Digesting one hot EU potato: A comment on fresh proposals for the Posted Workers’ Directive.

In advance of EU elections in May 2014, the issue of 'social dumping' and wage competition between workers from different member states is under intense public scrutiny. In the UK, attention has focused on the extension of free movement rights to Bulgarian and Romanian nationals whereas elsewhere in the EU, the issue of posted workers stands out as a political hot potato. 

Ongoing economic hardship and rising unemployment has put public pressure on EU law-makers. Employment ministers from across the EU have agreed proposals on the implementation, application and enforcement of the existing rules on the posting of workers. Approval by Members of the European Parliament is far from certain, but with EU elections looming there is a sense of urgency about negotiations prior to the last plenary session of the current Parliament on 14-17^th April 2014. 

Posted Worker controversy

Most EU citizens working in an EU member state other than their home state do so by drawing on free movement rights available in EU law.  However, EU workers qualifying as ‘Posted workers’ rely on the cross-border service rights available to businesses established in the EU.   Companies established in one EU member state may win contracts to provide services in other member states and ‘post’ EU workers across member state borders to perform the work on a temporary basis.

The classification of ‘posted worker’ has proven controversial as a distinct category of worker in EU law.  It costs much less to engage a posted worker from a low-wage EU member state such as Lithuania, than to employ a worker directly in a high-wage EU member state such as Germany.  This is partly due to the way in which the rules of the Posted Workers Directive 96/71/EC have been interpreted.  It is also a consequence of political commitment to a dynamic EU employment environment based on the principles of free movement in goods, people and services.  An EU-wide labour market open to ‘posted workers’ creates commercial opportunities for cross-border service providers to lever strong competitive advantage by posting. 

In 2013, a complaint of ‘social dumping’ was lodged by Belgian Ministers before the EU Commission in response to bankruptcies amongst Belgian, French and Dutch meat processors.  In the absence of a national minimum wage in Germany and lack of a generally applicable collective agreement, German abattoirs were able to use workers posted from Poland and paid less than €4 an hour.  

Low wages are not the sole controversy associated with posting and the European Transport Federation has recently claimed that labour exploitation goes hand in hand with tax avoidance and the abuse of systems of social security.  In the transport sector, service providers reportedly establish themselves via letter box companies in tax havens such as Jersey; recruit workers in low wage Eastern EU member states and post them to work on transport contracts in higher-wage Northern EU member states.  An example of social dumping is that of an employment agency recruiting Romanian drivers on behalf of a lorry firm registered in Cyprus.  These workers are them posted to Belgium and France on 12 week temporary contracts, working 12 hours a day, for €300 per month.  This wage is comprised of a 30% basic element and 70%  bonus.  Since the employment contracts are subject to Cypriot law, the employer is required to pay social costs (i.e. forms of national insurance) on only the 30% basic element of the wage.  Unsurprisingly, the French and Belgian transfer sector claims to be unable to compete.

Trade unions have faced legal action when members tried to defend their terms and conditions from undercutting by service providers who post workers.  In the judgments of the European Court of Justice in Laval and Viking, economic freedoms prevailed over the social rights of workers to take collective action.  Collective actions were ruled as an unjustified interference with the freedom to provide services and free movement rights.  This raised the prospect of unions being exposed to uncapped damage claims because industrial action might be ruled unlawful at an EU level, even when it was lawful under national rules.  Public authorities in receiving states have likewise found themselves challenged in law.  Following the case of Luxembourg they have been prevented from imposing specific national regulatory requirements on service providers that post workers into their territory.  The case of Ruffert prohibited the imposition of collectively agreed terms of work as a conditional term in public sector building contracts.    

Critics regard the current posted workers regime as either poorly enforced or inadequate.   The Posted Worker proposals agreed by Employment ministers acting through the Employment Social Policy Health and Consumer Affairs Council in December 2013 do not assist posted workers to access the terms and conditions they would otherwise be entitled to if employed, and represented, like workers in receiving states.   Rather, these measures aim to formalise systems of inspection, co-operation, accountability and information exchange between the member states who receive posted workers, and the member states from which they are sent.  

Enforcing the Posted Workers Directive.

Article 3 of the Posted Workers Directive 96/71/EC is its regulatory backbone. Accordingly, member states must ensure that posted workers are guaranteed terms and conditions fitting a list of seven employment matters including hours of work, holidays, minimum wages, agency work, health & safety, pregnancy and equal treatment on grounds of sex, race etc.

Up until 2007 it was generally considered that this list laid down a bare minimum of entitlement.  However, following the cases of Laval, Viking and Ruffert, the European Court of Justice made clear that the list set the limit of employment matters on which posted workers could receive legal protection.  To qualify, terms and conditions falling under one of the list headings would have to be laid down by national law/administrative regulation.  Posted workers in construction and building work could also draw on terms and conditions laid down in collective agreements declared universally applicable.  However, there are stringent rules determining the eligibility of collective agreements.  Depending on the legal customs of the member state concerned, permissible collective agreements are those observed by, or generally applicable to, ALL employers in a geographical area and industry, or those concluded by the most representative employers’ and labour organisations and nationally applied.

Fresh proposals for posted workers.

The proposals establish a mechanism by which member states can be assured that service providers are genuinely eligible to post workers from a sending state and that postings to receiving states are genuinely temporary in nature.  Each member state is required to nominate a ‘competent authority’ with responsibility for performing the functions laid down.  To be deemed genuine, a service-provider should undertake ‘substantial activities’ in the member state in which it claims to be established, and perform more than just internal management or admin functions.  This measure appears designed to stamp out the practice of setting up convenience letter-box companies.  ‘Competent authorities’ are also permitted to assess whether a posting is genuinely temporary.  However, there are limitations on their powers of determination.   Article 3.3 of the Posted Worker proposals states that the factors permitted to be examined are merely to be taken as indicative, case specific and of merit only ‘in the case of doubt and may not therefore be considered in isolation’.  Hence it would be unwise to regard the factors discussed in the Posted Worker proposals as a shopping list for determining if a service-provider is ‘genuine’, or a posting ‘genuinely temporary’. 

Member states engaged in sending and receiving posted workers are expected to provide clear and accessible information about terms and conditions of employment.  Receiving states should use national websites to identify which terms and conditions have to be applied.  The breadth of information shared is strictly limited to legally supported minima corresponding to the list of employment matters laid out in Article 3 of the PWD.  It does not include reference to general principles, aspirations or good employment practice within an industry, region or member state.  Where relevant employment matters are set out in eligible collective agreements, member states may involve trade unions in the sharing of information to clearly set out which terms have to be applied and to whom.

Sending states will continue to be responsible, in accordance with national law, for monitoring and enforcing measures relating to workers posted to another state.  However, they will also ensure that service providers supply the necessary information for supervising their activity and provide receiving states with assurances about the legality of the business, its good conduct and lack of known infringement of relevant rules.

The ability of member states to impose administrative controls on service providers is restricted.  Formalities must be designed to enable service providers to satisfy them ‘easily’ and ‘at a distance’.  Any measure must be justified and proportionate and may only be extended on the limited grounds of enforcing the PWD.  The ETUC is particularly dissatisfied with this aspect of the proposals, because it does not support member states who may wish to implement specific national measures in order to protect workers’ rights to fair and equal conditions. 

Member states can require service providers to share information about the location and nature of the posting, the likely number of posted workers and the expected length of the posting.  In each receiving state, service providers will be expected to keep copies of employment contracts, payslips, timesheets and proof of wages.  However, the powers of inspection awarded to competent authorities are limited in scope of the list of employment matters set out in Article 3 PWD.  Furthermore, a decision to inspect should be based on a  risk-assessed approach and must not be discriminatory or disproportionate. 

The service provider must designate a specific person for liaison with the authorities and name a contact person with whom trade unions may ‘seek to induce the service provider to enter into collective bargaining within the host member state’.  This rather awkward wording at Article 9(1) of the proposals indicates that the promotion of collective bargaining in receiving states is not part of the regulatory design.

Although the PWD entitles posted workers to enforce their employment rights to the extent of the minimum guarantees, enforcement to date has been ineffectual.  The fresh proposals contain provisions at Article 11 which require member states to ensure ‘effective mechanisms for Posted Workers to lodge complaints against their employers directly, as well as the right to institute judicial or administrative proceedings’.  Posted workers will be able to do this in a receiving state so long as they are considered to have ‘sustained loss or damage as a result of a failure to apply applicable rules’.  With the approval on the individual concerned, a trade union may represent a posted worker in support of individual claims in any judicial or administrative proceedings.

If service providers are found liable for the underpayment of a posted worker, member states will ensure posted workers are able to receive ‘outstanding’ pay which, ‘under the applicable terms and conditions of employment covered by Article 3 96/71/EC would have been due’.  This suggests that posted workers may be unable to recover underpayments associated with the terms of collective agreements that may be incorporated into employment contracts but fall outside the criteria laid down in the PWD. 

The issue of liability within contracting chains would seem critically important for the effective regulation of posting because the status of posted workers depends upon the existence of a service delivery contract with a client organisation in the receiving state.  All posted workers are therefore in some way involved in a contracting chain.    Under Article 12 of the proposals, and following consultation with social partners, member states will be able to take additional measures on liability.  If a posted worker is due outstanding money, the contractor of the employing service provider may be held liable.  However, liability will only be for that ‘which corresponds to minimum rates of pay and/or contributions due to common funds or institutions of social partners in so far as covered by Article 3 Directive 97/81/EC’.  This extension of liability, from the direct employer of the posted worker to the contractor organisation, is a narrow one.  It does not to extend to all outstanding monies nor all seven categories of employment matters in the PWD, but only to the minimum rate of pay.  Further, member states are entitled to exempt contractors from any liability if they have taken due diligence obligations as defined by national law.

Some initial observations.

The fresh proposals on posted workers are weaker than MEPs had reportedly requested and make no mention of human rights or ILO standards.  Competent authorities may turn out to be little more than poorly equipped and under resourced policing units, with a limited remit, and an exclusive focus on enforcing the minimum standards set out on the PWD. 

Inspections relating to posted workers in receiving states must be neither discriminatory nor disproportionate. In the absence of risk-based evidence, member states with a poor track record of using inspection to enforce minimum labour standards (and one might include the UK) may be unable to justify more frequent inspections of posted worker arrangements.

On a more positive note Article 2 makes explicit reference to the right to strike, the right to negotiate, conclude and enforce collective agreements and the right to take collective action.  However, the full body of the proposals suggest this is little more than window dressing.

The proposals seem to further embed PWD provisions as a minimum suite of labour standards which also serve as the gold standard so far as posted workers are concerned.  This is implied at the outset of the document since Article 1 sets out a goal of an ‘appropriate level of minimum protection of the rights of posted workers’; suggesting that the minimum is indeed what is appropriate.  How threadbare this minimum can be, is well illustrated in provisions purporting to address the requirement of MEPs for liability to be carried through subcontracting chains.  On offer is a very limited extension of subcontractor liability which steps back even from the restricted list of seven employment matters, to include only minimum pay.

So far as the liability of the direct employers of posted workers is concerned, it appears a posted worker employed on better than minimum terms would have little ability to enforce those terms in the receiving state, and that pay over and above that minimum is non-recoverable if it does not fit the list of employment matters and eligibility requirements contained in the PWD.

The proposals arguably re-affirm the PWD as a mechanism for maintaining posted workers at the bottom of the labour market in receiving states.  Indeed, the application of posted workers status introduces a basement-level standard into the labour markets of member states.  The new regulatory approach is organised around an expectation that this basement-level of labour standards can be ‘policed’ by member states in the absence of trade union representation or effective collective bargaining.  It is hard to see how inferior labour rights can provide a sustainable basis for addressing exploitative pay, lack of regard for health and safety and the silencing of worker voice.