The posting of workers The re-regulation at EU level

1. The posting of workers The re-regulation at EU level Raffaello Santagata de Castro Researcher in LabourLaw Università della Campania “Luigi Vanvitelli” raffaellosantagata@libero.it

2. The purpose of my paper • Overview • Legal context (before the adoption of the Directive in 1996) of the case law of the Court of Justice relating to free movement of services in order to show the basis of so called Posting of Workers Directive 96/71 (PWD) • Origins and content of PWD • Loopholes and ambiguities • Difficulties of implementation and enforcement • Political background • The revision of the posting of workers directive adopted by the Council on 28 June 2018. • Assessment R. Santagata de Castro

3. The re-regulation of posting and the debate around “social dumping” • A very contentious issue, due to the clear-cut divide between “old” and “new” Member States (and the Central and Eastern EU Member States) in the submissions to the Court: • Western Member States (where labour costs are relatively high): in favour of an extension of the scope of the PWD by means of promoting equal pay for equal work. Therefore they broadly favour the possibility of applying national standards to posted workers, • Unlike, Central and Eastern Member States (where labour costs are instead relatively low): interest in not expanding the applicability of the Host State’s labour standard to posted workers, in not reducing the competitive position of service providers in Central and Eastern Europe (CEE). R. Santagata de Castro

4. The reform of the Posting of Workers Directive (PWD) at the centre stage by the political guidelines: the stages • The reformof the PostingofWorkersDirective (PWD) wasoriginallyannouncedbypresidentJuncker in hisspeech in frontof the EuropeanParliamentof 15 July 2014: “in ourUnion, the same work at the sameplaceshouldberemunerated in the samemanner” • In March 2016 the EuropeanCommissionhaspresented a Proposalamending Dir. 96/71  • Mr. Junckerfurtherhighlighted the needforworkers in the EU toearn “the samepayfor the same work in the sameplace” (speechof 13 September 2017) R. Santagata de Castro

5. A very contentious issue • 11 national parliaments (or chambers of parliament) issued the reasoned opinions (“yellow cards”) against the reform of the PWD in the context of the procedure regulated by Protocol n° 2 on the application of the principles of subsidiarity and proportionality R. Santagata de Castro

6. DIRECTIVE amending Directive 96/71/EC concerning the posting of workers in the framework of the provision of services • An agreement on the revision was achieved by the Commission, the Parliament and the Council on 1 March 2018, and the COREPER approved the compromise text on 11 April 2018 • On 21 June 2018, the Council adopted the reform of the posting of workers directive • The directive aims at ensuring fair wages and a level playing field between posting and local companies in the host country whilst maintaining the principle of free movement of services • The new directive as a turning point after the well-known Laval decision and the subsequent case law of the ECJ R. Santagata de Castro

7. Laval, regulatory competition and principle of the territorial effect of labour legislation • The status quo resulting from the Viking and Laval saga (…) has led to a situation where the relationshipbetweennational social systems and internal market lawhasbeen, probablyirreversibly, altered 1) Original idea(RomeTreaty): a strictfunctionalseparationbetween the twospheres and full territorialapplicationofnationallabourlawof the hostcountry 2) The neo-liberal or neoclassicaljudicial turn undertakenby ECJ: no possibilityforMemberStatestoapplytopostedworkers’ wages and workingconditionsgoingabove the minima providedby the PWD or beyond the listofsubjectsincluded in the sameinstrument R. Santagata de Castro

8. The neo-liberal or neoclassical judicial turn undertaken by the Court of Justice • The common idea underpinning Viking, Laval and the subsequent case law in the same line is that national-level labour law rules are capable of constituting a distortion of competition within the internal market and, as such, must be justified by reference to a strict test of proportionality’ (Deakin 2012, 24) R. Santagata de Castro

9. Legal context. The situation prior to the Laval-quartet. Before the Posting of Workers Directive • Initial (1990s) CJ’s case law on the labour law applicable to posted workers • Host Member State may apply – are allowed - (some or all) their labour law to posted workers: equal treatment of the in-state and out-of state workers (Rush Portuguesa) • Posted workers are not “migrant workers” under Article 45 TFEU (“since they do not gain access to the labour market of the host State”!?) and therefore, they cannot claim equal treatment with the workers in the host State • Rush Portuguesa; Finalarte R. Santagata de Castro

10. Subsequent case law of European Court of justice • In its subsequent case law the Court “retreated somewhat from its bold but unreasonable approach in Rush and brought its case law more into line” with its general jurisprudence on the freedom to provide services (Säger) where the Court adopted the so-called “market access” test • A closer scrutiny of national laws • This can be seen in Mazzoleni and in Arblade. The ECJ set out a four-fold method of analysis for judging the domestic laws R. Santagata de Castro

11. The four stages 1) the first question is whether or not the domestic rules have a restrictive effect on the provision of cross-border services 2) secondly, it should assess whether the (measure) restrictive effect can be “justified by overriding requirements relating to the public interest”: according to the ECJ, the justification for domestic legislation has to be found by assessing whether it protects the posted workers(Finalarte). 3) The third stage is to assess whether the posted workers’ terms and conditions of employment are improved by the application of the host state rules 4) The fourth stage is to see whether the benefit could be supplied in a way which had a lesser impact upon the home-state’s freedom to provide cross-border services (the proportionality test) R. Santagata de Castro

12. PWD 1996/71 • Discussion on the legal basis: • Free movement of services (Articles 53 and 62 TFEU) • And not: freedom of movement for workers (Article 45 TFEU) or social policy (Article 153 TFEU)!! • Impacts on CJ’s case law R. Santagata de Castro

13. Several objectives: • Promoting and facilitating the free transnational provision of services • Creating legal certainty with regard to the applicable labour law (which rules of the host Member State are to be applied by foreign undertakings to the workers posted). • Instrument to prevent social dumping and unfair competition. Protecting posted workers • One step more than Rush• which merely permitted host MS to extend some or all their labour law to posted workers; PWD introduced not just a possibility, but a duty to ensure that workers posted from other MS complied with and enjoyed host MS rules and treatment in a number of areas R. Santagata de Castro

14. PWD 1996 • Instrument of coordination, not harmonization • Only determination of the applicable law • “Hard core of mandatory provisions for minimum protection” the host State must apply • Most importantly: minimum wage, working hours, paid holidays, (Article 3(1)) • Other matters: “the law applicable to the employment contract” • Which, in most cases, is the law of the sending State (see Rome I Regulation) • A number of possibilities for the receiving MSs to go beyond these minimum requirements (see further) R. Santagata de Castro

15. Case law on the PWD • A crucial question concerning the Posting of Workers Directive has been whether the areas identified in art. 3(1) dir. 96/71 are 1) an exhaustive list in which the host state must apply its laws or 2) merely minimum standards upon which host states could improve. • In other words it was unclear whether the Directive should be interpreted as something more than obliging the Member States to protect the posted workers R. Santagata de Castro

16. Case law on the PWD • Laval, Rüffert, Commission v. Lux. • Very strict interpretation of the freedom of the host MSs to apply their labour law • Interpretation of Article 3(7): does not give any leeway to the receiving MS • Strict interpretation of possibilities to apply labour conditions laid down in not generally binding collective agreements (Article 3(8)) • The concept of “public policy” (Article 3(10)) • May only be used in highly exceptional cases • The “floor” de facto becomes the “ceiling” R. Santagata de Castro

17. Summary of the Laval case • Laval was a Latvian company which posted workers from Latvia to work for construction companies in Sweden. Swedish trade unions wanted Laval to apply the Swedish collective agreement but Laval refused. There followed collective actions to force Laval to enter into negotiations with the trade union on the rates of pay for posted workers. Further, the aim was to sign a collective agreement, the terms of which laid down (a) as regards some of the matters covered by the hard nucleus of the Directive, more favourable conditions than those resulting from the relevant national legislative provisions for minimum protection, and (b) other terms relating to matters not included in the hard nucleus. To put it another way, the demand put forward by the trade union included provisions which were both ‘beside’ and ‘above’ the hard nucleus according to the Posting of Workers Directive. • The EU-Court held that Article 56 TFEU and Article 3 of Posting of Workers Directive precludes a trade union from attempting, by means of collective action such as the one in the case, to force a provider of services established in another Member State to enter into negotiation regarding rates of pay and to sign a collective agreement with terms both ‘beside’ and ‘above’ the hard nucleus. Further, the Court argued that the collective action could not be justified, since the demands were not transparent. The demands must be sufficiently precise and accessible so as not to render it impossible or excessively difficult in practice for such an employer to determine the obligations with which he is required to comply . • In its final judgement the Swedish Labour Court held the trade unions liable to pay punitive damages (see below). R. Santagata de Castro

18. The Rüffert case • A German company won a tender with the German state of Lower Saxony concerning the construction work at a prison. According to the law on public procurement in Lower Saxony the contractor must undertake to pay at least the remuneration prescribed by the collective agreement in the place where those services are performed. Such a clause was included in the contract with the German company. The company subcontracted work to a Polish service provider and the Polish workers were paid lower wages than prescribed by the relevant collective agreement. Since the German company did not comply with the contract in this respect, Lower Saxony annulled the contract and imposed financial penalties on the company. The EU-Court found that the demand to pay wages according to the relevant collective agreements did not comply with the Posting of Workers Directive, interpreted in the light of Article 56 TFEU. According to the Court the wages were not fixed in accordance with one of the procedures provided for in the Posting of Workers Directive. The collective agreement mentioned in the Public Procurement Act in Lower Saxony was not generally applicable (according to Article 3.1 of the Directive). Further, the method used in Lower Saxony could, for several reasons, not be regarded as an application of the method in 3(8) of the Directive. One reason was that Article 3(8) may only be used if there is no system for declaring collective agreements to be of universal application, which is not the case in the Federal Republic of Germany. R. Santagata de Castro

19. Who is a posted worker? What are the postings to which PWD applies? • An employment relationship with an undertaking established in the home State • Postings within “the framework of the transnational provision of services” • ‘Posted worker’ means a worker who, for a limited period, carries out his work in the territory of a Member State other than the State in which he normally works • Two criteria: a) temporariness of the posting; b) ‘habitual place of work’ R. Santagata de Castro

20. Three forms of posting 1) Performing a service; 2) Making a posting as a holding; 3) Posting through temporary employment agency R. Santagata de Castro

21. The more vaguedefinitionofposting in Art. 12 of Reg. 883/2004 • «A person who pursues an activity as an employed person in a Member State on behalf of an employer which normally carries out its activities there and who is posted by that employer to another Member State to perform work on that employer's behalf shall continue to be subject to the legislation of the first Member State, provided that the anticipated duration of such work does not exceed 24 months and that he/she is not sent to replace another posted person» R. Santagata de Castro

22. Differencesbetween the definitionsofposting in art. 1 para. 3 of Dir. 96/71 and in Art. 12(1) Reg. 883/2004 • Common feature: an employment relationship between the posted worker and the service provider • A significant difference: art. 12 para. 1 of Reg. 883/2004 refers to “an employer which normally carries out its activities” in the State from which posting takes place • A precise definition of the temporary character of posting in Art. 12 of Reg. 883/2004 (24 months) R. Santagata de Castro

23. Problems of interpretation: legal loopholes and ambiguities • What is temporary (Article 2)? • Distinction between workers and self-employed persons • What is “minimum wage”? • What is “establishment”? R. Santagata de Castro

24. The temporary character of posting • The definition of ‘limited period of time’ ” should depend on “the duration of the service abroad” • Article 56 TFUE: no express definition of the requirement of ‘temporariness’ regarding services. • Gebhard (C-55/04) or Schnitzer (C-215/01): assessment based on predominantly qualitative criteria on a case-by-case basis R. Santagata de Castro

25. Distinction between workers and self-employed persons • Art. 2 (2) PWD “the definition of a worker is that which applies in the law of the member state to whose territory the worker is posted” • In C- 255/04 : a provision of the French Labor Code which provided a presumption of subordinate employment for the activity of an artist was incompatible with the principle of freedom to provide services under Article 56 R. Santagata de Castro

26. Whatis “minimum wage”? • Article 3(1)(c): the composition of ‘minimum rates of pay’ • To what extent the law of the host Member State is allowed to define what are the constituent elements of the minimum wage? • What is “minimum wage”? • To be defined by national law: variety of national concepts R. Santagata de Castro

27. Isbir • Isbir : “….The task of defining what are the constituent elements of the minimum wage, for the application of that directive, therefore comes within the scope of the law of the Member State concerned, but only in so far as that definition, deriving from the legislation or relevant national collective agreements, or as interpreted by the national courts, does not have the effect of impeding the free movement of services between Member States”. • The Member States’ decisions to classify some types of payments as minimum rates of pay could be subject to review under Article 56 TFEU R. Santagata de Castro

28. What elements of remuneration could be included in the concept of ‘minimum rates of pay’? • Ambiguous case law of the ECJ • what about mobility-related costs, bonuses, holiday pay, seniority or other allowances, 13th month bonus…? • In Luxembourg, Commission v Germany and Isbir, the Court interpreted the concept ‘minimum rates of pay’ narrowly • The more broad interpretation to the concept ‘minimum rates of pay’ in the recent Sähköalojen ammattiliitto case • A new ‘hope’ to strengthen the Directive’s social purpose? R. Santagata de Castro

29. What can bequalifiedasan appropriate minimum standard setter? • According to PWD, matters listed in Article 3(1) must be laid down by: • by law, regulation or administrative provision, and/or • by collective agreements or arbitration awards which have been declared universally applicable within the meaning of paragraph 8 • In Sweden and in Germany no law on the minimum wage • A restrictive reading of Article 3(8) narrowed the possibilities to apply more favourable employment conditions to posted workers through collective agreements R. Santagata de Castro

30. Public procurement and subcontracting chains • A last issue concerns the question to what extent Member States can enforce the labour standards enshrined in Article 3(1) through public procurement, in particular to ensure that also posted workers in subcontracting chains receive the minimum protection the Directive has to offer • The question is what pay a worker in a subcontracting chain is entitled to • RegioPost confirms that Member States may employ public procurement law to oblige a contractor to pay its own workers and those in subcontracting chains a particular minimum wage R. Santagata de Castro

31. What is “establishment”? • Art. 1 para. 3 of Dir. 96/71: no clear definition of ‘undertakings established in a Member State’ • Letter-box companies: is the employer genuinely established in the sending state ? • Misuse and abuse of posting provisions by employers, especially by setting up of letter box companies, persist • Under Article 43, an undertaking has a very wide freedom of choice over the nationality of its establishment (Centros) R. Santagata de Castro

32. Inconsistencies with other parts of EU legislation • Social security coordination (Reg. 883/2004) • First 24 months: posted workers remain fully subject to the social security legislation of the sending State • Agency Work Directive 2008/104 • Article 5: equal treatment between agency workers and the workers of the user firm for “basic working and employment conditions” • Goes further than the “minimum requirements” of the PWD • See possibility offered to the receiving State in Article 3(9) PWD R. Santagata de Castro

33. Abuses and fraudolent practices • Insufficient cooperation between MSs • Difficulties in obtaining information concerning applicable working conditions • Letter-box companies and U-turn constructions • Bogus self-employed persons • Pyramids of subcontractors • False declarations of posting (A1 forms on applicable social security law – Reg. 883/2004) R. Santagata de Castro

34. Abuses and fraudolent practices • Long-term postings • Repeated replacement of posted workers • Non-payment of minimum wages and/or social security contributions in home state • Non-observation of the rest and work periods • High sums to be paid by the workers for expenditure on travel, board and lodging • Bad housing • Poor access to legal remedies in practice R. Santagata de Castro

35. Control measures in PWD • Article 5 PWD: the Member States have to take appropriate measures when the provisions of this Directive are not complied with a number of post Rush cases focused on the procedural safeguards (rules) that host states can apply to companies doing posting safeguards that Enfrocement Directive has confirmed R. Santagata de Castro

36. Procedural rules on posting companies (allowed) • In Case C-490/04, Commission v. Germany the Court said that host state could require the service provider to provide and keep in the workplace a translation of a (reasonable) number of documents in the language of the receiving Member State • According to Commission v. Lux. the service provider could be requiredto report beforehand to the local authorities on the presence of one or more posted workers, the anticipated duration of their presence and other information. R. Santagata de Castro

37. Proceduralrules on postingcompanies (notallowed ) • The host state law requiring for the posted workers to have individual work permits which were only granted where the labour market situation so allowed is not compatible with the EU law (Commission v. Luxembourg, Case C-445/03) • In Case C-577/10, Commission v. Belgium, with regard to the self-employed, the information requested by Belgium prior to the beginning of the activities, is too detailed • However the objective of combating social fraud and the prevention of abuse, notably false self-employment and moonlighting, can justify possible restrictions of the free movement of services R. Santagata de Castro

38. Enforcement Directive 2014/67 • The Directive is vague and ineffective: misuse and abuse of posting provisions • The Enforcement Directive (Directive 2014/67/EU) on 15 May 2014 as a good opportunity to react • Recital No. 7 states: «In order to prevent, avoid and combat abuse and circumvention of the applicable rules by undertakings taking improper or fraudulent advantage of the freedom to provide service enshrined in the TFEU and/or of the application of Dir. 96/71/EC the implementation and monitoring of the notion of posting should be improved and more uniform elements, facilitating a common interpretation, should be introduced at union level» R. Santagata de Castro

39. Art. 4 of Enforcement Directive • «Identification of a genuine posting and prevention of abuse and circumvention» • An indicative, non-exaustive qualitative list of factual elements to help competent authorities to decide whether a specific situation qualifies as a genuine posting • This provision overcomes, to a certain extent, the insufficient definition of posting in the Dir. 96/71 R. Santagata de Castro

40. ‘Letter box’ companies • In tune with the criteria developed in social security coordination (see Fitzwilliam case C. giust. 10 February 2000, C-202/97) the competent authorities have to examine: • the place where the undertaking performs its substantial business activity • where it employs administrative staff • the number of contracts performed and/or the size of the turnover realised in the Member State of establishment R. Santagata de Castro

41. Article 4(5) • Definition of posted ‘worker’ • Criteria (a) the work is carried out for a limited period of time in another Member State; (b) the date on which the posting starts; (c) the posting takes place to a Member State other than the one in or from which the posted worker habitually carries out his or her work according to Regulation (EC) No 593/2008 (Rome I) and/or the Rome Convention; (d) the posted worker returns to or is expected to resume working in the Member State from which he or she is posted after completion of the work or the provision of services for which he or she was posted; (e) the nature of activities; (f) travel, board and lodging or accommodation is provided or reimbursed by the employer who posts the worker and, if so, how this is provided or the method of reimbursement; (g) any previous periods during which the post was filled by the same or by another (posted) worker. R. Santagata de Castro

42. Procedurallaw: rulesformonitoringproceedings in MemberStates • Article 9(1): administrative requirements and control measuresthat ‘Member States may in particular impose’ and which may be applied to monitor compliance. Many of the things listed are based on the case law of the CJEU • A list of other measures a host mamber state may not impose • Art. 12: Member States can introduce systems of joint liability R. Santagata de Castro

43. Monitoring compliance: the competent authority • For certain aspects of the notion of posting, such as the genuine link of the employer with the sending MS, the MS from which the posting takes place plays the key role • Matters such as compliance with the terms and conditions of employment to be respected in the country where the services are provided can only be controled in the host MS • Several recitals of the Enforcement Directive give to (the competent authority of) the host Member State the competence ‘ to verify the constituent factual elements characterising the temporary nature inherent in the notion of posting, and decide whether the employer is genuinely established in in another ‘sending’ MS, whereas R. Santagata de Castro

44. Sanctions • Enforcement Directive has a significant gap with regard to the sanctions, i.e. the legal consequences in cases that a worker cannot be qualified as a genuine posted worker • Which employment law would be applicable to the workers concerned? • Recital 11: “Where there is no genuine posting situation and a conflict of law arises, due regard should be given to the provisions of Regulation (EC) No 593/2008 or the Rome Convention … or the Rome Convention ” • Such workers should be judged according to the regulations provided in the Treaty and the Rome I Regulation (or its earlier regulations) R. Santagata de Castro

45. An urgentneedtoreopensubstantive content of the PWD. Why? • In Laval and in its later judgment Rüffert, the Court “overturned the presumption in favour of the territorial effect of labour legislation, at least in the context of freedom to provide services”, interpreted and used PWD as an instrument “to import to host Member States the standards and rules prevailing in the ‘country of origin’ of the services provider” • If PWD is an instrument that was intended, in the words of Commissioner Spidla, ‘to ensure the freedom to provide services and to prevent social dumping’, Laval and Rüffert radically reshaped the nature of that instrument R. Santagata de Castro

46. European Committee of Social Rights. The reform of the PWD (Dir. 2018/957) • Posted workers are indeed migrant workers and have thus the right “to receive treatment not less favourable than that of the national workers of the host State in respect of remuneration, other employment and working conditions, and enjoyment of the benefits of collective bargaining” • Recital 4 (Dir. 2018/957 ) is very clear: “More than 20 years after its adoption, it has become necessary to assess whether Directive 96/71/EC of the European Parliament and of the Council still strikes the right balance between the need to promote the freedom to provide services and ensure a level playing field on the one hand and the need to protect the rights of posted workers on the other” R. Santagata de Castro

47. Recital 3 • Article 9 TFEU lays down a ‘cross-cutting’ social protection clause obliging the institutions ‘to take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion, and a high level of education, training and protection of human health’ R. Santagata de Castro

48. Remuneration • Dir. 2018/957 replaces the reference to “minimum rates of pay” of Article 3(1)(c) of the PWD, with “remuneration” • The composition of the minimum rates of payis unclear (studyaccompanying the original Commission’s proposal for revision) • Definition of remuneration encompasses “all the constituent elements of remuneration rendered mandatory by national law, regulation or administrative provision, or by collective agreements or arbitration awards which, in that Member State, have been declared universally applicable or otherwise apply in accordance with paragraph 8” R. Santagata de Castro

49. Review under Article 56 TFEU • “The concept of remuneration shall be determined by the national law and/or practice of the Member State to whose territory the worker is posted” (art. 3.3) • Could payments as minimum rates of pay be subject to review under Article 56 TFEU? • In the recital 17 the new directive states that “the setting of wages is a matter for the Member States and the social partners alone. Particular care should be taken not to undermine national systems of wage setting or the freedom of the parties involved” R. Santagata de Castro

50. Time-limit to posting • Contrary to Regulation (EC) 883/2004 in 1996 PWD no clear indication with regards to the temporary nature of posting • The new article 1a (inserted in 2018): where posting lasts for periods longer than 12 months host Member States should ensure that undertakings which post workers to their territory guarantee those workers an additional set of terms and conditions of employment that are mandatorily applicable to workers in the Member State where the work is carried out • Commission’s original proposal provided for a fixed time limit of 24 months R. Santagata de Castro