Labor Law, Policy and Mobility: Europe at the Crossroads

Jonas Malmberg Jan Ottosson and Lars Magnusson Sandrine Henneron

Foreword by Johan Lembke Occasional Paper

July 2006 Labor Law, Policy and Mobility: Europe at the Crossroads

Jonas Malmberg Jan Ottosson and Lars Magnusson Sandrine Henneron Foreword by Johan Lembke Published by: © European Union Center of Excellence, 2006 Annenberg Presidential Conference Center Texas A&M University College Station, TX 77843-1245 Tel: +1.979.862. 6701 Fax: +1.979.862 .6705 Email: [email protected]

Production: Lucero Carranza © All rights reserved.

We would like to acknowledge the generous support of the to this publication. Table of Contents

Foreword by Johan Lembke ...... i

Labor Law in The Economic and Social Union of Europe ...... 1

Bridging The Gap Between Policy And Markets? Two Methods of Policy Coordination ...... 17

Economic Growth in Europe Through Free Movement of Labor? ...... 34

About the Authors ...... 48 i

Foreword Johan Lembke

An increasingly integrated, competitive and dynamic world economy and external pressures from the current wave of economic globalization – connected to advances in information and communication technology, globally integrated production and distribution systems, liberalized international capital flows, and the growing cross-border tradeability of the service sector – add an important dimension to the structural, fiscal and demographic challenges that European economies and labor markets are facing. In this context, it is important to raise awareness and analyze labor market law and policy in the European Union and how they interact with and balance the basic efforts within the European Union to foster growth by facilitating free movement of production factors (capital and work) and products (goods and services).

The European Union is expected to enjoy a momentum of economic recovery. European enlargement has bolstered growth and trade in the European Union and labor migration from Central Europe has been beneficial to recipient countries in older EU member states that did not impose restrictions on the free movement of labor. The European Union as a collective entity with a home market of around 450 million people faces a wide array of large-scale challenges, though: high long-term employment, a rising proportion of employees on short-term contracts and more part-time working in some countries, exclusion of a large number of people from the labor market (especially young people with less professional experiences, opportunities, and training), poor productivity in important employment sectors and declining labor productivity and living standards relative to the United States, real wage deflation and falling pensions in many countries, growing international competition from Asia, demographic changes (especially an ageing population and its associated economic costs) and a declining share of the world’s population, fiscal strains, and the need for better-performing institutions of higher education. The European Commission, the EU’s executive arm, is giving priority to greater spending on research and development, innovation and education, active labor policies to create flexible job markets, support for small and medium-sized enterprises, and the creation of a competitive energy market.

On the other side of the Atlantic Ocean, the overall American economy has experienced and continues to benefit from relative high economic prosperity, labor productivity, and standards of living that support the appeal of the American model. The United States, however, is also facing a number of challenges associated with economic globalization and structural changes at home. One development, which can have long-term consequences for the American economy, is the growing external financial dependency of the country as demonstrated by the increasing amount and share of the publicly held debt (more then 40 percent and more than $4.5 trillion) – and the burden of interest payments for the American economy and future generations of Americans – held by central banks, hedge funds and others around the world.

Other developments in the United States include rising health care costs (health care insurance is highly linked to employers in the United States, a system without direct equivalents in advanced western industrialized countries, and more than forty-five million Americans lack basic health insurance), real wage stagnation (also common in Europe) and growing disparity in income. The issue of economic security (or economic insecurity) is a concern not only for many blue-collar American workers but also for many professional, skilled and white-collar workers. Median wages (the middle fifth of Americans in employment), for instance, have stagnated by 3.8 percent since the late 1990s, which is part of a Foreword ii longer trend in the American economy. This trend threatens to aggravate the situation for average Americans and can also affect American international and foreign economic policy orientation.

This monograph examines European labor markets from three different angles: the history of labor law at the European level, the development of new policy mechanisms and the role of policy action in fields such as the development of a European employment strategy, and European crossborder labor migration, as well as the shift in balance of power between capital and work poses questions about the role and function of labor law in a globalized economy and whether the European Union reconciles free trade and social justice. The European project has evolved in an incremental manner from economic cooperation from the late 1950s to an economic and social union in the twenty-first century with treaty-based goals to promote economic and social cohesion and progress (together with sustainable development) through crossborder economic integration and a high level of employment. Labor law and the protection of workers have over time become more supranational and harmonized. The actions of policy makers play a significant role in the shaping process of central mechanisms and strategies in the context of the evolution of an economic and social union. This monograph also provides an analysis of the development of the European Monetary Union convergence criteria and the European employment strategy, which represent issues that straddle the economic and social spheres, in order to increase our understanding of the role of policy actions and political transactions costs.

This monograph is also concerned with labor migration in Europe, which has assumed center stage in the debate on European enlargement and integration and the future of the European project. The free movement of workers is considered one of the fundamental pillars of the ambition to complete the creation of a European internal market (together with capital, goods and services), which is not yet a reality (for instance, in terms of labor mobility, energy, and financial services). The approximation and harmonization of national labor laws and employment rights (such as prohibiting discrimination on the basis of nationality as a fundamental right) are main elements in the pursuit of for the free movement of workers in and the competitiveness of the EU in light of external and international challenges.

Both the European Union and the United States economies, and the broader institutional-political- social framework in which they evolve and operate, are facing significant external and domestic challenges. This monograph offers an important contribution to our understanding of issues and challenges related to labor law and policy and migration in the European Union from both a current and historical perspective.

Johan Lembke Director European Union Center of Excellence Texas A&M University Chapter 1

Labor Law in the Economic and Social Union Of Europe Jonas Malmberg

Introduction

We are witnessing a rapid integration of economic activities across borders. Economic integration is to a large extent connected to the information and communication technology revolution, which has provided new opportunities for global production systems. Economic globalization is facilitated through the increased mobility of products, services and capital provided for in international and regional agreements or institutions, such as the World Trade Organization (WTO), the North America Free Trade Associations (NAFTA), and the European Union (EU). The globalization of the world economy is likely to contribute to economic growth. It has also without doubt shifted the balance of power between the national state, workers and employers, to the benefit of the latter. There are several exit routes for employers dissatisfied with the labor market or labor market regulation in many countries. They may, for instance, offshore some parts of the production or simply move it to another country. The mere threat of such a “strike by capital” is a strong argument in any discussion on wages and working conditions (Hepple 2005, p. 9).

The shifted balance of power between capital and work poses questions on the role and function of labor law in a globalized economy. In this context the EU represents an interesting attempt to reconcile free trade and social justice. The aim of this chapter is to sketch the successive evolution of EU labor law and to show how the “European project” has gradually shifted from a mere economic cooperation – from the 1950s when six European countries formed three organizations: the European Coal and Steel Community (ECSC), the European Atomic Energy Community (EURATOM), and the European Economic Community (EEC) – to an economic and social union.

The EEC, which was the most important of the three, was established through the Treaty of Rome, now usually referred to as the EC Treaty. The treaty has been amended several times, namely by the Single European Act (1986) and the Treaties of Maastricht (1992), Amsterdam (1997) and Nice (2000). As the Treaty of Maastricht came into force in 1993 the EEC was renamed the European Community (EC). The Maastricht Treaty also introduced new forms of cooperation between the member state governments, for example in the areas of defense and “justice and home affairs”. By adding this intergovernmental cooperation to the existing “community” system, the Maastricht Treaty created a new structure for the EU with three “pillars”, including political as well as economic cooperation.

When the community was established in 1957 it consisted of six continental European states (Belgium, France, , Italy, Luxembourg, and the Netherlands). Since then the community/ union has grown considerably (1973: Denmark, Ireland, and the United Kingdom; 1981: ; 1986: Portugal and Spain; 1995: Austria, Finland, and Sweden; 2004: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia) and now consists of twenty-five member states. As of 2006, there are also two accession countries (Bulgaria and Romania) and two candidate countries (Croatia and Turkey). Labor Law in the Economic and Social Union of Europe 2

EU law and national law

The treaties are the primary source of EU law and are seen as more than an agreement (which merely creates mutual obligations between the contracting states). The cooperation within the EU isbased on the idea that the member states confer on the EU competences or powers and these are laid down in the treaties. The EU, therefore, is only competent to act within the scope of the powers allocated to it. Any measures adopted by the EU institutions must be founded on a legal basis in the treaty. The competence of the EU has successively been extended through a number of treaty amendments.

According to the doctrine of supremacy of EU law, treaty provisions take precedence over domestic laws. The doctrine of supremacy is established by the European Court of Justice (ECJ) (henceforth, the court) and has been accepted by national constitutional courts (with the reservation that EU law shall respect the fundamental principles in national constitutions). This means that EU institutions may create rules on the basis of the competence conferred to them even when some member states oppose such rules and vote against them in these institutions, provided that a voting procedure based on a majority rule applies to that specific field. In this way EU law is a supranational law that has to be enforced in national courts, including when this involves overriding the national law produced by domestic law-making institutions.

The major part of EU labor law consists of directives. Directives are binding upon the member states as to the result to be achieved, but leave it to the national authorities to choose form and method (article 249 EC, which indicates that the member states are primary addresses of directives). The member state shall transpose the directives into its national system. This duty includes introducing into national law substantive rules fulfilling the demands of the directive in question. If this is done correctly, the substantive rules prescribed in the directive will in principle be applied just as with any national rule. The directives usually contain minimum requirements and the member states may introduce a higher level of protection for employees than the directive prescribes (article 137 EC).

When reading the Treaty of Rome it is obvious that the drafters considered it primarily a task for the European Commission to check that member states fulfill their obligation to transpose directives into national law. This is often described as the public enforcement model. The European Commission may institute an infringement proceeding against a member state that has failed to fulfill an obligation under the treaty and bring the matter before the court. Prior to adoption of the Treaty of Maastricht the sanction according to article 228 EC (ex 171) was purely declaratory. The court may now impose a lump sum or penalty payment on member states that do not implement directives.

It is also possible to talk about a private enforcement model. This model is based on the preliminary references procedure prescribed in the treaty. According to article 234, national courts in the EU may make references for a preliminary ruling on, inter alia, the interpretation of the treaty and of secondary EC law (directives, for example). Where a question concerning interpretation of the treaty or secondary law is raised before a national court, and the latter considers a decision on the question is necessary to enable it to give judgment on the matter, the national court may request the court to give a preliminary ruling. If the question is raised before courts of last resort against whose decisions there is no judicial remedy under national law, these courts must request a preliminary ruling from the court. Accordingly, Labor Law in the Economic and Social Union of Europe 3 while lower courts can choose whether to request a preliminary ruling, it is obligatory for courts of last resort to submit a preliminary reference of this kind.

Through the system of preliminary rulings it is possible for private parties to challenge national law through procedures in national courts. The private enforcement model is thus executed in a kind of cooperation between private parties, national courts and the court at the European level. Over the years the court has developed several measures designed to enable private parties to benefit from EC law even when member states have failed to fulfill their duties according to the treaty and secondary legislation. There are mainly four such measures that have been created by the court.

The court has declared that every national court must, in a case within its jurisdiction, set aside national law that may conflict with provisions of the treaty and directly applicable secondary EU law. In addition, the court has introduced the principle of direct effect. The principle means that individuals are, under certain conditions, entitled to rely on community provisions directly before any national court. A provision has direct effect if it appears, as far as its subject matter is concerned, to be unconditional and sufficiently precise.

When talking about direct effect one has to distinguish direct effect of treaty provisions from that of directives. Treaty provisions being directly effective, that is provisions that are unconditional and sufficiently precise, may have both vertical and horizontal direct effect. This means that the provisions may be relied on by private parties against the state as well as against other private parties. As a consequence of directives being addressed primarily to the member states, the court means that provisions in directives are not capable of having a vertical direct effect, but only a horizontal direct effect. As member states must implement directives, a precondition for these to have a direct effect is that the member state in question either has failed to transpose the directive into national law within the prescribed period or has not done so correctly.

Furthermore, the court has established that the authorities of the member states, including the courts applying national law, are required to interpret national law in the light of the wordings and the purpose of directives (indirect effect or consistent interpretation). This obligation applies as much to preexisting law as to laws introduced in order to implement a directive. The doctrine on consistent interpretation is applicable in cases concerning private as well as public employers. Further, it applies to directives in their entirety, not only to the parts precise enough to give rise to direct effect.

Finally, the court has held it as a principle of community law that member states are obliged to make good loss and damage caused to individuals due to breaches of community law for which any member states can be held responsible. The principle of state liability is applicable to any case in which a member state breaches community law, whatever the organ of the state whose act or omission was responsible for the breach. In addition, the obligation to make good damage caused to individuals by breaches of community law cannot depend on domestic rules as to the division of powers between constitutional authorities. The conditions under which the state may be liable for acts and omissions of national law contrary to community law are that the rule of community law breach is intended to confer rights upon individuals, that the breach is sufficiently serious, and that there is a direct causal link between the breach of community law and the damage sustained by any individual. Labor Law in the Economic and Social Union of Europe 4

The Early Neoliberal Phase

Labor law and industrial relations in Europe have traditionally been linked to the national state. The labor laws of the EU member states are strongly dependent on national institutions and heritages. Despite this common feature (at least in the “older member states”) collective bargaining plays a central role in the regulation of the labor market, although the levels and methods of bargaining differ from member state to member state. In some member states sector bargaining at national level within a branch of industry is predominant. This is the case in Sweden, Denmark and Germany. In France, Belgium Greece, Spain, France, Italy, Portugal and Finland cross-industry bargaining is more important. Company-level bargaining is predominant in the United Kingdom and in eight of the ten new member states (Cyprus, the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Malta and Poland). The coverage of collective agreement also varies, from 90–100 percent in Austria, Belgium and Slovenia, 80-90 percent in the Nordic countries, 70 percent in Germany, to less than 40 percent in the United Kingdom and most of the new member states.

When the Treaty of Rome was adopted 1957, the community was mainly thought of as an economic cooperation project aimed at establishing a long-lasting peace in Europe. Social issues received only slight interest. The Treaty of Rome contained a title on social policy, but its provisions were largely requests on how the member states should act and conferred in principle no rights to the citizens. In the former article 117 (now 136 EC) it was proclaimed that the “member States agreed upon the need to promote improved standards of living for workers, so as to make possible their harmonization while the improvement is being maintained.” Further, the European Commission was entrusted with the task of promoting “close cooperation between the member states and facilitate the coordination of their action in all social fields” (article 118, now 140 EC).

This lack of distinct powers of the EEC in field of labor law should be viewed in the perspective that the primary objective was to establish a common market consisting of free movement of products (goods and services) and production factors (labor and capital). The idea was that the removal of barriers between the member states would create an optimum of allocation of resources and give raise of the economic growth. This would also lead to (as it was expressed in the preamble to the treaty) the “constant improvement of living and working conditions of their peoples.”

The drafters of the treaty were not indifferent to issues on improvements in working and living conditions. On the contrary they held the opinion that the establishment of a common market should produce social progress, but that it should be the result of the market mechanism and not of legislation. It also showed that the member states viewed social and labor law as domestic issues.

This approach could be contrasted with views taken at the end of World War I. At that time there was an argument that high labor standards incur cost for the industry. Thus, differences in labor standards make it hard for one country to raise labor standards in their own countries without their industry becoming less competitive, for instance by cutting working hours or introducing legislation on health and safety. The argument was then that there was a need for international regulation on common labor standards. One of the pioneers in expressing this view was the Alsatian manu-facturer Daniel Legrand (1783–1859). Labor Law in the Economic and Social Union of Europe 5

In modern industrial Europe there are certain matters that individual nations cannot regulate except in the form of an agreement between the interested powers…An international labor law is the only possible solution to the great social problem of granting moral and material well-being to the working class without working a hardship upon manufacturers or upsetting the competitive balance between the industries of these countries (Follows 1951, p. 38).

The International Labor Organization (ILO) was founded in 1919 at the Peace Conference following World War I. The ILO constitution formed part of the Peace Treaty of Versailles. The idea of a connection between domestic labor standards and international competitiveness was one of the driving forces behind the organization. The preamble of the ILO constitution from 1919 states that “Whereas…the failure of any nation to adopt humane conditions of labor is an obstacle in the way of other nations which desire to improve the conditions in their own countries…”

However there is one case where the argument of a connection between international competition and labor standards were acknowledged in the Treaty of Rome of 1957. It contained a provision on the principle of equal pay between men and women (now article 141 EC). This article was introduced by the initiative of France that already had legislation on equal pay and feared competition especially from textile manufactures in Belgium.

Moreover, the European Social Fund was established in order to improve employment opportunities for workers in the common market and thereby to contribute to the raising of standard of living. The fund was used to further educate redundant workers and encourage immigration to other parts of the community. In this way the fund could contribute to reduce the difficulties caused by the economic changes resulting from the creation of a common market. Between 1960 and 1973 more than 1.5 million workers were helped in this way. The activities of the fund are nowadays closely linked to the European Employment Strategy.

Social Action

Before we enter to the next phase of the legislative history of community labor law – social action – let us once again draw a historical parallel to the establishing of the ILO. International labor standards regulating competition were not the only argument for the benefit of the issues on labor standards in the peace negotiations in Versailles. A more urgent reason was the fear of social unrest or even revolution. Europe had just experienced the Russian revolution and in many countries revolutionary labor movements and trade unions argued for an international class struggle to overthrow capitalism. The fear of social unrest led to social reforms in many countries in Europe the years directly after World War I. In Sweden, for instance, a universal right to vote (including women and with no limitations to income) was adopted. New legislation was also established on health and safety in the workplace and eight hours working day. The fear of social unrest was also recognized in the preamble of the ILO: “Whereas universal and lasting peace can be established only if it is based upon social justice; And whereas conditions of labor exist involving such injustice hardship and privation to large numbers of people as to produce unrest so great that the peace and harmony of the world are imperiled.” Labor Law in the Economic and Social Union of Europe 6

The next phase of development might be looked upon from the same background, although the situation was not as alarming as in 1919. In the late sixties Europe experienced student revolts and labor unrest in Germany, the Netherlands and Belgium, but particularly in France (the May 1968 uprising in Paris) and Italy (the 1969 hot autumn): the so-called sexual revolution and a new surge of feminism; heavy criticism and protests against the American intervention in Vietnam; and the quest for more participation at all levels of society.

This development brought together the leaders in power at the beginning of the 1970s – Chancellor of , President Pompidou of France, and Prime Minister Heath of Britain, who had taken Britain into the EEC – in order to push forward a more comprehensive EEC social policy. The heads of state and government took one of the first important steps at the Paris summit meeting in October 1972. The summit communiqué stated: “The heads of state or heads of government emphasize that they attach as much importance to vigorous action in the social field as to the achieve-ment of the economic union” (Bull EC 1972/10, p. 15; 6th Gen. Rep. EC 1972, p. 128). A social action plan was adopted after the summit and this was subsequently followed by the adoption of a social program on the basis which several labor law directives were adopted concerning mainly two topics: restructuring of enterprises and equality between men and women.

The legal basis for adopting labor law directives during 1970s was found in the general competence for the community in articles 94 and 308 EC (then 100 and 235). These articles allow the community to lay down directives for the approximation of laws of the member states as “directly affect the establishment or functioning of the common market” and where it proves “necessary to attain, in the course of the operation of the common market.” Both these articles require unanimous agreements of the member states. They ensure that the member states keep control over the supranational regulation of employment rights.

The fact that the labor law directives were adopted on the basis of article 94 and 308 EC might be interpreted as if EU labor law was merely considered as a marked regulator aimed at remedying distortion of competition. This is, arguably, a too legalistic view. The community was already at that time seen as not only an economic union; it also intended to ensure social progress and seek the constant improvement of the living and working conditions of their inhabitants. To realize the political will to a “vigorous action in the social field,” the choice of article 94 and 308 EC as the legal base for the directives was a legal necessity due to the absence of explicit competence in social field.

Restructuring of enterprises

During the 1970s three directives concerning restructuring of companies were adopted. One might think that restructuring of companies was a rather odd end to start with when establishing labor law at European level. Would it not have been more natural to start with rules on, for instance, freedom of association or regulation of collective agreements or industrial actions, which are often the first labor law rules adopted at national level? The choice of subject was, however, not that surprising. Restructuring of enterprises was seen as a natural consequence of the dismantling of national barriers of trade and the political ideas behind the directives were to secure workers acceptance of this restructuring. Labor Law in the Economic and Social Union of Europe 7

The Collective Redundancies Directive was adopted in 1975 (75/129/EEC) and amended in 1992 (92/56/EEC) with a consolidated version of the directive (98/59/EC) since 1998. It seems to be a reaction to some closedowns carried out by multinational companies at the beginning of the 1970s. Companies that wanted to dismiss employees and had subsidiary companies in different member states could compare the costs of giving notice in the various countries and then implement dismissals in the country where costs were the lowest. This led to demands for common EU rules to put an end to such strategies. The directive is intended both to ensure comparable protection for workers’ rights in the different member states in relation to collective redundancies and to harmonize the costs that such protective rules entail for community undertakings.

However, the directive does not require more than that the employer shall inform and consult her or his plans with the workers’ representatives. The employer shall also have a duty to notify the competent authority of any planned collective redundancies. The directive does not contain rules that are commonly found in national legislation regarding collective redundancies, such as rules on time for notice of employees, priority rules, severance pay, and so forth. The directive only lays down a minimum provision and does not preclude the member states from introducing laws, regulations or administrative provisions more favorable to workers (article 5).

The Transfer of Undertakings Directive was adopted in 1977 (77/187/EEC) and amended in 1998 (98/50/EC) with a consolidated version adopted in 2001 (2001/23/EC). The aim of the directive was to safeguard the rights of employees in the event of a change of employer. However, it only aims at a partial harmonization of employment protection. The employee shall have the same level of protection as if his or her undertaking had not been transferred. The directive is not intended to create a uniform level of employment protection throughout the community.

In 1980, the Employers’ Insolvency Directive was adopted (80/987/EEC), which applies to employees’ claims under their contracts of employment against insolvent employers. Member states are required to ensure that institutions can guarantee payment of these claims, though some limitations may be introduced. A revised directive was adopted in 2002 (2002/74/EC).

Equality

In the 1970s several directives were adopted in the field of gender (sex) discrimination. As mentioned, the EC treaty from 1957 contained a provision on equal pay for male and female workers for equal work (article 119, now amended 141 EC). Article 141 is supplemented by the Equal Pay Directive (75/117/EEC). The function of the directive is mainly to facilitate the practical application of article 141 EC. The Equal Treatment Directive was adopted in 1976 (76/207/EEC) and its primary aim was to extend the principle of equal treatment beyond pay. It covers access to employment and vocational training, working and employment conditions during employment and dismissals. In 1979 a Directive on Equal Treatment in Social Security was adopted (79/7/EEC).

The case law of the European Court of Justice

Under the late 1970s, the court at European level showed a remarkable judicial activism in developing community law, not least in labor law cases. One of the most remarkable cases of that time was Defrenne versus Sabena II (Case 43/75 [1976] ECR 455). The court identified the principle of Labor Law in the Economic and Social Union of Europe 8 equal treatment irrespective of sex as a fundamental principle of EU law. The court also stated that article 141 had a horizontal direct effect, meaning that individuals are entitled to rely on community provisions directly before any national court. As Paul Davies has remarked, the court was at that time “cutting with, not against, the grain of legislative developments in the community” (in Sciarra 1996, p. 103).

Completing the Internal Market

The days of the social action program were definitely over when the Conservative Party, led by Margaret Thatcher, took over the government in United Kingdom in 1979 and insisted on strict limitations on the growth of the community social policy. Since all social measures up to that date required unanimous voting, the United Kingdom was able to veto every proposal put forward by the European Commission. The history of the social dimension of the community under this period is sometimes referred to under the heading “strategies to outflank the UK veto” (Bercusson 1996, p. 65).

By the mid-1980s the President of the European Commission Jacques Delors took the initiative to break the legislative deadlock by linking social policy to the concept of a European internal market. He formulated the idea of “A European Social Space”:

The creation of a vast economic area, based on market and business cooperation, is inconceivable – I would say unattainable – without some harmonization of social legislation. Our ultimate aim must be the creation of a European social area (Bulletin of the EC 2/1986, p 12).

One method of realizing the idea of a European social area was to promote the social dialogue. Another method was to expand the competence of the EU to adopt directives in the social field with qualified majority voting. In 1986 the first major changes of the Treaty of Rome was adopted through the Single European Act. The act aimed at completing the internal market and contained only minor changes with regard to social policy. The most important change was that qualified majority voting was introduced in the field of health and safety of workers (now in article 137 EC, then 118 a).

The adoption of qualified majority voting in the field of health and safety has led to increase legislative activity in this area. A Framework Directive on Health and Safety (89/391/EEC) was adopted in 1989. On the basis of this directive a large number of daughter directives have been adopted covering for instance conditions in the workplace, requirements as to work equipment, and exposure to dangerous substances (chemical, physical and biological agents).

The possibility to use qualified majority voting on health and safety has led to a tendency to widen the scope of the definitions of health and safety. In 1993 the Working Time Directive was adopted. The United Kingdom challenged the legality of this directive arguing that the directive was not dealing with health and safety. The court did only to a minor extent agree with the United Kingdom. The directive contained a provision, which provided that Sundays normally should be included in the weekly rest. The court found that the European Council had failed to explain why this was a health Labor Law in the Economic and Social Union of Europe 9 and safety matter and found the directive invalid in that aspect (C-84/94 UK/Council 1996 ECR I- 5755).

The social dimension of the community took somewhat more concrete form in 1989 when eleven of the community’s twelve member states signed the Community Charter of the Fundamental Social Rights of Workers. The charter contained an almost exhaustive list of employment rights, including rights such as freedom of association and freedom to strike. However, the charter is a political declaration without clear legal effects. Following the adoption of the charter the European Commission drew up the social charter action program that aimed at implementing the charter and that contained forty- seven proposals for initiatives in the social field. Due to the lack of clear competence in the treaty the high ambitions of the program were never met. However, it still resulted in several directives protecting individual employees on, for instance, proof of the employment contract (91/533/EEC) and working time (93/104/EEC).

Legal Integration in the European Union

Treaty of Maastricht

The Treaty of Maastricht (Treaty on European Union), agreed upon in December 1991 and signed in February 1992, represented a new stage in European integration. It created the EU consisting of three pillars: the European Communities, common foreign and security policy, and police and judicial cooperation in criminal matters. The treaty also launched a program for establishing the economic and monetary union (EMU).

In addition, the treaty laid the ground for a deepened integration in the social field. Through the Treaty of Maastricht social and labor market policy was for the first time recognized as an independent policy area. It was declared that that the community shall have as its task to promote “a high level of employment and of social protection, equality between men and women…the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.” The treaty also referred explicitly to the European Convention for the Protection of Human Rights and Fundamental Freedoms and to the European Social Charter of the .

The EU Treaty included a protocol on social policy. It enabled the United Kingdom to opt out from the more far reaching cooperation in the social field which was envisaged for the then eleven other member states under the agreement on social policy signed by them and then annexed to the protocol. This agreement gave the community (or de facto eleven member states) increased competence in the field of labor law. The agreement was significant especially in two aspects.

First, it broadened the scope of qualified majority voting to include working conditions, the information and consultation of workers, the integration of persons excluded from the labor market, and the equality between men and women with regard to labor market opportunities and treatment at work. The EU treaty also provided a greater role for the European Parliament in exercising these new competences. Second, it gave the trade unions and the employer organizations at European level a central role in formulating EU social policy through the social dialogue. Labor Law in the Economic and Social Union of Europe 10

Through the broadened scope of qualified majority voting it was possible to adopt directives concerning, for instance, information and consultation. In 1994 a Directive on European Works Council (94/45/EC) was adopted that concerns workers’ participation in multinational enterprises. In 2002 the Information and Consultation Directive (2002/14/EC) was adopted that concerns information and consultations of workers representatives at national level.

Moreover, the Burden of Proof Directive (97/80/EC) should be mentioned. It contains a definition of indirect discrimination and a rule on the burden of proof in gender (sex) discrimination cases. According to this rule the burden of proof must shift back to the respondent when evidence of a prima facie case of discrimination is presented. The directive is mainly a codification of the case law of the court. The extension of the area of majority voting has also made it possible to amend some of the older directives, such as the Transfer of Undertakings Directive and the Equal Treatment Directive.

The Amsterdam treaty

The Amsterdam Treaty, agreed on in June 1997 and signed in October 1997, contained amendments to the EC Treaty that strengthened the social dimension of the EU. In May the same year the Labor Party won the election in the United Kingdom and Tony Blair became prime minister. One of the first steps taken by the new labor government was to sign the social policy agreement, which made it possible to include the social policy agreement (from Maastricht) in the EC Treaty. The rules on qualified majority voting and social dialogue are now to be found in articles 137-139 EC. The United Kingdom also acceded to the directives adopted according to the social policy agreement (for instance the European Works Council Directive).

Furthermore, the community was given new competence to take appropriate action to combat discrimination based on gender (sex), racial or ethnic origin, religion or belief, disability, age or sexual orientation (article 13 EC). In 2000 two directives were adopted on the basis of that article: the Race and Ethnic Origin Directive (2000/43/EC) and the Framework Employment Equality Directive (2000/78/EC). The latter covers discrimination based on race and ethnical origin and is not limited to discrimination in employment. It also applies to, for instance, discrimination in relation to education. The former covers discrimination based on religion or belief, disability, age or sexual orientation, but is limited discrimination in employment and occupation. A new Equal Treatment Directive (2002/ 73/EC) was adopted in 2002.

Through the Treaty of Amsterdam a new “employment title” was inserted into the EC Treaty (articles 125-130 EC) and the European Employment Strategy was institutionalized. The aim of this strategy is to promote, inter alia, a high level of employment. The European Council and European Commission shall draw up annual guidelines. The member states shall take these guidelines into account in their employment policies and provide an annual report on the principal measures taken to implement its employment policy with a bearing on the guidelines. The European Council and European Commission may make (non-binding) recommendations to member states concerning their employment policies. The European employment strategy represents a process of policy making described as the “open method of coordination”. The process does not lead to binding EU legislative measures and did not require member states to change their law. The aim of the method is to spread best practices and achieve greater convergence towards the main EU goals. Labor Law in the Economic and Social Union of Europe 11

The social dialogue

Social dialogue is the term used to describe the consultation procedure involving the European social partners (trade unions and employer organizations at EU level). The social partners have had a more or less informal consultative role since the establishment of the community in the 1950s. At European cross-industry level there are four main actors in the social dialogue. The European Trade Union Confederation (ETUC) represents trade unions – both blue and white collar workers – in thirty-five European countries with a total of sixty million members. The Union of Industrial and Employers’ Confederations of Europe (UNICE) groups together the employer organizations of twenty seven European countries and represents the private employers. The European Centre of Enterprises ith Public Participation and of Enterprises of General Economic Interest (CEEP) represents enterprises with public participation and enterprises of general economic interest. The UEAPME (Union européenne de l’artisanat t des petites et moyennes entreprises) represents small and medium-sized companies and participates since 1998 in the social dialogue as part of the UNICE delegation.

The European Commission initiated and supported a dialogue between social partners in 1985 that became known as the “Val Duchesse” process (after the castle outside Brussels where the first meeting was held) as one way of promoting the social dimension of the EU. During the late 1980s the social partner activities resulted principally in the adoption of joint opinions, resolutions and declarations, which were all non-binding in nature. Against the background of the intergovernmental conference aimed at amending the EC Treaty, the social partners negotiated the agreement of October 31 1991 that proposed reforms to the treaty decision-making provisions in the social policy field. The proposals were incorporated virtually verbatim into the agreement on social policy annexed to the Maastricht Treaty (1992).

The agreement on social policy recognized a formal role for the social partners as regards law making in the field of labor law. In brief, before submitting proposals for new directives the European Commission must first consult the social partners. The latter can then, if they so wish, take over the initiative from the European Commission and themselves negotiate and conclude an agreement on the matter in hand. If they reach such an agreement, they can either request that it should be adopted as a directive or decide that it is to be implemented “in accordance with the procedures and practices specific to management and labor and the member states.” From 1997 onwards (under the Treaty of Amsterdam) the entire agreement on social policy was incorporated into the EC Treaty.

There have so far been three cross-industry framework agreements that have been transposed in to EU law directives: The Parental Leave Directive (96/34/EC), the Part-time Work Directive (97/ 81/EC) and the Fixed Term Work Directive (99/70/EC). There are also two cross-industry framework agreements (concerning telework and stress) that shall be implemented in accordance with the procedures and practices specific to management and labor and the member states.

The Enlarged European Union

The Treaty of Nice of 2000 made a number of important changes to the treaties. The main objective of the amendments was to make possible the enlargement of the community by the accession Labor Law in the Economic and Social Union of Europe 12

of new member states. The amendments concerned mainly the size and the composition of the European Commission and the weighting of votes and extension of qualified majority voting in the European Council. The Nice Treaty contained only minor changes in the field of labor law and industrial relations.

At the Nice summit of the European Council in 2000 the Charter of Fundamental Rights of the European was also approved. The charter includes both traditional civil and political rights, and numerous social and economic rights, proving that these latter rights are at last recognized as having the same status as civil and political rights. However, the charter is (just as the 1989 charter) limited to a political declaration and not given a formal legal status.

The European Council adopted the constitutional treaty of the EU on June 18 2004. The Charter of Fundamental Rights of the EU was integrated as a part of the new constitution. As with the earlier treaties, ratification by all member states is needed for the new constitution to enter into force. After referenda in France and the Netherlands in 2005, which turned down the ratification of the new constitution, it is obvious that the constitution will not enter into force, at least not without amendments.

In 2004 the EU was enlarged with ten new Central and Eastern European and Mediterranean countries (the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia). The latest enlargement, from fifteen to twenty-five member states, is the biggest in the history of the EU. It has its roots in the collapse of communism, which offered an opportunity to extend European integration into Central and Eastern Europe. One of the union’s first post- enlargement priorities is to raise the newcomers’ living standards, which are all below the EU average. After the enlargement the internal market consists of member states with very different labor cost levels. This has given rise to an intense debate on the relationship between the internal market – especially in relation to the free movement of services and workers – and national regulation of wages and employment conditions. On the one hand, it is argued that national regulation of wages and employment conditions constitutes severe obstacles for the internal market. On the other hand, it is claimed that differences in labor standards constitute distortions in competition between the undertakings established in different member states and that there is a risk of social dumping.

Summing Up and Looking Forward

The EU is no longer a purely economic project as it was in 1957. It has a rather strong social dimension. In relation to labor market regulation the union has a twofold objective: promote both economic and social goals. The European Union shall, inter alia, promote economic and social progress and a high level of employment as well as achieve balanced and sustainable development (article 2 EC). These objectives shall be achieved in particular through the creation of an area that has no internal frontiers and through the strengthening of economic and social cohesion.

This change of the aim of EU law is also illustrated in the case law of the court at European level. When the principle of equal pay was inserted into the treaty in 1957 the purpose was mainly to prevent undertakings established in states that had actually implemented the principle of equal pay from suffering a competitive disadvantage in relation to undertakings established in states that had not yet eliminated discrimination against women. Labor Law in the Economic and Social Union of Europe 13

In Defrenne II (1976) the court argued that article 119 pursued a twofold purpose: an economic purpose and a social purpose. The aim was not only to avoid elimination of distortions of competition between undertakings established in different member states. The court stressed that the provision forms part of the social objectives of the community to ensure social progress and seek the constant improvement of the living and working conditions of the inhabitants of the member states. The court also stated that the principle of equal pay forms part of the foundation of the community (Case 43/75 Defrenne 1976 ECR 455). Today, equality between women and men is considered a fundamental principle under article 2 and 3.2 EC and the case law of the court. In the Schröder case (2000) the court concluded that the economic aim – the elimination of distortions of competition between undertakings established in different member states – is secondary to the social aim pursued, which constitutes the expression of a fundamental human right (Case C-50/96 Schröder 2000 ECR I- 743).

During the years the amount of EU labor law directives has grown considerably and the EU labor law now covers a huge area of subjects, the major part of which has been adopted after the Maastricht Treaty in 1992. It seems fair to describe the last decade as a golden era for adoption of EC labor law directives. The list below demonstrates that the EU, in its law-making capacity, has been very much focused on something other than the type of measures known as “soft law” (see box 1).

Box 1: Major labor law directives since 1993 (The directives concerning the free movements and health and safety omitted)

• Working Time Directive (93/104/EC) • European Works Council (94/45/EC) • Parental Leave Directive (96/34/EC) • Posting of Workers Directive (96/71/EC) • Burden of Proof Directive (97/80/EC) • Part-Time Work Directive (97/81/EC) • Transfer of Undertakings Directive (98/50/EC), consolidated version 2001/23/EC • Fixed-Term Work Directive (99/70/EC) • Information and Consultation Directive (2002/14/EC) • Employers Insolvency Directive (2002/74/EC) • Directive against Race Discrimination (2000/43/EC) • Employee Involvement in European Companies (2001/86/EC) • Framework Equality Directive (2000/78/EC) • Equal Treatment Directive (2002/73/EC) • Employee Involvement in European Cooperative Society (2003/72/EC) Labor Law in the Economic and Social Union of Europe 14

Through this development labor law in Europe has become increasingly supranational and harmonized and is no longer a purely national matter. However, in a heterogeneous EU consisting of twenty-five member states in 2006 (and soon to include additional member states) there are no grounds for nursing any particularly high expectations that the legislative process in the field of labor law will function speedily and effectively. There is also good reason to question whether the upward harmonization towards an increased level of employee protection as envisaged by the treaty, which up till now has taken place, can continue. The call for a relaxation of labor law is already making itself strongly felt as regards, for example, the revision by the EU of its Working Time Directive.

As a result of all these factors the main focus in legal developments is shifting towards case law at both national and international level. Case law is a balancing factor which can protect social interests in the internal market. In this respect the fundamental rights of employees also come into the picture. If and when the EU’s new constitution comes into force, fundamental rights may in the future prove to be an important factor in the application of the law. The rights falling under this heading include not only the right to equal treatment or non-discrimination, but also the right to information and consultation, the right to bargain collectively, and the right to take industrial action. Naturally, social fundamental rights do not solve all of the problems and, furthermore, have to be balanced against economic rights, but when all is said and done they can play a positive part in a trend in the law which is in many respects steered by liberal market thinking.

Furthermore, it is likely that the next decade will show an increased “territorial struggle” over where labor law ends and economic rules, aiming at liberalization of the markets, take over. During the post-1945 period labor law in many European countries grew into a relatively protected discipline. Once it had established a basis of its own, labor law was able to build on this and develop a functioning system of protection for employees. Labor law had a more or less well-defined territory of its own which was not called into question. Nowadays, this state of affairs has been radically altered. Liberalization and exposure to competition, privatization of services, control of operating results, regulation of insider dealing and free movement of goods, services and capital are all phenomena which are in at least a relationship of tension with, if not directly clashing with, the rules of labor law. Already the relationship between competition law and labor law has been controversial both nationally and at EU level (Bruun and Hellsten 2001). In spring of 2006 two cases were pending before the court that raised the question whether industrial actions could interfere with the treaty provisions on free movements of services (Case C-341/05 Laval un partneri and C- 438/05 Viking).

The debate on the proposal of a directive on services concerns essentially the same question. The objective of the proposal is to achieve a genuine European internal market in services by removing legal and administrative barriers to cross border services between member states. The proposal stipulates that the member state where the service is provided cannot apply its own national requirements to service providers established in another member state. One question is whether this should apply also to compliance enforcement and control mechanisms based on labor law. This territorial struggle represents a significant change for labor law. Labor Law in the Economic and Social Union of Europe 15

References and Selected Bibliography

Barnard, Catherine. 1999. EC ‘social’ policy. In The evolution of EU law. Edited by P. Craig P. and P. De Búrca, P. Oxford: Oxford University Press.

Bercusson, Brian. 1996. European . London: Butterworths.

Bruun, Niklas and Jari Hellsten. 2001. Collective agreement and competition law in the EU. Copenhagen: DJOEF Publishing.

Follows, John W. 1951. Antecedents of the International Labor Organization. Oxford: Clarendon Press.

Hepple, Bob, ed. 1986. The making of labor law in Europe: A comparative study of nine countries up to 1945. London: Mansell.

———. 2005. Labor laws and global trade. Oxford: Hart Publishing.

Kenner, Jeff. 2003. EU employment law: From Rome to Amsterdam and beyond. Oxford: Hart Publishing.

Lo Faro, Antonio. 2000. Regulating social Europe: Reality and myth of collective bargaining in the EC legal order. Oxford: Hart Publishing.

Nielsen, Ruth. 2000. European labor law. Copenhagen: DJOEF Publishing.

Nielsen, Ruth and Erika Szyszczak. 1997. The social dimension of the European Union. 3rd ed. Copenhagen: Copenhagen Business School Press.

O’Leary, Siofra. 2000. Employment law at the European Court of Justice. Oxford: Hart Publishing.

Sciarra, Silvana, ed. 2001. Labor law in the courts: National judges and the European Court of Justice. Oxford: Hart Publishing.

Shanks, M. 1977. Introductory article: The social policy of the European Union. Common Market Law Review (14) 373 ff.

Simitis, Spiros and Antoine Lyon-Caen. 1996. Community labour law: A critical introduction to its history. In European Community law: Principles and perspectives. Edited by Paul Davies, Antoine Lyon- Caen, Silvana Sicarra and Spiros Simitis. Oxford: Clarendon Press.

Szyszczak, Erika. 2000. EC labor law. Harlow: Pearson Education. Labor Law in the Economic and Social Union of Europe 16

Useful information can also be found on the following websites:

European industrial relations dictionary http://www.eurofound.eu.int/areas/industrialrelations/dictionary

The European Commission: Directorate-General for Employment, Social Affairs and Equal Opportunities http://europa.eu.int/comm/employment_social/labour_law/index_en.htm

Acknowledgements

The author would like to thank Professor Brian Bercusson and Professor Niklas Bruun for their assistance.