Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Innovation and Skills Committee and the Work and Pensions Committee
Proposal for a Directive amending Directive 96/71/EC concerning the posting of workers in the framework of the provision of services
Articles 53(1) and 62, TFEU
Business, Innovation and Skills
(37591), 6987/16 + ADDs 1–2, COM(16) 128
6.1The Commission proposes to revise the EU’s Posting of Workers Directive to address unfair practices and promote the principle that the same work at the same place should be remunerated in the same manner.
6.2Posted workers are those posted by an employer in one Member State to provide a service temporarily in another Member State. For example, a French company may have won a contract in Spain to deliver a service and sends employees there to carry out the contract on a temporary basis. The ability to post workers is considered to be an important aspect of the single market, particularly in the cross-border provision of services. In recognition of this, the EU adopted a Directive in 1996 which sought to establish a balance between the objectives of promoting and facilitating the cross-border provision of services, providing protection to posted workers and ensuring a level-playing field between foreign and local competitors. Further details of the 1996 Directive are set out later in the chapter.
6.3There have been concerns that the 1996 Directive establishes wage differentiation between posted and local workers. This, asserts the Commission, gives external companies a competitive advantage over those based locally and exerts a downward pressure on negotiated terms and conditions. In response to such concerns, the Commission proposes three key amendments to the 1996 Directive:
6.4These come in addition to the “Enforcement Directive”, which amended certain elements of the 1996 Directive and is due to be transposed by 18 June 2016. This responded to weak implementation and enforcement of the 1996 Directive. It provides for changes regarding legal clarity, improved access to information, co-operation between national authorities, monitoring of control and compliance measures and subcontracting liability.
6.5The new proposal falls within the category of documents to which national parliaments may object on the grounds that the subsidiarity principle has been breached. In the Explanatory Memorandum to its proposal, the Commission provides scant explanation of how the proposal is aligned with the subsidiarity principle, noting simply that an amendment to an existing Directive can only be achieved by adopting a new Directive. The Commission provides further analysis in its Impact Assessment, details of which we set out later in this Chapter.
6.6 The Minister for Employment Affairs, Nick Boles, offers no detail on the Government’s position in his Explanatory Memorandum. His comments are set out below.
6.7We are disappointed that the Government’s Explanatory Memorandum is devoid of substantive analysis. We ask the Minister to provide a timeframe within which we can expect to receive substantially more detail on the Government’s position.
6.8Of particular concern is the failure to offer any analysis of the proposal’s compliance with the principle of subsidiarity. It is unacceptable to simply repeat the Commission’s logic which, in this instance, amounts to the factual statement that EU legislation can only be amended through a further piece of EU legislation. This is not in itself a satisfactory subsidiarity justification.
6.9The only further comment made by the Government is its intention to assess whether the original Directive is consistent with the principle of subsidiarity. The rationale for the Government’s approach is unclear to us and we would therefore welcome clarification.
6.10We are concerned that the Commission has not provided a comprehensive explanation in the proposal’s Explanatory Memorandum of how the proposal aligns with the principle of subsidiarity. This is inconsistent with the requirement in the Treaty’s Subsidiarity and Proportionality Protocol that “any draft legislative act should contain a detailed statement making it possible to appraise compliance with the principles of subsidiarity and proportionality”.
6.11The Commission’s statement that EU legislation can only be amended through a further piece of EU legislation is true but it does not address the question of whether the policy objective of the amendment can only be achieved by action at EU level. The material in the Impact Assessment under the heading “Right to Act” is more helpful, but this should have been incorporated into the draft legislative act. Even the analysis in the Impact Assessment does not clearly assess the EU’s right to act to adopt the content of the proposed amendments.
6.12As set out in our analysis later in this Chapter, we do not recommend that the House issue a formal reasoned opinion on the grounds of breach of the principle of subsidiarity. However, in the light of further information from the Government, we will continue to review the proposal’s alignment with the principle of subsidiarity and will pursue the issue as necessary through the mechanism of the political dialogue between the Commission and national parliaments.
6.13The European Trade Union Confederation (ETUC) has criticised the proposed definition of collective agreements as too restrictive, noting that it will exclude most sectoral collective agreements in some countries and all company-level agreements. As company-level agreements are prevalent in the UK, we are unclear what impact the various aspects of the proposal will have on those workers posted to the UK and look to the Government to provide further information. Furthermore, the UK is not unique in this respect. If the revised legislation will have little effect across a number of Member States, what is the Government’s view on the proposal’s effectiveness in responding to the identified problem?
6.14We note a difference of view between groups of Member States and between stakeholders on the desirability of the proposed amendment. Various different arguments are reported by the Commission in the proposal’s Explanatory Memorandum. We would welcome the Government’s view on those arguments, including the argument that the principle of equal pay for equal work in the same place may be incompatible with the single market.
6.15The Minister notes that the Government will work with UK stakeholders to take their concerns into account. We wish to be assured by the Minister that such work will encompass trade unions as well as business and that business engagement will involve both businesses that post UK workers elsewhere as well as those that receive, or may be affected by, workers posted to the UK.
6.16The Minister also notes that it has yet to decide whether to conduct its own impact assessment. We ask in that context for the Government’s evaluation of the Commission’s impact assessment. We would be particularly interested in the Government’s view of the Commission’s problem definition.
6.17We retain the proposal under scrutiny and draw this Chapter to the attention of the Business, Innovation and Skills Committee and the Work and Pensions Committee. We look forward to a response from the Government by 27 April.
6.18The current legislation (1996 Directive) regulates three variants of postings: the direct provision of services between two companies under a service contract; posting in the context of a single business; and posting through hiring out a worker via a temporary work agency established in another Member State. The Directive sets the minimum standards for the rights and working conditions of posted workers. These must reflect at least the minimum standards applicable to local workers. It contains a set of terms and conditions that must be applied with respect to posted workers, including:
6.19The Commission’s Impact Assessment provides details on the extent of posting. In 2014, there were over 1.9 million postings in the EU. While this represents only 0.7% of the total EU labour force, the concentration in some sectors is high. The construction sector, for example, makes up about 43.7% of posted workers. Postings have risen by 10.3% as compared to 2013 and by 44.4% with respect to 2010. EU-15 Member States represent the destination of the majority (86%) of postings. Germany, France and Belgium together received over 50% of total postings.
6.20According to the Commission, the United Kingdom received 50,893 posted workers in 2014 (fifth highest in the EU) and it posted 33,092 in the same year (15th out of the EU-28). The recent trends show a reduction in workers posted from the UK and an increase in those posted to the UK. France, Germany and Spain together represent over 60% of the workers posted to the UK. Over 70% of workers posted to the UK are employed in the construction sector.
6.21The Commission argues that the 1996 Directive “establishes a structural differentiation of wage rules applying to posted and local workers which is the institutional source of an irregular playing field between posting and local companies, as well as of segmentation in the labour market”. It attributes wage differentiation to three factors:
6.22The Court of Justice (CJEU) has clarified on successive occasions the notion of “minimum rates of pay”. It has established, for example, that a host Member State can require sending companies to include in the payment to posted workers holiday allowances, daily flat-rate allowances to compensate workers for disadvantages entailed by the posting, and compensation for travelling time, on equal terms to those of local workers.
6.23The specific objectives of the Commission’s proposal are to: create a level playing-field for the cross-border provision of services through equal rules on wages applicable to posted and to local workers; and to improve the clarity of EU rules on posting by improving the consistency between different pieces of EU legislation, such as those on social security.
6.24The new proposal foresees that the same rules on remuneration of the host Member State apply, as laid down by law or by universally applicable collective agreements. Posted and local workers will therefore be subject to the same rules — including bonuses and allowances — when it comes to remuneration. The Commission is clear that the proposal “does not interfere in any way with the wage setting mechanisms of the Member States”.
6.25The Commission also proposes that the rules set by universally applicable collective agreements become mandatory for posted workers in all economic sectors. Currently, this is only applicable to the construction sector and Member States can choose whether to apply universally applicable collective agreements to posted workers to other sectors. Member States remain free to decide whether they make collective agreements universally-applicable or not. However, if they do, the respective agreement becomes applicable also to posted workers.
6.26In the context of sub-contracting chains, Member States will have the option to apply to posted workers the same rules on remuneration that are binding on the main contractor.
6.27The principle of equal treatment with local temporary agency workers will also be applied to posted temporary agency workers, thereby aligning the current legislation on domestic temporary agency work.
6.28The Commission also proposes that workers posted for longer than two years are at least covered by the mandatory rules of protection of the labour law of the host Member State, such as protection against unfair dismissal. A comparable 24 month rule already exists in the social security coordination legislation.
6.29In the Explanatory Memorandum to its proposal, the Commission acknowledges that views differ on the desirability of the proposed amendment to the Directive. It notes that Austria, Belgium, France, Germany, Luxembourg, the Netherlands and Sweden have supported a modernisation of the Directive in order to establish the principle of equal pay for equal work in the same place. A further nine Member States — all from among those that joined the EU in 2004 or 2007 — have argued against the amendment and consider that the principle of equal pay for equal work in the same place may be incompatible with the single market as pay rate differences constitute one legitimate element of competitive advantage for service providers. Industry is similarly divided on the need for further amendment.
6.30Crucial to an assessment of subsidiarity is an understanding of the problem itself and, particularly, any cross-border effects. The Commission states in its Impact Assessment:
“Differentiated rules on wages translate into a competitive advantage for posting companies over local companies in receiving countries, with the former being able to adhere to lower wages than the latter, while competing for the same business in the same (host) country. This is particularly true in domestically-provided services, such as construction and personal services, given their labour-intensive and price-sensitive character and the fact that delocalisation of these activities is not possible.”
6.31As to the labour market effect, the Commission states:
“The labour market effect of [the existing] provisions is segmentation between posted and local workers. Posted workers are reported to receive a lower remuneration level than local workers, especially in high-wage EU receiving countries, such as Belgium, Denmark, France, Germany, the Netherlands and Sweden. Because of the absence of data on the earnings of posted workers, only gross estimates exist. However, the wage gap (in compliance with the Directive) is estimated to range from 10–15% in the Danish construction sector, up to about 25%-35% in the construction sector in the Netherlands and Belgium, and up to 50% in the road transport sector in Belgium. The wage gap constitutes a source of labour market segmentation insofar as it implies differentiated rules applying to posted workers on aspects such as composition of pay, correspondence of certain bonuses, and longer working hours.”
6.32The Commission’s explanation of the proposal’s alignment with the principle of subsidiarity is the following:
“An amendment to an existing Directive can only be achieved by adopting a new Directive.”
6.33It expands on its arguments in its Impact Assessment:
“A regulative framework for posting of workers between Member States can only be established at EU level. The aims are to facilitate the cross-border provision of services through posting of workers by improving the clarity and transparency of applicable labour market rules in the host Member State(s) of posted workers; to ensure a level playing field for competition in the provision of services between posting companies and local companies in the host Member State, while ensuring that posted workers have an adequate level of protection while working in the host Member State.
“EU action in the form of a Directive is warranted to encourage the freedom to provide services across borders on the basis of article 56 of the Treaty on the Functioning of the European Union (TFEU).
“The Directive currently provides for a uniform and EU-wide regulatory framework setting a hard core of protective rules of the host Member State which need to be applied to posted workers, irrespective of their substance. Therefore, in full respect of the principle of subsidiarity, the Member States and the social partners at the appropriate level remain responsible for establishing their labour legislation, organising wage-setting systems and determining the level of remuneration and its constituent elements, in accordance with national law and practices. The envisaged initiative does not change this approach. It thus respects the principles of subsidiarity and proportionality and does not interfere with the competence of national authorities and social partners.”
6.34In his Explanatory Memorandum, the Minister offers the following comments in relation to subsidiarity:
“The European Commission have reasoned they are taking action as an amendment to an existing Directive. This can only be achieved by adopting a new Directive. We are reviewing whether there are subsidiarity concerns in relation to whether it was necessary to take action in the first instance.”
6.35We note, first, that amending legislation can breach the subsidiarity principle. The nature of the problem intended to be resolved through the amending legislation must be assessed.
6.36Under the principle of subsidiarity, the European Union should only act where it is better placed to address an identified problem than Member States acting individually.
6.37The Commission sets out some evidence to suggest that there is wage differentiation between posted and local workers and that this derives from differing national policies. It asserts that this gives posting companies a competitive advantage over local companies. It also asserts that segmentation is created between local and posted workers.
6.38Unfortunately, the Commission does not provide any evidence to substantiate its assertions. On the assumption that the assertions are valid, the European Union is better placed to address the identified problem than Member States acting individually due to its cross-border characteristics. We will wish, though, to return to our assessment in the light of further evidence about the identified effect of wage differentiation.
6.39We note also that this proposal is effectively rebalancing the existing Directive whose underlying objective is to “harmonise away” potential impediments to the internal market arising from Member States applying different derogations to the fundamental freedom. This is, in principle, appropriate use of EU competence.
6.40Concerning the policy implications of the proposal, the Minister notes that the principal objective of the proposal is to address unfair practices. He explains that wider policy implications have yet to be considered and that the Government will work with UK stakeholders with a view to taking their concerns into account during negotiations.
6.41The Government is yet to decide whether a formal consultation or a UK impact assessment are required.
59 C-396/13, Sähköalojen ammattiliittory.
18 April 2016