The origin of the Laval Case

International issues A Latvian company, Laval, was commissioned by its subsidiary to refurbish a school in the municipality of Vaxholm. The Latvian workers were employed by Laval, but the company refused to sign a collective agreement with the Swedish Building Workers' Union, Byggnads.

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The subcontracting agreement signed earlier contained a condition that a Swedish collective agreement be signed with a Swedish union in order to be valid. The negotiations broke down during autumn 2004 and the Swedish union Byggnads decided on a blockade against Laval. The Latvian company then chose to bring an action in the Labour Court regarding the lawfulness of the industrial actions.

Did Byggnads have the right to demand that the Latvian company sign a collective agreement? Yes, according to Swedish law, the industrial action was completely lawful. It is a long-standing right secured by constitutional law.

Why is it so important to have a collective agreement?

In Sweden, unlike many other countries, there is no legislation concerning salaries. Without a collective agreement, an employer can pay as low a salary as possible, as long as the employee accepts it. Besides, the agreements ensure and effective insurance protection for the employees. The collective agreements stipulate conditions for the relation between employers and employees in Sweden.

The Laval case in the Labour Court – what was it all about?

Laval maintained that the blockade which Byggnads (the Swedish Building Workers' Union) initiated with backing of Elektrikerna (Electricians' Union), was unlawful according to EU law. Laval, sponsored by the Confederation of Swedish Enterprise, was of the opinion that the right to strike in Sweden was an obstacle that made it more difficult for the company to implement the right of free movement. Laval considered that it was sufficient to apply the wage conditions of the Latvian collective agreement, signed after Byggnad's demand for a Swedish agreement. In May 2004, the EU was enlarged by a number of countries in Eastern Europe with lower labour costs for the employer. The Laval conflict was a direct consequence of the differences in labour costs, on which the employer try to make money.

What were the questions submitted by the Labour Court to the European Court of Justice?

The Labour Court submitted two questions to the European Court of Justice. The first question concerned the Swedish labour market model according to which the union and the employer share responsibility for the labour market and whether this is compatible with the EU legislation on foreign companies operating in Sweden with their employees on a temporary basis.

In the second place, there was an argument about whether the so-called Lex Britannia (which makes it possible for Swedish unions to resort to industrial action with the aim of putting aside foreign collective agreements and replacing these with Swedish collective agreements) is compatible with EU law. The purpose of these rules is that it should not be possible to operate in Sweden with a foreign collective agreement containing conditions inferior to those valid in Sweden.

Why did the Labour Court refer to the European Court of Justice?

The Court of Justice has a monopoly of construing the EU law. This mainly takes place in two ways. Either the EU Commission makes an appeal against a member state (infringement of community law) or a national court demands a clarification concerning EU legislation (preliminary ruling) and how it is to be interpreted. If the implication of the EU law is vague in a dispute in a national court, the European Court of Justice has decided that the national court must refer to the European Court of Justice about how the EU law shall be interpreted. The final decision of the conflict shall be made by the national court. In the Laval case though, the European Court of Justice made the final decision independently.

What did the European Court of Justice decide in the Laval case?

The ECJ confirmed that the Swedish labour market model, per se, is not an obstacle for the free movement of labour. As to the rest, for the LO and the European trade union movement, the decision of the Court was a big surprise. The LO had expected foreign workers to be equally treated, in the same way as workers of the host country. But the Posting Directive was interpreted as being a ceiling to wage and employment conditions that can be demanded in the host country. The ECJ considered that boycott and industrial action only can be made use of to obtain what is beneath the ceiling, i.e. minimum conditions.

The ECJ also stated that the conditions required of foreign companies must be so obvious and clear that the salary costs can be calculated in the home country. Thereby, the decision also implies a limitation of the free right to negotiate. As regards the possibility to supersede the foreign agreements and replace them with Swedish agreements, the ECJ considered that the Swedish rules in the Lex Britannia discriminate against foreign companies.

What is the Posting Directive?

The Posting Directive is an EU law which regulates the posting of workers within EU. Posting means that a company, established in a certain country, brings its staff to another EU country to operate there temporarily. The aim of the Directive was to settle certain basic minimum conditions which are to be guaranteed to the posted workers by the host country. The ECJ interpreted the Directive in quite another way, as if the rules in the Directive were maximum rules, which makes it impossible to require better conditions for workers.

What is the hard core of the Posting Directive?

The hard core is a number of working and employment conditions, which the host country shall guarantee posted workers irrespective of which law applies to the employment relationship. Sweden can only demand employers from EU to fulfil the following conditions of the Posting Directive:

  • The longest working time and the shortest time of rest
  • The fewest number of paid holidays annually
  • Minimum wage
  • Safety health and hygiene at the work place
  • Measures of safety and employment conditions regarding pregnant women
  • Equal treatment of women and men and other regulations concerning non-discriminating treatment

How did LO react on the decision of the ECJ?

LO has levelled strong criticism against the decision of the Court and is of the opinion that this decision, to certain parts, is against the stipulations of the EU law as interpreted by the Court, for instance the Posting Directive. The Court interpreted the rules without paying attention to the intentions of politicians, putting the profit interest of the companies prior to the rights of the wage-earners.

The judgement is a setback for all wage-earners in Europe. We share this opinion with every trade union organisation in Europe, even the union organisations of the new member states. LO is of the opinion, however, that many of the problems created by this judgement can be solved in Sweden, if you have the political will. On the other hand, EU law must be changed, but this will take a long time.

Read more at the website of the ETUC 

Reports published by LO on the issue of posted workers:

For a Social Europe

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