Norway in legal pickle over Posting Directive

ESA believes Norway is in breach of the EEA agreement when demanding that businesses that post workers there must pay compensation for travel, board and lodging in line with Norwegian collective agreements.

The Norwegian government’s letter is unusual. It is a response to a so-called letter of formal notice, the first step in a process at the end of which ESA can take Norway to the Efta Court. During this kind of exchange of notes governments usually use legal arguments to try to convince the surveillance authority (the EU Commission in the case of EU members) that it is wrong. 

Asking for a compromise

It does of course happen that a government backs down and promises to change its legislation. This time, referring to the Norwegian labour market model, the government is asking ESA to agree to a compromise. It still believes the Norwegian rules are compatible with the EEA agreement, but also thinks the social partners are ready to negotiate a solution which takes the EEA’s points of view into consideration, as long as they are given enough time.

So what is the conflict about? It all started in 2009 when nine companies in the shipping and shipyard sector went to court to avoid having to pay a range of different compensations as set out in the collective agreement for the sector. They argued Norway’s Tarrif Board’s decision to make the collective agreement provisions generally applicable was illegal, as it was in breach of the EU’s Directive on the Posting of Workers and the EEA agreement’s rules on the free movement of services.

After a while the dispute ended up in the Efta Court which agreed with the companies in part. Norway cannot demand that companies which post workers must pay for their travel when they start and finish their work in the country, plus a “reasonable” number of trips back home during that time, nor can it demand that the enterprise compensate employees for board and lodging in Norway, the Efta Court said. 

Ruled the other way

After the Efta Court had expressed how the EEA rules should be interpreted, it was the turn of the Supreme Court of Norway to rule on the substance of the case. And it ruled the very opposite of what the Efta Court had said! In March 2013 the Supreme Court proclaimed that the Tarrif Board’s decision to make the agreements generally applicable was consistent with the EEA agreement and should stand. It justified its conclusion by saying the provisions are crucial for the stability of the Norwegian wage setting system and the national economy.

The ruling created enormous upset not least among judges on the Efta Court. They publicly criticised the Supreme Court. The employers did not back down either. Soon the Confederation of Norwegian Enterprise, NHO, presented a complaint to ESA, which took up the issue. And now the criticism from ESA is not only focused on the employment conditions in the shipyard sector. Since the Supreme Court’s ruling the Collective Bargaining Board has also made other, similar provisions in the collective agreements for construction sites and cleaning trades generally applicable. This is not allowed, argues ESA.

A difficult position

The letter from ESA has put the Norwegian government in a difficult position. It cannot support the view that the country’s highest court has passed an erroneous ruling. At the same time it has to do something if it wants to avoid the case ending up in the Efta Court – which already has made its position clear. Therefore the government has latched onto something that ESA wrote in its letter: That these kinds of provisions can form part of the minimum rates of pay in accordance with the Posting Directive if they are framed in a different way than in the Norwegian collective agreements.

The surveillance authority refers to the ruling in the Finnish case Sähköalojen Ammattiliitto where the EU Court of Justice accepted flat rate daily allowances and travel compensation which were not linked to the employee’s actual costs for travel and lodging. 

Wants more time

This provides a basis for finding solutions which are both compatible with the Posting Directive and which take into account the important considerations on which the Supreme Court’s ruling is built, the government writes. In line with the Norwegian wage setting system, it is the social partners who must arrive at the solution, and they have shown willing to try to change the collective agreement’s provisions on travel, board and lodging. After that, the Tariff Board can choose to make them generally applicable. This avoids interfering with the parties’ autonomy, which helps establish robust and lasting solutions.

The government underlines that it cannot guarantee that the parties can reach an agreement, or its possible content, but it is very hopeful. It is, however, important to give them enough time to implement the process within their respective organisations, and results will probably not be ready before the 2018 wage bargaining round.

Still the parties are under pressure. When it comes to the EEA, it is the state’s responsibility to make sure Norwegian regulations are not in breach of EEA law, and the government promises it will make sure to continuously monitor whether it needs to introduce more active measures to “ensure an effective solution”. Under such circumstances the employers’ organisations and trade unions ought to prefer to solve the problem themselves.

It remains to be seen whether ESA is prepared to wait until the wage negotiations. It would seem politically unwise not to do that now, just as EU member states are entering negotiations on changes to the Positing Directive and the European Commission has launched its idea of a European Pillar of Social Rights. In both cases the Nordic countries are fighting to preserve the collective agreement’s special position. That ought to make ESA hold its fire.