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The EU Regulation on Posting of Workers: Recent Developments

  • Finland
  • Other

04-04-2019

Published by European Journal of Labour Law, 2/2019

I.     Introduction

Posting of workers constitutes a significant resource for the functioning of the European Internal Market. The Directive on Posted Workers (PWD)[1] has laid down the regulatory framework in then European Union (EU) to establish balance between the objectives of promoting and facilitating the cross-border provision of services, providing minimum protection for posted workers against social dumping and also ensuring fair competition between national undertakings and undertakings which provide services transnationally. For this purpose, it regulates a core set of terms of employment of the Member State to whose territory a worker is posted (host Member State) mandatorily to be applied by foreign service providers, unless the law applicable to the employment relationship does not include more favourable terms of employment. The Directive of 1996, however, leaves the minimum rates of pay for the purposes of the Directive to be determined at national level in the host Member State. Moreover, the obligation of a posting company concerned only minimum wages in the host Member State, the concept of which has turned out to be inaccurate for example with regards to demarcation between wages and costs related to the job. Major differences in interpretation between national laws on minimum rates of pay has been emerged.

At least three different mechanisms have appeared. First, the Directive of 1996 stipulated that posted workers were guaranteed only the minimum rates of pay determined at national level either by law or collective agreements in the host country. Even where collective agreements are applicable, the sending companies tend to pay the rates applicable to the lowest pay group rather than the adequate pay group corresponding to posted workers´ job tasks, educational level and seniority. Therefore, the Directive has enabled structural wage gaps between local and posted workers. Secondly, as the Directive left the composition of the minimum rates of pay to be determined at national level, the composition of the minimum rates of pay guaranteed to posted workers in host Member States is somewhat unclear and varies significantly across the Member States. Thus, lack of clear standards has generated uncertainty about rules and practical difficulties for the parties to employment in following them. Also the labour market development has changed considerably since the original adoption of the Directive along with the enlargement of the EU and the internal market. Thirdly, posting of workers seems to be more prevalent in labour-intensive sectors such as construction and road transport, where posted workers are less skilled and receive most likely minimum pay rates. Furthermore, as the Directive of 1996 has not precluded companies from applying more generous wages than the minimum standards of the receiving country, workers posted from low wage countries tend to lack the bargaining power to obtain wage terms exceeding minimum rates, while local workers are paid generally wages over minimum level.

Thus, the Directive on posting of workers has not succeeded to prevent wage differences between local and posted workers particularly in countries where wage level is relatively high. These wage differences distort the competition between the companies and disturb the proper functioning of the internal market. This kind of development has also enabled differences in treatment between local and posted workers in respect of wages and led to unfair labour cost competition of local companies and workers including possible risks of replacement of local workers with posted ones and possible social dumping.[2]

This article examines how the amended Directive intends to solve these problems and achieve one of its main objectives, a fair competition and measures guaranteeing respect for the rights of workers and finally how the Directive manages to balance these rights expressed by the Treaty on Functioning of the European Union (TFEU) and manages to prevent social dumping.[3] The article also examines how the case law of the European Court of Justice (CJEU) has influenced the rights included in the Directive.

II.     The Legal Position of the Original Posting of  Workers Directive (96/71/EC) in Respect of Terms of Employment of Posted Workers`

The TFEU establishes the right for companies to provide their services the in other Member States. Article 56 of the TFEU states that restrictions on the freedom to provide services in the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person to whom the services are intended. The freedom to provide services may be limited only by rules which are justified, proportionate and applied in a non-discriminatory way.

In the background of adopting the original Directive[4] was a need to balance the freedom to provide services guaranteed by the TFEU and protect the rights of employees posted abroad while CJEU`s case law on host Member State`s right to oblige an employer to apply its regulation to a posted worker`s employment temporarily performing work in the state was deemed to be somewhat ambiguous.

The famous decision, which had an important influence on the legislative development that finally led to the adoption of the PWD was the Rush Portuguesa case. In the case a Portuguese building undertaking entered into a subcontract with a French company to perform a building work in France. The Portuguese firm, Rush Portuguesa used its own labour for the work. According to applicable French rules, only national immigration authority was permitted to recruit third country workers. Portuguese rules on the free movement of labour were not applicable due to the ongoing transposing period. The CJEU viewed that Community law does not preclude Member States from extending their regulation or valid collective agreements to any person who is employed even temporarily in their territory or enforcing those rules by appropriate means irrespective of the country the employer is established in.[5] Similar conclusion was repeated by the CJEU in joined cases Seco[6]  where the Court considered that Union law does not preclude the Member States from extending their labour laws or collective agreements stipulating minimum wage on posted workers. In the case Van Der Elst the Court extended this rule spelled out in two explained cases to situations in which the posted workers were the citizens of third countries.[7]

The CJEU found also in pre-PWD era case Guiot [8], that the public interest relating to the social protection of employees in the construction industry may constitute an overriding requirement, justifying a restriction to provide services. On these grounds the host state may require payments of certain wage supplements provided that employees are not protected with the same or essentially similar contributions, which the employer has already paid in the Member State of establishment. The CJEU has continued the line of reasoning according to which the host State can justify the application of its provisions to service providers from other Member States on overriding requirements of the public interest.[9]

Directive on posting of workers 96/71/EC adopted in 1996 with a view to remove obstacles from free movement of services and labour, prompt undertakings to post employees abroad temporarily and promote their fair competition and measures establishing certain transnational rights for posted employees but does not harmonise the substantive content of the regulation.

According to the Directive 96/71/EC the Member States shall ensure that, whatever the law applicable to the employment relationship, undertakings posting workers from the territory of a Member State to another guarantee posted workers central terms and conditions of employment[10] which, in the Member State, where the work is carried out, are laid down by law, regulation or administrative provision or by collective agreements or arbitration awards, which have been declared universally applicable.[11] Therefore, the Directive connects the application of the host state`s regulation governing central terms and conditions of employment to the promotion of the freedom to provide services.  

Furthermore, article 3 (1) of the original Directive on Posting of  Workers states, that for the purposes of the Directive, the concept of minimum rates of pay referred to in paragraph 1 (c) is defined by the national law and/or practice of the Member State to whose territory the worker is posted.

The CJEU has taken stance on the concept of minimum rates of pay in its more recent case law.

In the case Commission of the European Communities versus (v) Federal Republic of Germany [12] the question was whether German national legislation recognizing all the allowances and supplements paid by employers in other Member States to their employees in the construction industry posted to Germany as integral elements of the minimum wage, was contrary to the article 3 of the Directive 96/71 and article 49 of the TFEU stipulating freedom to provide services.  

Firstly, the Court stated, that allowances and supplements, which are not determined to be constituent element of the minimum wage by the legislation or national practice of the Member State, and which alter the relationship between the service provided for by the worker and remuneration which he receives of it in return, cannot be treated as an integral element of minimum wage under the provisions of the Directive 96/71/EC. The court justified this conclusion by stating that if an employer requires a worker to carry out additional work or to work under particular conditions, compensation must be provided to the worker for that additional service without being taken into account for the purpose of calculating the minimum wage.[13] Correspondingly, the court viewed, that since allowances and supplements under scrutiny did not alter the relationship between the service provided by a worker and the remuneration which he receives in return, and which are paid by employers established in other Member States to their employees who are posted to Germany, with the exception of general bonus granted to workers in the construction industry, Germany has failed to fulfil its obligations under article 3 of the Directive 96/71/EC. Therefore, the court concluded, that decisive factor in considering whether the individual elements of wages must be recognized as integral part of minimum wages for the purposes article 3 of the Directive 96/71/EC is whether the concerned element alters the relationship between the service provided by a worker and the remuneration he receives in return for the service. [14]

In recent case Sähköalojen Ammattiliitto v. Elektrobudowa Spółka Akcyjna [15] the question was about the terms of employment of Polish workers hired by a Polish company under Polish law, who were posted to the company`s construction site in Finland. The CJEU was asked by Finnish District Court id est (i.e.) whether article 3 of the Directive, read in  the light of treaty provisions protecting freedom to provide services, is to be interpreted as meaning, that the concept of minimum rates of pay covers basic hourly pay according to pay groups, guaranteed piecework pay, holiday allowance, flat-rate, daily allowance, compensation for daily travelling time and reimbursement of accommodation costs as defined in a collective agreement declared universally applicable in Finland and falling within the scope of the Directive.

In its reasoning, the Court emphasized that it is in the interests of the employers and their personnel the terms and conditions governing the employment of posted workers are imposed. Furthermore, the Court also underlined the objective of article 3, which is, firstly to ensure fair competition between national undertakings and undertakings, which provide services transnationally inasmuch as it requires the latter to provide their workers with certain minimum terms of employment in the host Member State.[16] According to the Court, it follows from the foregoing, that the company posting workers to another Member State is required to provide their workers the terms and conditions of employment laid down in mandatory law applicable in the host Member State. Secondly, the Court found, that provision aims to ensure that posted workers will have certain terms and conditions of employment applied to them while they work on a temporary basis in the territory of that Member State as the local workers. [17]

Mainly on foregoing grounds the Court considered in the Sähköalojen Ammattiliitto case, that minimum rates of pay, which a Member State can require to be paid include holiday allowances, daily flat rate allowances to compensate them for disadvantages of the posting and compensation for travelling time, as part of minimum wage, which must be paid to posted workers on equal terms as local workers. Further, the method of calculation and criteria used must be defined by national law or practice of the Member State to whose territory the worker is posted. Moreover, the court viewed, that the pay, which posted workers must receive for the paid annual holidays corresponds to the minimum wage to which those workers are entitled during the reference period. Finally, the Court acknowledged the validity of different hourly pay levels attached to the categorization of employees into pay groups included in collective agreements as part of the minimum wage for the purposes of the Directive, provided that their conditions are universally binding and transparent, which means, in particular, that they must be accessible and clear.[18] Instead, the Court viewed, that the coverage of the costs of posted workers` accommodation or an allowance taking the form of meal vouchers are not an element of their minimum wage for the purposes of the Directive.

The court developed in case Sähköalojen Ammattiliitto significantly the concept of minimum rates of pay for the purposes of the Directive by specifying the demarcation between the elements of wages on one hand and compensation of costs related to the job on the other. The judgment has also influenced significantly in the need for specifying the Directive on Posting of Workers in regard to the elements of pay which must be included into minimum wage and excluded from it as a compensation of costs.

In the background to the amendment of the Directive was the CJEU`s Judgment in Laval [19]. In the case the CJEU found the treaty provision on freedom of establishment and article 3 of the PWD as precluding the trade unions of the host Member State from reaching in collective bargaining process by industrial action for more favourable conditions of employment than the minimum applied in the host Member State in respect of terms specified in article 3 of the PWD. Therefore, the court made it clear in Laval case that the minimum terms and conditions within the “hard core” of the Directive is also the maximum that can be required in a host Member State. This created much debate and criticism in 2014 the enforcement Directive 2014/67/EC was adopted.

III.     Amendments of the Directive

Perhaps the most important amendment of the Directive is the extension of the scope of the Directive from construction sector to all labour market sectors. The aim of this is to guarantee equal treatment between local and posted workers throughout the EU labour market.

Furthermore, in the amended Directive the conditions of accommodation provided for by the employer to posted workers away from their regular place of work and their allowances or reimbursement of expenditure to cover travel, board and lodging expenses must be guaranteed in accordance with the law of the host Member State, irrespective of the law applicable to the employment.[20]

The important change in the Directive is that the concept of minimum rates of pay has been replaced by the concept remuneration. In the amended article 3 of the Directive, remuneration means all the elements of remuneration rendered mandatory by national law, regulation or administrative provision, collective agreement or arbitration awards, which have been declared universally applicable in the Member State to whose territory the worker is posted. This amendment means that rules on remuneration of local workers given by the Member States in accordance with their laws, administrative provisions or collective agreements are applied also to posted workers. In the introduction of the Directive the amendment was justified by the fact, that posted workers should receive at least the same allowances or reimbursement of expenditure to cover travel, board and lodging expenses for workers away from home for professional reasons that apply to local workers in that Member State. The same should apply to costs incurred a posted worker when he is required to travel to and from his regular place of work in the Member State to which territory he is posted. Double payment of travel, board and lodging expenses should be avoided.[21]

The purpose for replacing the concept of minimum rates of pay by the concept remuneration is to eliminate the differences in interpretation between the Member States of what is deemed to be included in minimum rates of pay, promote the equal treatment between local and posted workers and finally prevent unfair competition between undertakings by differences on wage costs across the Member States, i.e. social dumping.

The new Directive includes also a provision on mandatory requirement of equal treatment of posted temporary agency workers. According to the article 3 (1b) Member States must provide, that undertakings hiring out temporary agency workers to a user undertaking established or operating in the territory of a Member State, guarantee posted workers the terms and conditions of employment which apply pursuant to Article 5 of Directive 2008/104/EC to temporary agency workers hired-out by temporary-work agencies established in the Member State where the work is carried out. The Directive on Temporary Agency Work includes a principle that the basic working and employment conditions applicable to temporary agency workers should be at least those which would apply to such workers if they were recruited by the user undertaking to occupy the same job.[22]That principle must also be applied to temporary agency workers posted to the territory of another Member State. Where that principle applies, the user undertaking should inform the temporary-work agency about the working conditions and remuneration it applies to its workers. The intention of this amendment is to ensure the equal treatment between local workers and posted temporary agency workers in respect of terms of employment.

The principle of equal treatment is also extended to long-term posting of workers. The Directive states that where the effective duration of a posting exceeds twelve months, Member States must ensure, regardless of the applicable law of the employment relationship that undertakings guarantee on the basis of equality of treatment to workers who are posted in their territory the terms and conditions of employment specified in article 3(1). Moreover, the Member States must ensure, that all the applicable terms and conditions of employment which are laid down by laws, regulations or administrative provisions and/or collective agreements or arbitration awards in the Member States, where the work is carried out, are applied with the exclusion of procedures, formalities and conditions of the conclusion and termination of the employment contract, non-competition clauses and supplementary pension schemes. The intention is to ensure that posted worker is granted at least the same level of protection concerning the terms and conditions of employment as the local workers on the basis of labour legislation and applicable collective agreements in the Member State to whose territory the worker is posted.

A new provision is added into the article 3 (b) Directive, which is intended to clarify employer`s obligations laid down by the Directive in subcontracting chains. This provision gives power to the Member State to oblige undertakings to subcontract only to such undertakings that grant workers certain conditions on remuneration applicable to the contractor, including those resulting from non-applicable collective agreements. This is possible on a proportionate and non-discriminatory basis only and requires that the same obligations be imposed on all national sub-contractors.

According to the Commission, the aim of these amendments is to contribute to cross-border investments and service providing within the internal market and for that purpose create transparent and fair conditions for the posting of workers.[23]

Important amendment is also included in the Article 1 a. According to the article, the Directive intends not in any way to affect the exercising of fundamental rights as recognised in the Member States and at Union level. Nor does it affect the right to negotiate, to conclude and enforce collective agreements, or to take collective action in accordance with national law and/or practice.

New provisions are included in the Article 5 of the Directive aiming at improved enforcement of the obligations laid down by the Directive. According to the Article the host Member State and the Member State from which the worker is posted shall be responsible for the monitoring, control and enforcement of the obligations laid down in the Directive and in its enforcement Directive 2014/67/EC and they shall take appropriate measures in the event of failure to comply with this Directive. Correspondingly, the Member States shall lay down the rules on penalties applicable to infringements of national provisions adopted pursuant to this Directive and undertake measures to ensure, that they are implemented. Where, following an overall assessment made pursuant to Article 4 of Directive 2014/67/EU by a Member State, it is established that an undertaking is improperly or fraudulently creating the impression that the situation of a worker falls within the scope of this Directive, that Member State shall ensure that the worker benefits from relevant law and practice. Finally according to the Article 5 of the Directive the Member States shall ensure, that this Article does not lead to the worker concerned being subject to less favourable conditions than those applicable to posted workers.

IV.     Conclusions

It should be noted, firstly, that the CJEU has accepted in its established case law several restrictions to freedom to provide services on grounds of employee protection. The court, however, seems to restrict the most protectionist tendencies in its interpretation of host state rules allowing regulations that reasonably serve the objective of social protection of workers only. The court has acknowledged, that protection of workers is a major factor in the consideration of public interest.

The aim of the PWD is to meet the balance between two opposing interests, freedom to provide services and workers protection. Since the scope of the original Directive was restricted to construction sector only, its regulatory approach and the extent to which it prevented difference in treatment between local and posted workers has been criticized. In this regard, the extension of the scope of the Directive to be concerned all the labour market sectors can be considered as a significant change, although it may cause criticism that protectionism increases at the cost of freedom to provide services within the EU. It can also be criticized why the legal base of the Directive continues to be in the TFEU provisions on freedom to provide services­- instead of social policy-  although the intention of the Directive is also clearly to protect employees while they are posted from a Member State to another. It remains to be seen how the formulation of legal base of the Directive steers the interpretation of the Directive in future case law. But there are some significant grounds on which it is justifiable to believe, that the new Directive will be interpreted in accordance with CJEU`s case in Laval jurisprudence with regards its most relevant parts and the Monti-clause will not change the legal position in this regard.

Also the impact of article 1 a of the Directive to the collective bargaining in Member States is unclear. The Directive intends not to affect the right to negotiate collective agreements. As the CJEU has, however, concluded in the Laval case, that trade unions cannot reach in collective bargaining for more favourable terms of employment than the national minimum, it remains to be seen what is the impact of said article in the interpretation of the Directive.

Furthermore, as the Directive intends to prevent unfair competition by wages and protect workers from social dumping, the amendment where the concept of minimum rates of pay is replaced by the concept of remuneration can be considered as justified and equality promoting within the Member States. Equality of treatment has been ensured also in respect of posted temporary agency workers by obligating Member States to provide, that the undertakings hiring out temporary agency workers to a user undertaking operating in the territory of a Member State, guarantee posted workers the terms of employment which would have been applied had the undertaking recruited the worker to occupy the same job.  

Finally, it is worth of noting the influence of the CJEU case law in the development of the PWD in preparing the original Directive. The CJEU has had its handprint to the content of the Directive in the first phase before the adoption of the Directive by considering that the Member States may extend their regulation or valid collective agreements to any person who is employed even temporarily in their territory or enforcing those rules by appropriate means irrespective of the country the employer is established in.[24]  In the second phase the impetus behind replacing the concept of “minimum rates of pay” in the Directive by the concept of remuneration can be seen the C-396/13 case where the Court extended the scope of mandatory rules of the host Member State which must be complied in minimum by the employer of the posted workers during their posting.



[1] Directive 96/71/EC of the European Parliament and of the Council of 16.12.1996 Concerning the Posting of Workers in the Framework of the Provision of Services (European Community Official Journal (OJ) 1997 L 18/1)

[2] Proposal for a Directive of the European Parliament and of the Council amending Directive 96/71/EC of The European Parliament and of the Council of 16.12.1996 concerning the posting of workers in the framework of the provision of services, COM(2016) 128 final, 8.3.2016.

[3] Directive 96/71/EC, paragraph (para) 5

[4] The treaty basis for the Directive are articles 53 and 62 Treaty on the Functioning of the Euro­pean Union (TFEU).

[5] European Court of Justice (CJEU) 27.3.1990 -C-113/89 para 18 -Rush Portuguesa.

[6] CJEU 3.2.1982-62/81 and 63/81 -Seco.

[7] CJEU 9.8.1994 -C-43/93 paras 14-18 and 24 - Van der Elst.

[8] CJEU 28.3.1996 - C-272/94 - Guiot.

[9] CJEU 23.11.1999 -C-369/96 and C-376/96 -Arblade.

[10] Article 1 (1) of the Directive 1 (1).

[11] These key matters are enumerated in article 1 (1) and concern maximum work periods and min­imum rest period; minimum paid annual holidays; the minimum rates of pay including overtime rates, the conditions of hiring-out of workers; health, safety and hygiene at work; protective measures with regard to the terms and conditions of employment of pregnant women or women who have recently given birth, of children and of young people; equality of treatment between men and women and other provisions on non-discrimination.

[12] CJEU 14.4.2005 - C-341/02 - Commission/Germany.

[13] CJEU 14.4.2005 - C-341/02 paras 39-40- Commission/Germany.

[14] The CJEU applied same criterion in case 7.11.2013 - C-522/12 - Isbir in assessing whether lump sum payment based on collective agreement was an element of national minimum wage; see Bayreuther, Europäische Zeitschrift fur Arbeitsrecht (EuZA) 2014, 189.

[15] CJEU 12.2.2015 - C-396/13 - Sähköalojen Ammattiliitto; see Bayreuther, EuZA 2015, 346.

[16] CJEU 12.2.2015 -C-396/13 para 28 -Sähköalojen Ammattiliitto.

[17] CJEU 12.2.2015 -C-396/13 para 30-Sähköalojen Ammattiliitto.

[18] CJEU 12.2.2015 -C-396/13 - Sähköalojen Ammattiliitto.

[19] CJEU 18.12.2007-C-341/05-Laval.

[20] Article 3 (1) of the Directive 96/71/EC

[21] Proposal for a Directive of the European Parliament and of the Council amending the Directive 96171/EC, para 7 b, 2016/0070 (COD).

[22] Introduction to the Directive 957/2018/EC amending the Directive 96/71/EC, para 12.

[23] Explanatory Memorandum of the Directive on Posted Workers, COM(2016) 128 Final, 8.3. 2016.

[24] CJEU 27.3.1990 - C-113/89 para 18 - Rush Portuguesa.

For more information contact

Markus Sädevirta, Specialist Counsel

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