The Laval case, act III – Sweden's Labour Court rules union must pay high damages

The Laval case has reverberated throughout Sweden and the whole of Europe over the past few years. It began when the Swedish Building Workers' Union blockaded the site of a school in Vaxholm after the contractor, the Latvian construction company Laval un partnerei Ltd, refused to sign a collective agreement with the union on their terms. The conflict forced the Latvian workers to leave for Latvia, and the company went bankrupt.

The case ended up in the Swedish Labour Court (AD). It established that the union's industrial action was in line with Swedish labour law, but that it could be in breach of EU law. When a Swedish court deals with interpretations of EU law in cases that are unclear, it should request a preliminary ruling from the Court of Justice of the European Union on how EU law should be interpreted. The Swedish Labour Court sent a long list of questions to the Court of Justice which in particular dealt with the interpretation of the EU Directive on Posted Workers and the issues related to the so-called Lex Britannia. Lex Britannia is a section in the Co-Determination Act which states that  a Swedish union can take industrial action against a foreign company even if the company is bound by a foreign collective agreement.

Act II was played out in the Court of Justice of the European Union, which issued its judgment on 17 December 2007. It concluded the Swedish implementation of the Directive on Posted Workers was grossly inadequate and that the industrial action had been in breach of EU law. The court concluded the case in some detail, and the Swedish government launched a major Laval inquiry to revise its legislation to fulfill the demands of EU law. The inquiry has resulted in a bill which should come into effect on 1 April 1010.

Act III was played out in Sweden's Labour Court, which continued to handle the case. It was clear that the employer side and Laval would win the case, but there still remained several questions for the court to answer. The most important was who would be liable for damages. Would the union be liable for damages incurred as a result of the industrial action?

The demands in the court

Laval had now increased its demand for damages after making headway at the Court of Justice of the European Union. They now demanded close to three million kronor (€300,000), in damages from the opponent plus litigation expenses.

The main issue of principle was whether one party, a union, could become liable for damages for having broken EU law by taking industrial action in breach of EU rules. The employer side was of the opinion that damage liability was applicable, supported by both the Swedish Co-Determination Act (after the Court of Justice of the European Union had nullified the so-called Lex Britannia) as well as EU law.

The Swedish unions contested the claim for damages. They admitted that the industrial action was in breach of EU law, as the Court of Justice of the European Union had established. But they refused damage liability based on two things. Firstly they said there had been no breach of Swedish law because it had been followed in the shape it had when the industrial action took place. Therefore it was the Swedish state, and not the union, which had failed by upholding a law (Lex Britannia) which was in breach of an EU treaty.

Secondly the union said it could have no damage responsibility with basis in EU law, as there was no case law and also no damage liability which would efficiently guarantee legal protection for the employer.

A split court

A majority of the seven judges (four judges) in the Labour Court felt the Court of Justice of the European Union's judgment should be given retroactive effect, so that damages could be imposed even though the union could have acted in good faith regarding the legality of their actions when they were taken. Furthermore, the court thinks general principles on state damage liability in cases of breach of EU law can also be applied to individuals. The court sentenced the union to pay 700,000 kronor (€70,000) in damages as well as 2.1m kronor (€210,000) in litigation costs - a total of more than 2.8m kronor (€280,000). The demands for economic compensation, however, is refused because Laval has not been able to prove the size of its loss.

The minority of the judges (three judges) felt that the majority had hardly interpreted EU law correctly when issuing their ruling on the damage responsibility, and that in this case there was no need whatsoever to make a decision on damage liability because the legal position had been so unclear that damage liability in any case should be dismissed. So the minority did not wish to rule in favour of damage liability. The minority was also of a slightly different opinion on the sharing of court costs.

This judgment is important as principle. For the first time in EU history a union has been sentenced to pay damages for illegal industrial action, and somewhat paradoxically it is the Swedish Labour Court which has been leading the way in this respect. The judgment is highly controversial. According to EU law a national court must request advance notification when a question concerning the interpretation of EU law is unclear. It is impossible to understand how the court's majority can perceive the question to be clear, when qualified judges within the court are of a different opinion. The majority should have requested a preliminary ruling from the Court of Justice of the European Union and awaited an answer before passing its judgment.

What happens after the judgment?

It will be interesting to watch the reaction from Swedish unions. There is always the chance they will claim state compensation for the damages they have suffered because the Swedish Labour Court unilaterally concluded in the matter and because the damage was caused as a result of an incorrect implementation of EU law - which the Swedish state is responsible for. All indicators point to no curtain fall after act III in the Laval case, but a few more acts will be seen before this case is closed.