements in advance: that is, provisions that apply to the entire territory of Denmark. The parties to the collective bargaining agreements must be the most representative social partners in Denmark and the pay conditions they provide must have ‘ sufficient clarity’ according to the new Act.
It will be for the Danish Labour Court to decide in each individual case if the conditions for the right to take industrial action have been satisfied – in line with current practice.
The intention behind the conditions attached to the guarantee is to ensure that collective bargaining agreements keep the standards required by the Posting of Workers Directive and Laval – while also securing the right to take industrial action.
Implications of the new Act
The Confederation of Danish Employers was involved in drafting the Laval report that forms the basis of the new Act. And at the Confederation’s headquarters a sense of satisfaction prevails. In its response to consultation to the Danish Ministry of Employment, the Confederation indeed emphasises the balancing of the Danish and the Community principles which the Confederation believes that the new Act will impact, noting that: ‘ In the view of the Confederation of Danish Employers, a balance has been struck during the preparatory stages of the Bill to amend the Danish Posting of Workers Act between on the one hand the conclusion in Laval and on the other hand central features of the Danish Model'.
Even so, it may be difficult to predict the full implications of the new Act. Maybe the future will hold more legal disputes if it turns out that the new Act does not satisfy the conditions set by the ECJ with Laval anyway – notwithstanding the careful attempt the new Act makes to balance interests.
One question is, however, if the new Act is enough to meet Laval’s requirements for transparency for the foreign service provider. For one thing, it does not specify how foreign employers are to find out who are the most representative employee organisations in the Danish labour market.
It may be the Danish Labour Court that will have to decide in such cases of doubt. And if the Danish Labour Court itself is in doubt about how to understand Community law, the ECJ will have the last say again.
The Swedish model
For the time being, Denmark has chosen the way it wishes to proceed with respect to the clash between fundamental rights that found its most dramatic manifestation in the judgment originating from Vaxholm in Sweden. But Sweden, too, was concerned after Laval. The lifebelt thrown to their labour market model may turn out to work out better than the Danish solution.
Like the Danes, the Swedes set up a committee after Laval last year. And like the Danes, the Swedes are trying to keep their labour market model in the report recently issued by the committee.
This means that the Swedish proposal does not contain any provisions about statutory minimum rates of pay. Nor does it suggest extending certain collective bargaining agreements to apply across the board. On this point the Swedish proposal resembles the Danish Act: Swedish trade unions will be allowed to take industrial action against foreign employers for the purpose of obtaining a collective bargaining agreement. This right is, however, subject to the condition that their demands must correspond to the pay and working conditions provided by the general collective bargaining agreements in the industry.
Nevertheless, the Swedish and the Danish measures are not the same. The Swedish Work Environment Authority is a government authority the Swedes have inserted between the trade unions and the foreign employers. The trade unions must provide this authority with the collective bargaining agreements they would like the foreign employers to accept. This will enable the authority to guide foreign employers about the conditions to be met in order to do business in Sweden.
In Denmark, it has been left to the social partners to negotiate the collective bargaining jungle and grapple with the unclear aspects of the law – and in so doing perhaps ending up in court. In Sweden, a neutral authority will oversee the rules.
Time will tell if the Danish and Swedish measures will stop the shock waves created by Laval. So that issues concerning pay and working conditions for posted workers will be agreed at the negotiating table and not at the ECJ the next time a Latvian employer sends its workers to a Stockholm suburb to build a school.