The Nordic Model of Labour Relations and the Vaxholm case

It might therefore be surprising that a major conflict concerning the use of workers from Latvia at a Swedish building site has been referred to the European Court of Justice (ECJ) in Luxembourg. ln the following we try to explain the background and context of the conflict as well as the issues at stake in the court procedure.

The circumstances of the case Laval un Partneri Ltd (Laval) is a Latvian company. Laval hires out labour from Latvia. A Swedish company was performing a contract for building a school in the town of Vaxholm. In performing the contract this company hired Latvian building workers from Laval.

Laval was not bound by the collective agreements of any Swedish trade union. Laval was bound by two collective agreement: with the Latvian building workers trade union.

The local section of the Swedish Building Workers' Union contacted Laval in order to secure a collective agreement regarding the building work at the school in Vaxholm. In the month to come there was contact between the local section of the union and Laval several times, but no collective agreement was signed. In October, the section gave a written notice of industrial action, including a ban on all building and installation work at Laval's workplaces. The industrial action began on 2 November 2004. This action  was supported by the Swedish Electricians Union through so-called secondary action.

In December 2004, Laval brought an action before the Swedish Labour Court against the Swedish unions. Laval claimed that the industrial action broke EU law, and should be lifted.

The Labour Court decided to make a reference for a preliminary ruling to the ECJ. The court's ruling is expected late in 2007. 

The Swedish model 

The Swedish labour market is characterised by strong organisations. About 80 % of the employees are members of trade unions. There is also a high level of employer organisation.

The labour market in Sweden is regulated by laws and collective agreements. As regards pay and other remuneration there is no legislation, but collective agreements which are binding under civil law. The state takes no responsibility for ensuring that collective agreements apply; the trade unions must ensure that each individual employer is bound by a collective agreement based purely on the law of contract. This happens either with the employer joining an employer organisation with a collective agreement, with a trade union or through a direct agreement between the employer and the relevant trade union. Without a collective agreement an employer might in theory agree on any rate of pay with his employees. ln practice the employer will be forced by the trade unions to apply standards that are not unreasonably low.

Hence the state has transferred the rights to safeguard their interests to the employees themselves, through their trade unions. A basic condition for this is that the trade unions are representative and have effective means of inducing employers to sign collective agreements.

When a collective agreement is in force between the parties there is in principle a total obligation to keep industrial peace. When there is no collective agreement a trade union is free to take industrial action, including sympathy action, to induce the employer to sign an agreement, regardless of whether the trade union has members at the workplace or not.

In EU member states there is a prevailing presumption that minimum labour standards must be maintained by all employers in a given industry or profession, regardless of whether they have concluded collective agreements or not. The methods used to achieve this vary however In some member states there is legislation on minimum wages. In many member states there are systems for extending collective agreements, making the general applicable on in other words, giving them an erga omnes effect.

The problems in the Vaxholm case

In Sweden and Denmark there are neither systems of general applicable collective agreements nor a set minimum wage. Instead, the method used might be classified as the autonomous collective agreements model. According to this model it is de facto the responsibility of the trade unions to uphold a general level on wages and employment conditions and protect the workers from social dumping.

 The parties in the Vaxholm case agreed that the industrial action undertaken against Laval was fully in line with Swedish law and practice. Laval claimed, however that EU law contained certain restrictions which took precedent over Swedish law.

The question posed by the employer Laval, which was using its right to free movement of services within the EU, was whether it had to enter into a collective agreement in Sweden in order to be able to fulfil its contractual obligations.The company also asked whether the trade unions could lawfully take industrial action and secondary actions in order to force it to sign the collective agreement. Then the company wanted to know whether the company-level collective agreement they had would have any impact on their legal position in Sweden.

Finally the company asked which wage level or content of the agreement it had to accept.

These issues were “translated” by the Swedish Labour Court to roughly three legal questions concerning the interpretation of EU law. The first one has to do with the relationship between the EC Treaty provisions on free movement of services and the right to undertake industrial action. The second one is related to the Posting of Workers Directive. The third issue at stake is whether the Swedish "Lex Britannia" is in conformity with EU law. ln the following presentation we deal shortly with all these three issues.

It seems clear that the right to strike, protected by the Swedish constitution, only in very exceptional circumstances, were an industrial action is undertaken to pursue a clearly discriminatory goal, can be regarded to restrict the free movement of services in a way that is prohibited by the Treaty.

The Posting of Workers Directive enables member states to set a minimum standard on working conditions that also foreign service providers must adhere to. Many EU member states apply minimum wages (either based on law or by extension of collective agreement).

The issue at stake is whether the Swedish legislation that is silent on wages also can be seen as an acceptable implementation. The author finds a positive answer plausible, although there is room for an improvement of the transparency of the Swedish wage system.

"Lex Britannia" finally contains some special provisions concerning the right to take industrial action. If it is regarded as a problem in light of EU law it can quite easily be changed to fulfil the requirements.

Conclusions

In the Vaxholm case the ECJ has to assess some of the fundamental features of the Swedish labour relations model. A judgment can therefore potentially have a huge impact on the way this model functions. One can only therefore hope that the Court comes up with a balanced judgment that at the same time leaves the fundamental features of the Swedish model intact without opening up for a protectionist wave of restrictions for service providers within EU.