The Danish model

The events that led to the landmark judgment unfolded in the local authority of Vaxholm, Sweden. There, a Latvian construction company Laval un Partneri had won a contract to refurbish a school and posted a team of Latvian workers to Sweden. But the work deadlocked as the Swedish building workers union demanded the same rates of pay for the Latvian workers as those set out in the Swedish collective bargaining agreement – and then tried to force through their demand by mounting a blockade and organising solidarity action.

Believing the collective action to be illegal, the Latvian company issued proceedings in the Swedish Labour Court, which decided to consult with the European Court of Justice (ECJ). It had one question of fundamental importance: Are trade unions allowed to force employers using posted EU workers into negotiations for a collective bargaining agreement or would that be at odds with the freedom to provide services that is enshrined in the EC Treaty?
In other words, the ECJ was asked to decide which principle should outweigh the other: the free movement of services or the right of nation states to allow social partners to agree working conditions and minimum rates of pay through collective bargaining – and, ultimately, collective action.

Community law prevailed in this instance. Thus, Laval favoured community lifeblood over the long cherished labour market practice, and the Danish model seemed to be under threat. Under the Danish model, wages and working conditions are determined in often local collective bargaining contexts and enforced through the right of collective action. The Danish Government set up a committee in which the social partners were represented to map out the implications of Laval and find a solution that would be consistent with Community law but also safeguard the Danish model. The Laval Committee issued its report in 2008, resulting in a new act.

The new Act is an attempt to rescue the Danish model by guaranteeing the right of collective action. The guarantee is subject to the condition that trade union demands to foreign employers must be founded on national collective bargaining agreements that are precise and accessible. The question is if the new measure will deliver this objective; or if it will only provide a short respite to keep the traditional model of collective bargaining and action.

A fight for lifeblood

Laval sparked controversy when it was delivered because the ECJ took sides in a clash between rights that have a history behind them.

On the one side of the scales there is a labour market model which is synonymous with the entire Danish system in the labour market and a favourite of politicians and the social partners alike: the Danish model. The Danish model is characterised by a low degree of codification with respect to pay and working conditions. Instead, the social partners will agree working conditions through collective bargaining. The collective bargaining agreements will often be industry-specific and will very often be supplemented by local collective agreements that can be adapted to reflect local circumstances at individual employers. An important feature of the Danish model is the right of collective action. This ensures that agreement is reached and that pay and working conditions in Denmark are maintained at a high standard.

But the Danish model may clash with another pivotal principle that represents a part of the EU’s very reason for being: the free movement of goods, services, capital and people. That clash is evident in Laval: the ECJ found that forcing the Latvian employer to enter into a collective bargaining agreement constitutes an obstacle to the free movement because the agreement would impose greater obligations on the employer than those defined through Swedish legislation – and obligations that the foreign employer had difficulty realising in advance because the Swedish trade union wanted to negotiate instead of simply demanding that certain conditions were met.

Free movement first

Laval included an interpretation of the Posting of Workers Directive. Foreign businesses posting workers in Denmark must observe our laws or generally applicable standards with respect to employment and working conditions. This means that posted workers are entitled to the minimum rights applicable in Denmark. The problem is that many of the standards applicable in the Danish labour market are not generally applicable. They have been agreed through national or local collective bargaining agreements, except for certain minimum standards. With Laval, the European trade unions, and thus also those in Denmark, felt that the ECJ was sending a dangerous signal. The Posting of Workers Directive enables member states to specify minimum standards that will apply to all employers in the member state in question. Laval held that if the individual country has not used that option, it cannot force foreign employers to sign collective bargaining agreements that are more favourable for workers than the minimum standards. The bottom line is that the accessibility and attraction for a foreign employer to perform work or services in other member states seem to override the right of nation states to have a labour market model with a local collective bargaining process and a right of collective action.

To rescue the Danish model, the Government set up a committee, which issued a report in 2008. The report assessed Laval’s precise implications on the labour market and contained suggestions for a bill that would throw a lifeline to the right of collective bargaining and action. The Bill was passed exactly one year after Laval.

The new Act, which came into force in 2009, secures the right to take industrial action against foreign employers by adding a new section 6a to the Danish Posting of Workers Act. The provision is intended to stave off social dumping by ensuring that “collective action may be taken to secure posted employees a pay that amounts to what Danish employers must pay under the national collective bargaining agreements for the performance of similar work”, according to section 6 a(1). Subsection 1 also refers to subsection 2, which sets out a number of conditions. Industrial action will be legal only if the foreign employer has referred to national collective bargaining agreements: that is, provisions that apply to all of Denmark. The parties to the collective bargaining agreements must be the most representative social partners in Denmark and the pay conditions they provide must have “sufficient clarity”. It will be for the Danish Labour Court to decide in each individual case if the conditions for the right to take industrial action have been satisfied.

The intention behind the conditions attached to the guarantee is to ensure that collective bargaining agreements keep the standards required by the Posting of Workers Directive and Laval – while also securing the right to take industrial action.

Implications of the new Act

The Confederation of Danish Employers was involved in drafting the Laval report. At the Confederation’s headquarters a sense of satisfaction prevails: “In the view of the Confederation of Danish Employers, a balance has been struck during the preparatory stages of the Bill to amend the Danish Posting of Workers Act between on the one hand the conclusion in Laval and on the other hand central features of the Danish model”.

Still, it may be difficult to predict the full implications of the Act. Maybe the future will hold more disputes if it turns out that it does not satisfy the conditions set by the ECJ with Laval anyway. One question is, however, if the new Act is enough to meet Laval’s requirements for transparency. It does not specify how foreign employers are to find out who are the most representative employee organisations in the Danish labour market. Further, in the last year many critics have pointed out that it does not specify statutory minimum wages either.

It may be the Danish Labour Court that will have to decide in such cases of doubt. And if the Danish Labour Court itself is in doubt about how to understand Community law, the ECJ will have the last say again.