Legal arguments over the EU posting of workers directive raise the issue of which is to prevail: workers’ rights or unregulated markets?

‘Bill passed—workarounds found,’ an Italian proverb says. Will the freshly reformed European Union directive on the posting of workers suffer the same fate? The directive is supposed to guarantee equal pay for equal work in the same place on the European single market.

Alas, this principle is heavily contested—by employers, aiming to avoid further regulation of wages since this would restrict their freedom to set prices, and by governments, aiming to sustain comparative advantage through low wages. As an advocate general at the European Court of Justice (ECJ) put it recently, ‘What is “social dumping” for some, is, quite simply, “employment” for others.’ The trade unions’ response is that social dumping is a matter of EU state-aid law and constitutes an infringement case.

Unfair competition with low wages and incidental wage costs is—besides unfair tax competition—one of the major threats to solidarity and cohesion in the EU. The ECJ seems to fuel these centrifugal forces: its judges have argued that certain measures taken by member states to prevent circumvention of the EU directive on the posting of workers are contrary to EU law.

Yet the directive is intended to guarantee equal treatment for all workers and, by doing so, stop unfair competition. At the same time, the regulation on the co-ordination of social security systems requires posted workers to be insured for social security. The so-called A1 certificate, delivered by the country of origin, proves that posted workers contribute to their domestic social-security schemes. Everything seems to be fine, on paper—in reality, however, things look quite different.

Internal market

On Austrian Federal Railways (ÖBB) connections from Budapest to Munich, the service staff were—until recently—provided by the Hungarian sub-contractor Henry am Zug. According to Austrian law, the authorities must be notified in advance when a company is posting workers to Austria. Henry am Zug, however, did not notify the authorities and paid its workers on the ride from Hungary via Austria to Germany simply according to Hungarian law. 

Given the absence of notification, the case was brought before an Austrian court—and eventually referred to the ECJ. The European advocate general in charge of the matter however put into question the proportionality of the obligation to notify: according to him, guaranteeing workers’ rights should not be at the expense of freedom of services in the internal market.

This type of reasoning follows the ECJ decision in the ÄŒepelnik case, where a €5,000 deposit of security for the claims of posted workers was considered disproportionate. Regarding market freedoms, on the contrary, breaching fundamental rights can have harsh consequences: a violation of the cartel prohibition entails a punishment of up to 1 per cent of a company’s global annual turnover—Apple was committed to pay €14.3 billion for an unlawful state aid.    

National protection rights for workers are only considered when business models evidently and undoubtedly aim to circumvent the posting of workers directive—as one could observe in the Altun case. A Belgian one-man-company commissioned Bulgarian subcontractors to deliver construction works in its name. The subcontractors then posted construction workers to Belgium to deliver the missions. The subcontracting companies had however no economic activity apart from issuing A1 certificates for workers from Turkey and the western Balkans. Once they were aware of this practice, the Belgian authorities rejected the certificates of the Bulgarian letter-box company. Eleven years later, the ECJ finally confirmed this approach.

‘Immaterial places of work’

Time and again it is said that the modern world of work is fundamentally different from all we have seen before and therefore requires a totally new conception of labour and social law. The advocate general quoted earlier even spoke of ‘immaterial places of work’ and ‘highly-mobile workers’—as opposed to simply mobile workers.

The term ‘immaterial places of work’ suggests that work is no longer delivered by people but by a sort of anti-matter, billowing across European borders. Yet be it posted construction workers, the service staff on a train, ‘crowd workers’ or bogus self-employed, all are workers in a dependent relationship with their employer. What is ‘immaterial’ are the attempts of employers to obfuscate this dependency—via subcontracting, outsourcing and letter-box companies—to avoid social and labour regulation.

The member states are very often part of the problem. Bulgaria is not the only example: Slovenia, too, grants lower social-security contributions to companies posting workers across borders. Instead of paying the full amount, they are allowed to calculate the contributions of their posted workers on the basis of 60 per cent of the national average salary in Slovenia.

To deal with such business models, member states must create adequate control mechanisms. Austria and Belgium have already defined thresholds to guarantee the enforcement of the posting directive at national level.

The European legislator is even more obliged to take action and protect the most important principle of the posting directive—equal pay for equal work in the same place—against judicial arbitrage. We urgently need a reform of the EU directive on the implementation of the posting directive to harmonise such thresholds at European level.

Moreover, there have to be consequences for public procurement procedures. ÖBB has already taken action: Henry am Zug will no longer ride ÖBB trains. As a rule, national legislation on public procurement should commit contractors to deliver at least 50 per cent of the mission themselves. Such subcontracting chains would then become impossible.

Tax parallel

Social-security dumping shows parallels to unfair tax competition. The latter has already been considered a breach of EU state-aid law by the European Commission and hence trade unions are beginning to mobilise the instrument in this arena too. Reducing social-security contributions for posting companies means deliberately renouncing public revenues—and thus equals a subsidy for those companies. In addition, lower incidental wage costs make posted workers cheaper than the domestic workforce and create a comparative advantage for posting companies.

Therefore, the German and Austrian trade-union confederations and the European TUC have followed the example of the European Federation of Building and Woodworkers and called on the commission to open state-aid and infringement procedures. The German construction workers union, IG Bauen-Agrar-Umwelt, recently joined the ‘anti-social-dumping-alliance’.

This is a test run: will sanctions deployed in the interest of workers with ‘immaterial places of work’ be as harsh and comprehensive as they are when economic freedoms are at stake? The answer will show whether the EU internal market takes care of its people and workers, or only provides protection to companies and their financial capital.