EU Law Blog

Minimum Wages, Collective Agreements and Posted Workers: Case C-346/06

The Court of Justice has handed down an great judgment in Case C-346/06 Dirk Rüffert v. Land Niedersachsen defending the rights of workers posted from a low wage state to work in a high wage state.

The Court held that if a member State has in force a system for declaring the rate of pay fixed by a collective agreement to be universally applicable but fails to make such a declaration, a legislative measure of that member State applicable to public contracts is precluded by Directive 96/71/EC on the posting of workers in the framework of the provision of services from imposing a requirement on providers of cross-border services who post workers to that member State to comply with the rate of pay fixed in the collective agreement.

Here's the story. A German contractor was awarded the contract to build a prison and it undertook to pay those working on the site the wages at the rate fixed in the "Buildings and public works" collective agreement. But the German contractor employed a Polish subcontractor whose workers posted from Poland were paid roughly half the German rate fixed in the collective agreement.

The law of the Land of Lower Saxony - where the prison was being built - on the award of public contracts states that public works contracts may be awarded only to undertakings which agree in writing to pay their employees at least the wages at the rate prescribed by the applicable collective agreement. The contractor must also undertake to impose that obligation on subcontractors and to monitor their compliance with it. Non-compliance with that undertaking triggers the payment of a contractual penalty. Because the Polish subcontractor breached the German contractor's obligation, the German company was fined.

The German company appealed the fine in the competent German court which then referred the question to the Court of Justice whether Article 49 EC on the freedom to provide services precludes a statutory obligation requiring a contractor in a public works contract to undertake to pay its employees at least the remuneration prescribed by the applicable collective agreement.

The Court of Justice held that, in the particular circumstances of this case, the law of the Land of Lower Saxony was contrary to Directive 96/71/EC read in the light of Article 49 EC.

The Court found that the rate of pay provided for by the ‘Buildings and public works’ collective agreement was not fixed according to one of the procedures laid down by Directive 96/71/EC. Although Germany has a system for declaring collective agreements to be of universal application, no such declaration appears to have been made in respect of the collective agreement applicable in this case. As a result, such a rate of pay cannot be considered to constitute a minimum rate of pay within the meaning of Article 3(1)(c) of Directive 96/71 which member States are entitled to impose, pursuant to that directive, on undertakings established in other member States, in the framework of the transnational provision of services (see, Case C‑341/05 Laval un Partneri, paragraphs 70 and 71 - see our post here).

The Court also held that the law of the Land of Lower Saxony was contrary to Article 49 EC. By requiring undertakings performing public works contracts and, indirectly, their subcontractors to apply the minimum wage laid down by the ‘Buildings and public works’ collective agreement, a law such as the one in issue may impose on service providers established in another member State where minimum rates of pay are lower an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host member State. Therefore, such a measure is capable of constituting a restriction within the meaning of Article 49 EC.

The Court also found that no plausible justification of the measure had been put forward.

Freedom to Provide Services, Honorary Positions, Expenses and Teaching: Case C-281/06

The Court of Justice handed down a neat judgment recently in Case C-281/06 Jundt on the freedom to provide services and the right to exempt expenses paid for teaching in another member State from income tax.

The facts are as follows. Mr Jundt, a German, resident in Germany and subject to income tax there, taught a 16 hour course at the University of Strasbourg, France. He received a very modest remuneration which was more an expense allowance than an actual remuneration. According to German income tax law, Mr Jundt could apply for his expense allowance to be exempted from German income tax if it had paid to him by a German university. But as it was paid to him by a French university, no exemption was possible and he had to pay full income tax on it. He challenged the refusal to exempt his expense allowance from tax in the German courts. The latter then referred three questions to the Court of Justice on the compatibility of the German exemption scheme with EC law and in particular with Article 49 EC on the freedom to provide services.

The first question deals with the issue whether a teaching activity carried out by a taxpayer of one member State for a public institution established in another member State comes within the scope of Article 49 EC even if it is carried out on a secondary basis and in a quasi-honorary capacity. The Court answered that it is covered by Article 49 EC.

The Court recalled that the concept of ‘services’ means ‘services ... normally provided for remuneration’ (Case C-355/00 Freskot, paragraph 54). It stated that the essential characteristic of remuneration lies in the fact that it constitutes consideration for the service in question (see, inter alia, Case 263/86 Humbel, paragraph 17; Case C-422/01 Skandia and Ramstedt, paragraph 23; Case C-76/05 Schwarz and Gootjes-Schwarz, paragraph 38; and Case C-318/05 Commission v Germany, paragraph 67). So, did the expense allowance received by Mr Jundt bring his activities within the scope of Article 49 EC ?

The Court held that it did. The decisive factor which brings an activity within the ambit of the Treaty provisions on the freedom to provide services is its economic character, that is to say, the activity must not be provided for nothing. There is no need in that regard for the person providing the service to be seeking to make a profit (see, C-157/99 Smits and Peerbooms, paragraphs 50 and 52).

But, it recalled also courses provided by certain establishments that are part of a system of public education and financed, entirely or mainly, by public funds are excluded from the concept of 'services' (see, to that effect, Case 263/86 Humbel, paragraph 18, and Case C-109/92 Wirth, paragraphs 15 and 16). The Court has thus stated that, by establishing and maintaining such a system of public education, normally financed from the public purse and not by pupils or their parents, the State does not intend to become involved in activities for remuneration, but carries out its task towards its population in the social, cultural and educational fields (see Case C-76/05 Schwarz and Gootjes-Schwarz, paragraph 39). However, the present case, the Court pointed out, does not relate to the teaching activity of the universities themselves, financed by public funds but concerns the treatment of the remuneration of services provided to those universities.

The second question referred concerned the justification of the German income tax scheme. The question asked whether the restriction on the freedom to provide services constituted by the fact that national legislation confines the application of an exemption from income tax to remuneration paid by public universities established on its national territory, in return for teaching activities carried out on a secondary basis, but refuses it where that remuneration is paid by universities established in another member State, is justified by overriding reasons in the public interest.

The Court held that the German system was not justified. Even if the objective of promoting teaching, research and development is an overriding reason relating to the public interest, the fact remains that, in order to be justified, a restrictive measure must comply with the principle of proportionality, in that it must be appropriate for securing the attainment of the objective it pursues and must not go beyond what is necessary to attain it (Case C‑478/98 Commission v Belgium, paragraph 41, and Case C‑334/02 Commission v France, paragraph 28). A difficulty was presented by the Court's previous judgment in Case C-39/04 Laboratoires Fournier. It held in that case that it was possible that the promotion of research and development may be an overriding reason relating to the public interest. However, it rejected the argument that a member State cannot be required to promote research carried out in another member State and held that national legislation which restricts the benefit of a tax credit only to research carried out in the Member State concerned amounts to a restriction of the freedom to provide services. The Court ruled that such legislation is directly contrary to the objective of EC policy on research and technological development which, according to Article 163(2) EC, seeks in particular to remove fiscal obstacles to cooperation in the field of research.

The Court held that the German legislation in issue in these proceedings is contrary to those objectives because it discourages persons teaching on a secondary basis from exercising their fundamental freedoms in order to offer their services in another member State by denying them a tax concession which they would have enjoyed had they provided the same services on national territory. By exercising an influence similar to that of the national legislation at issue in Case C-39/04 Laboratoires Fournier, the German legislation in these proceedings infringes the freedom of teachers exercising their activity on a secondary basis to choose where within the EU to provide their services, without it having been established that, in order to achieve the supposed objective of promoting education, it is necessary to limit the enjoyment of the tax exemption at issue in the main proceedings to those taxpayers working on a secondary basis as teachers in universities situated on national territory.

Finally, the third question. That asks whether the fact that the member States are themselves competent to organize their education systems is such as to render compatible with EC law national legislation which confines the benefit of a tax exemption to taxpayers carrying out activities for or on behalf of national public universities.

The Court answered that question in the negative. The Court recalled that member States are in fact bound, when exercising the areas of competence reserved to them, to comply with Community law, in particular the provisions on the freedom to provide services. The Court has ruled thus in several fields, including direct taxation and education (see, Case C-76/05 Schwarz and Gootjes-Schwarz, paragraphs 69 and 70, and Case C-318/05 Commission v Germany, paragraphs 85 and 86).

Strikes, Collective Agreements and Freedom to Provide Services: Case C-341/05

After the judgment in Case C-438/05 Viking on the freedom of establishment we noted up recently, here's the judgment in Case C-341/05 Laval un Partneri Ltd on the free movement of services.

In its judgment in Case C-438/05 the Court of Justice held that Article 49 EC and Directive 96/71 on the posting of workers preclude a trade union from attempting by means of strikes and other forms of collective action such as blockades from forcing a provider of services established in another member State to enter into negotiations with it on rates of pay for posted workers and to conclude a collective agreement for more favorable terms than those resulting from the applicable legislation.

In May 2004, Laval, a Latvian company, posted workers from Latvia to work on building sites in Sweden. The work was carried out there by a subsidiary, L&P Baltic Bygg AB. In June 2004, Laval and Baltic Bygg, and the Swedish building and public works trade union, Svenska Byggnadsarbetareförbundet, began negotiations with a view to determining the rates of pay for the posted workers and to Laval’s signing the collective agreement for the building sector. But they couldn't agree. In September and October, Laval signed collective agreements with the Latvian building sector trade union, to which 65% of the posters workers were affiliated. Presumably, the going Latvian rates were lower than the Swedish rates even with the extra benefits included for travel, meals and accommodations. Because it failed to reach an agreement with Laval in Sweden, the Swedish union Byggnadsarbetareförbundet began collective action in November 2004 by blockading all of Laval’s sites in Sweden. Added to which, the Swedish electricians’ trade union joined in with a sympathy action, the effect of which was to prevent electricians from providing services to Laval. None of the members of those trade unions were employed by Laval. After work had stopped for a certain period, Baltic Bygg was declared bankrupt and the posted workers returned to Latvia.

Laval then brought proceedings in the Swedish courts. It sought a declaration on the unlawfulness of the collective action and for compensation for the damage suffered. The Swedish court then asked the Court of Justice if EC law and in particular Article 49 EC and Directive 96/71 precludes trade unions from taking collective action in the circumstances of the present case.

The Court begins by examining the possibilities available to the member States for determining the terms and conditions of employment applicable o posted workers. It held that Directive 96/71 does not allow the host member State to make the provision of services in its territory conditional on the observance of terms and conditions of employment which go beyond the mandatory rules for minimum protection. Directive 96/71 expressly lays down the degree of protection which undertakings established in other Member States must guarantee, in the host Member State, to the workers posted to the territory of the latter.

The Court held that while the right to take collective action must be recognised as a fundamental right which forms an integral part of the general principles of EC law, such a right cannot render otiose the rest of EC law and the freedoms it grants. Consequently, the right of trade unions of a member State to take collective action to force undertakings established in other Member States into negotiations with the trade unions in order to ascertain minimum wage rates and to sign a collective agreement – the terms of which go beyond the minimum protection guaranteed by Directive 96/71 – is liable to make it less attractive, or more difficult, for such undertakings to carry out construction work in Sweden, and therefore constitutes a restriction on the freedom to provide services.

The question remained whether such a restriction could be justified. The Court held that in principle it was because the right to take collective action for the protection of the workers of the host State against possible social dumping may constitute an overriding reason of public interest. But, in a case such as the present one, the Court held that the employer of posted workers employer is required, as a result of the coordination achieved by Directive 96/71, to observe a nucleus of mandatory rules for minimum protection in the host member State. Thus collective action cannot be justified with regard to the public interest objective of protecting workers where the negotiations on pay which that action seeks to impose on an undertaking established in another member State to enter into form part of a national context in the host state that is too open ended and without precise and clear provisions, such that it is impossible or excessively difficult in practice for such an undertaking to determine the obligations with which it is required to comply as regards minimum pay.

The Court also held that the Swedish trade unions must take account of the collective agreements negotiated in Latvia. It held that national rules which fail to take into account of collective agreements to which undertakings that post workers to Sweden are already bound in the member State in which they are established, give rise to discrimination against such undertakings, in so far as under those national rules they are treated in the same way as national undertakings which have not concluded a collective agreement.

Gambling, crime, addiction : Joined Cases C-338/04, C-359/04 and C-360/04 and Case E-1/06

... There's just sex and drugs missing from list but they don't figure in either the Court of Justice's judgment in Joined Cases C-338/04, C-359/04 and C-360/04 Placanica or the EFTA Court's judgment in Case E-1/06 EFTA Surveillance Authority v Kingdom of Norway. We'll have to make do with betting, gambling, crime, fraud and addiction for now. Monopolies too.

First, the Court of Justice judgment. That has already been noted up admirably on the ECJ Blog so there's no need for much detail here. The point was whether national legislation which sought to eliminate crime and fraud from betting and gambling activities by setting up a state controlled licensing system and other measures was compatible with the EC Treaty.

The Court of Justice held that national legislation that prohibits the pursuit of the activities of collecting, taking, booking and forwarding offers of bets, in particular bets on sporting events, without a license or a police authorization issued by the member State concerned, constitutes a restriction on the freedom of establishment and the freedom to provide services, provided for in Articles 43 EC and 49 EC respectively. It also held that it is for the national courts to determine whether, in so far as national legislation limits the number of operators active in the betting and gaming sector, it genuinely contributes to the objective of preventing the exploitation of activities in that sector for criminal or fraudulent purposes.

More particularly, the Court of Justice held that Articles 43 EC and 49 EC preclude national legislation, such as that at issue in the main proceedings, which excludes from the betting and gaming sector operators in the form of companies whose shares are quoted on the stock market. Also, Articles 43 EC and 49 EC preclude national legislation, such as the Italian legislation in issue, which imposes a criminal penalty on persons for pursuing the organized activity of collecting bets without a license or a police authorization as required under the national legislation, where those persons were unable to obtain licenses or authorizations because that member State, in violation of Community law, refused to grant licenses or authorizations to such persons.

So that is an interesting but pretty straight forward judgment, the Court of Justice coming down pretty hard on the clear infringements of the Treaty but otherwise letting the national courts decide the issue of the appropriate nature and proportionality of the restrictions of the general system in Italy.

Second, the judgment of the EFTA Court in Case E-1/06, handed down a few days later, is interesting too. In that case, the Norwegian authorities wanted to curb what they considered to increasing addiction to gaming machines. What they did was introduce a state controlled monopoly on the operation of gaming machine granting it to a state-owned body called Norsk Tipping AS. The EFTA Surveillance Authority considered that the new state monopoly constituted a prohibited restriction on the freedom to provide services and the freedom of establishment.

The EFTA Court dismissed the EFTA Surveillance Authority's action. It cited the Court of Justice's judgment in Joined Cases C-338/04, C-359/04 and C-360/04 Placanica and basically held that the Norwegian system was an appropriate and proportionate system to curb gaming addiction. As a consequence, any restriction on the freedom to provide services and the freedom of establishment was justified on grounds of the protection of the public interest.

The services directive: Directive 2006/123/EC

The famous - and some would say infamous - directive on services in the internal market (Directive 2006/123/EC) has been published on December 27th, 2006.

The version as adopted is very different from that originally proposed by the Commission back in March 2004. In fact, the proposal was controversial and gave rise to difficult negotiations in both the Council and the European Parliament.

The purpose of the new directive is to facilitate the cross border provision and receipt of services. It sets out what kind of restrictions the member State where the services are provided (host state) may still impose (articles 16 and 17) and what manner of supervision can be exercised either by the state of establishment (article 30) or by the host state (article 31).

The directive is a residual one: it only applies if no other, more specific directive, regulation or other EC act applies.

Exactly what the value-added of this new directive will be remains to be seen. After all, Articles 43 EC and 49 EC still apply. Perhaps important new provisions are those requiring the member States to simplify their bureaucratic procedures on the provision of services and the exercise of the right of establishment (article 5) and obliging them to set up a "single point of contact" so that service providers from other member States need only address themselves to one place to complete the requisite formalities to be able to provide the services envisaged in the host state (article 6).

The directive enters into force on December 28th 2009.

Lawyers' fees, price competition and freedom to provide services: Joined Cases C-94/04 and C-202/04

The Court of Justice has handed down a judgment in two cases - Joined Cases C-94/04 and C-202/04 Cipolla and Macrino - on lawyers' fees.

In Italy, there is a scale of lawyers’ fees that is – under an old 1933 provision from Mussolini's time – set on the basis of criteria laid down by decision of the National Lawyers’ Council (Consiglio Nazionale Forense) and approved by the Minister of Justice after he has obtained the opinion of the Interministerial Committee on Prices (Comitato Interministeriale dei Prezzi) and the Council of State (Consiglio di Stato). Those criteria are to be determined on the basis of the monetary value of disputes, the level of the court seised and the duration of the proceedings. For each procedural step, or series of steps, the scale sets maximum and minimum fees. Any agreement derogating from the minimum fees set by the scale for lawyers’ services is void. It is only at the time of settlement of the fees that the court may, by reasoned decision, exceed the maximum limit (in cases of exceptional importance) or fix fees below the minimum limit (where the case proves easy to deal with).

In the first case, Mr Cipolla, a lawyer drew up three summonses for his clients. The dispute was finally resolved by means of a settlement without Mr Cipolla’s involvement. Having already made an advance payment of LIT 1 850 000, the client refused to pay the sum of LIT 4 125 000 demanded by her lawyer. Since the Tribunale di Torino rejected Mr Cipolla’s action for the payment of that sum, he brought the matter before the Corte d’Appello di Torino seeking application of the scale of fees. In the second case, Mr Macrino and other clients contested the order obtained against them by Mr Meloni concerning the fees he had demanded from them for an out-of- court consultation on copyright, claiming the fees were disproportionate having regard to the importance of the case dealt with and the services performed. The Tribunale di Roma asked the Court of Justice whether the scale, in so far as it is applicable and is binding for lawyers in out-of-court matters, is compatible with the EC Treaty.

The Court held that the antitrust rules in the Treaty did not apply because the minimum fee system in Italy was not the result of an agreement between undertakings. The Court held that it is the Italian State and not the Bar Association which exercises the power to take decisions on lawyers’ minimum fees. Consequently, the Italian State did not require or encourage the adoption of agreements, decisions or concerted practices contrary to the rules of free competition or of reinforcing their effects, or requiring or encouraging abuses of a dominant position or reinforcing the effects of such abuses.

As for the provisions of the Treaty of the freedom to provide services, the Court held that the minimum fee arrangement was caught by Article 49 EC because it renders access to the Italian legal services market more difficult for lawyers established outside Italy, depriving them of the possibility, by requesting fees lower than those set by the scale, of competing more effectively with lawyers established on a stable basis in Italy and restricting the choice of recipients of such services.

Nevertheless, the Court held that the system could be justified. It held that objectives of protection of consumers (recipients of legal services) and the proper administration of justice are overriding requirements of public interest capable of justifying a restriction on freedom to provide services. But that is subject to the twofold condition that the national measure is suitable for securing the attainment of the objective pursued and that it does not go beyond what is necessary in order to attain that objective. The Court of Justice leaves it to the referring Italian courts to check whether those conditions are fulfilled in the present cases.

The Court, when examining the justification of the system, even makes the startling finding that price competition may be harmful to consumers! (see paragraph 67 of the judgment)

What is certain is that the Commission's Report on Competition in Professional Services (COM(2004)83 final) is now unsound as a proper statement of the law relating to professional services.

Free movement, hospital care and Case C-372/04

The judgment of the Court in Case C-372/04 Yvonne Watts deals with the scope of the EC Treaty provisions on the freedom to provide services and health care provided in a member State other than the one in which the patient resides normally.

The United Kingdom has this amazing national health care system called the National Health Service (NHS). It provides much medical treatment at little or no cost for the patient. Sounds great. Except that a lot of patients never get treated because of the considerable delays.

Mrs Watts, an English lady, suffered from arthritis of the hips and wanted surgery. But she had to wait a year for it in England. She got fed up with waiting (and anyone suffering from bad arthritis will sympathize with her) and wanted to go to France where you pay first, get reimbursed later but don't wait for the treatment. Before going, she applied to the British authorities for reimbursement of the costs she would incur in France. They refused. She challenged the refusal in the English High Court. Her state of health deteriorated so she went to France and had the operation anyway, paying £3,900 ($7,194) and claimed reimbursement from the NHS.

So, the High Court referred a series of questions to the Court of Justice on whether and in what circumstances an NHS patient is entitled under Article 49 EC to receive hospital treatment in another Member State at the expense of that national service.

The Court held that a situation such as Mrs. Watts' in which a person whose state of health requires hospital treatment goes to another member State and pays for treatment falls within the scope of the provisions of the EC Treaty on freedom to provide services. Those provisions of the freedom to receive services apply regardless of the way in which the national system with which that person is registered and from which reimbursement of those services is subsequently sought operates. The Court also held that the system of prior authorization which governs the reimbursement by the NHS of the cost of hospital treatment provided in another member State deters or even prevents patients from applying to providers of hospital services established in another member State and thus constitutes an obstacle to the exercise of the freedom to receive services.

The Court did find that there were circumstances in which the prior authorization system could be justified. But authorization could not be refused on the simple reason that while the waiting lists seemed very long, the treatment was provided free of charge. As a result, the NHS must provide mechanisms for the refund of the cost of hospital care in another member State to patients to whom that service is unable to provide adequate treatment within a reasonable period.

The Court also dealt with a question of interpretation of Regulation No 1408/71 of the Council of June 14th, 1971 on the application of social security schemes to employed persons and their families moving within the Community. It held that under the Regulation the competent institution issues prior authorization for reimbursement of the cost of the treatment provided abroad only if it cannot be provided within the time normally necessary for obtaining the treatment in question in the Member State of residence. But to refuse to grant authorization on the ground of waiting time, the competent institution must establish that the waiting time, arising from objectives relating to the planning and management of the supply of hospital care, does not exceed the period which is acceptable in the light of an objective medical assessment of the clinical needs of the patient.

On a general note dealing with the relationship between national legislation and secondary EC legislation and Treaty law, the Court pointed out that a national measure may be consistent with a provision of secondary EC legislation, (in this case Article 22 of Regulation No 1408/71), but that does not have the effect of removing that measure from the scope of the provisions of the Treaty (see, Case C-158/96 Raymond Kohll v. Union des caisses de maladie at paragraph 25).

TV without frontiers report

The Commission has recently made public its fifth report on the application of Directive 89/552/EEC “Television without Frontiers”.

The report covers the years 2003 and 2004.

It ends with this upbeat conclusion:

The “Television without Frontiers” Directive continues to function successfully in ensuring the freedom to provide television services in the European Union. The fundamental objectives of public interest that the Directive aims to safeguard in establishing a minimum harmonisation in the internal market remain valid. The Directive provides effective regulation for the European audiovisual sector and the Report confirms the validity of the common European approach to audiovisual matters.

Glad someone's happy about something. Yet it announces a proposal to revise the directive before the end of 2005. Hum. The report was published in February 2006. If and when we find the proposal we'll link to it.

Anyway, in the meantime, what about a "TV with something worth watching" proposal ?

UPDATE: We've found the proposal for a revision of Directive 89/552/EEC. You can see it here. It carries the reference COM(2005)646final. There is also an impact assessment of the likely impact of the proposal if adopted as well as a statistical annex. And just so you don't go away thinking we're keeping back some juicy links, here's one to the press package all about the proposal. That's a really successful press campaign... given we didn't find it first time round.

Recognition of professional qualifications

The new and big directive - Directive 2005/36/EC of the European Parliament and of the Council of 7 September 2005 - on the mutual recognition of professional qualifications has been published. Its purpose according to Article 1 is to establish

".... rules according to which a Member State which makes access to or pursuit of a regulated profes- sion in its territory contingent upon possession of specific professional qualifications (referred to hereinafter as the host Member State) shall recognise professional qualifications obtained in one or more other Member States (referred to here- inafter as the home Member State) and which allow the holder of the said qualifications to pursue the same profession there, for access to and pursuit of that profession."

The Directive goes beyond the principle of mutual recognition of qualifications and contains provisions on the freedom to provide services and the freedom of establishment. Its scope is broad and it applies to all kinds of professions which are "regulated" by the member States. It repeals and replaces 15 older directives. Member States must adopt legislation to make it effective from October 20th 2007 at the latest.