While many of us were winding down before Christmas, the European Court of Justice (ECJ) was busy at work delivering judgments on two key cases. Martin Warren, head of employment law at Eversheds, explains.

Background

Both of these cases involved an historic clash between trade unions and employers and were sufficiently important for member states to join the fray as they sought to influence the ECJ in its decision.

The issues at stake in these cases have been catapulted towards the top of the European trade union agenda with the recent enlargement of the EU. With the accession of the Baltic and East European member states, employers now have access to cheaper labour within the internal EU market.

Some employers have responded by importing labour from these states to replace more expensive local workers, others have moved their operations to these lower wage economies. This has been described as ‘social dumping’.

Why pay over the odds for your Finnish ferry crew when you could cut costs at a stroke with an Estonian crew? Why use Swedish construction workers to build your school when you could hire in cheaper Latvians to do the job?

The two cases before the ECJ concerned these questions. In both, the employers had, unsurprisingly, decided to take the cheaper option. However, the trade unions responded with blockades, strike threats and cross-border collective action. As a result, one employer went into liquidation and the other became embroiled in years of expensive litigation to defend their rights.

The Viking case

Viking operated an unprofitable passenger ferry between Estonia and Finland. It decided to cut costs by registering the ferry in Estonia to take advantage of reduced Estonian wages. Both Finnish and international unions of seamen took collective action to stop the move, forcing Viking to take legal action against them.

Both an employer’s right to relocate to another member state and a worker’s right to take collective action are fundamental principles protected under EU law. Faced with this conflicting law, the ECJ decided that collective action which restricts an employer’s right to relocate will be unlawful, unless it can be justified.

It will only be justified where the action pursues a legitimate aim, is suitable for achieving that aim and goes no further than is necessary. For example, jobs must be under serious threat and the trade unions must have exhausted other avenues at their disposal to protect workers at risk.

The Laval case

Laval, a Latvian construction company, was hired to rebuild a school building in Sweden. Swedish trade unions wanted Laval to enter into a collective bargaining agreement containing more favourable Swedish terms and conditions, which Laval refused to do. Because of this, the unions blockaded the school site.

Sympathy action across Sweden intensified the pressure on Laval and within months they had lost the school contract and had gone into liquidation. Laval had brought proceedings against the unions claiming that they had acted unlawfully.

The ECJ held that trade union collective action which restricts an employer’s right to offer its services is unlawful, unless justified. It also considered how the Posted Worker Directive applies in such situations. For example, it decided that the trade unions were not justified in demanding collective bargaining terms more favourable than those set out in the Swedish legislation implementing the Directive.

Implications for employers

In short, trade unions have been told that they do not have free rein to use collective action to prevent employers from exercising their economic freedoms under EU law.

By requiring trade unions to justify their actions, they will think twice before acting against employers who access cheaper labour from other member states. The threat of employers responding with successful legal action is now real after these two cases.

The nub of the issue is just how hard will it be for trade unions to establish a justification? In their favour, the ECJ has stated that collective action to combat social dumping is, in principle, justifiable.

However, each case turns on its facts and so far it is not looking good for the trade unions. In Viking, the ECJ indicated that the actions taken by the international union were unjustified. In Laval, it also found the trade unions’ actions were unjustified.

Whilst recognising that one swallow (or two in this instance) does not make a summer, these cases do support the view that collective action which stops an employer relocating or being able to provide services, will be difficult to justify.

Finally, by considering the Posted Worker Directive, the ECJ has put another obstacle in front of trade union protest actions. Potentially, it limits their ability to use collective action to force up the employment terms of imported cheap labour, particularly where such workers are already covered by a collective agreement in their home country, as in Laval.

Martin Warren is head of employment law at law firm Eversheds.