RIGHT OF ESTABLISHMENT AND RIGHT TO COLLECTIVE ACTION: A “VIKING” INVASION OF ENGLISH COURTS?

Por

JUSTIN O. FROSINI

Lecturer of Public Law

Bocconi University, Milan

[email protected]

SUMMARY: 1. INTRODUCTION.– 2. THE SITUATION THAT GAVE RISE TO THE VIKING CASE.– 3. THE KEY ISSUES OF THE CASE.– 3.1. The scope of Art. 43 EC. 3.2. Horizontal direct effect. 3.3. Collective action vs. Right of Establishment. 3.3.1. Is collective action a restriction? 3.3.2. Are the restrictions justified?.– 4. CONCLUDING REMARKS EN ATTENDANT THE COURT OF APPEAL.

1. INTRODUCTION

On 11th December 2007, the Grand Chamber of the European Court of Justice (ECJ) delivered a preliminary ruling on a series of questions concerning the right of establishment and the right to collective action referred to it by the Court of Appeal (England and Wales), (Civil Division). Just three days later, in Lisbon, the twenty-seven Member States of the European Union signed the European Reform Treaty(1), including a Protocol with which the United Kingdom (and Poland) obtained an opt-out with regard to the Application of the Charter of Fundamental Rights of the European Union. In particular, according to Art. 1, para. 2 of that Protocol, nothing in Title IV of the Charter – the part concerning Economic and Social Rights – can create justiciable rights applicable to the United Kingdom except in so far as it has provided for such rights in its national law.

The connection between these two events might be best illustrated by an Early Day Motion(2) presented on 17th December 2007 in the House of Commons by twenty-six, mainly Labour MPs:

<<That this House expresses its concern about the European Court of Justice judgment made on 11th December against the Finnish seafarers’ right to take action on the grounds of employers’ freedom of establishment; notes specifically that this ruling would allow Viking Line to ignore collective agreements made with Finnish unions, re-flag its vessels to Estonia and recruit local crews on lower rates of pay; notes that at the same time the ECJ recognised that the right to take industrial action is a ‘fundamental right of overriding public importance’; is further concerned that this contradictory judgment has profound longer term implications as courts and legislators may in future take the judgment as a licence to undermine industrial action and decide the legality of industrial action under EC law; considers that this judgment provides further evidence that the European Union is increasingly promoting a neo-liberal economic agenda which will further restrict and weaken trade union and worker rights; believes that this process will be strengthened with further integration of the European Union under the Lisbon Treaty; and therefore calls for a referendum on the Treaty as a matter of urgency>>.

In truth, the motion makes no reference to the UK’s opt-out protocol and thus appears to disregard Art. 6 of the Treaty which states that <<The Union recognises the rights, freedoms and principles set out in the Charter of Fundamental Rights of the European Union… which shall have the same legal value as the Treaties>>. Furthermore, does the 11th December judgment really provide further evidence of a neo-liberal economic agenda which will further weaken trade union and worker rights?

In answering this question it should be noted that, in the context of studies on comparative public law, the decision taken by the ECJ is of particular interest because it addresses the ongoing issue of the relationship between the rights and freedoms contained in the EC Treaty and fundamental economic and social rights. One has to ask oneself whether this judgment establishes some sort of hierarchy. Moreover, as we shall see, this preliminary ruling, combined with the main proceedings in the Court of Appeal in London, provides a clear illustration of how the Latin brocard iura novit curia has evolved and how the very concept of comparative law has assumed a new significance. This case note does not have the aim of exhaustively addressing the above-mentioned issues (because, among other things, one must wait for the final decision by the Court of Appeal to comprehend the full significance of this preliminary ruling), but merely to provide an overview of a judgment that is likely to be considered a landmark decision in the future.

2. THE SITUATION THAT GAVE RISE TO THE VIKING CASE

First of all what was the situation that gave rise to this case? Citing from the Opinion of the Advocate General Poiares Maduro delivered on 23rd May 2007(3) it was the following: <<A Finnish operator of ferry services between Helsinki and Tallinn wished to change its place of establishment to Estonia in order to benefit from lower wage levels and provide its services from there. A Finnish trade union, supported by an international association of trade unions, sought to prevent this from happening and threatened strike action and boycotts if the company were to move without maintaining its current wage levels. The legal problems raised by this stand-off touch on the horizontal effect of the Treaty provisions on freedom of movement, and on the relationship between social rights and the rights to freedom of movement>>.

With regard to the facts of the case, again citing from the Opinion of the Advocate General, the following should be underlined: <<The Rosella has been operating at a loss, being in competition with Estonian-flagged vessels on the same route between Tallinn and Helsinki. Estonian crew wages are lower than Finnish crew wages. Since the Rosella sails under the Finnish flag, Viking Line is obliged by Finnish law and by the terms of a collective bargaining agreement to pay the crew at Finnish wage levels. In October 2003, Viking Line sought to reflag the Rosella and register the vessel in Estonia, with a view to entering into a collective bargaining agreement with an Estonian union. It gave notice of its proposal to the crew and to the Finnish Seamen’s Union (‘the FSU’). The FSU made it clear to Viking Line that it was opposed to the proposal to reflag the Rosella. The FSU asked the International Transport Workers’ Federation (‘the ITF’) to inform all affiliated unions about the matter and to request them not to negotiate with Viking Line. On 6 November 2003, the ITF did as requested and sent out a circular, in which it called upon the affiliated unions not to enter into negotiations with Viking. Affiliated unions would not go against the circular because of the principle of solidarity. Failure to comply could lead to sanctions being taken – in the worst case exclusion from the ITF. The circular therefore effectively precluded any possibility of Viking Line circumventing the FSU and dealing directly with an Estonian union. Furthermore, the FSU claimed that the manning agreement for the Rosella expired on 17 November 2003 and that in consequence it was no longer under an obligation of industrial peace. The FSU gave notice that it intended to start industrial action in relation to the Rosella on 2 December 2003. It demanded that the crew be increased by eight and that Viking Line either give up its reflagging plans or that, in the event of reflagging, the crew should be employed under Finnish labour conditions. Viking Line initiated judicial proceedings in the Helsinki Labour Court for a declaration that the manning agreement remained in force and in the Helsinki District Court for an injunction to restrain the strike action. However, neither court was able to hear Viking Line in time(4).

On 2 December, Viking Line settled the dispute because of the threat of strike action. Viking Line conceded the extra crew and agreed not to commence reflagging before 28 February 2005. It also agreed to discontinue the proceedings before the Labour Court and the District Court.

An important event then took place on 1st May 2004, the Republic of Estonia became a member of the European Union.

The Rosella continued to make losses. Viking Line, still wishing to reflag the vessel to Estonia, planned to do so after the expiry of the new manning agreement on 28 February 2005.

Anticipating that a new attempt to reflag the Rosella would precipitate collective action from the ITF and the FSU once more, Viking Line brought an action in the Commercial Court in London(5) on 18 August 2004, seeking declaratory and injunctive relief which required ITF to withdraw the circular and FSU not to interfere with Viking Line’s rights to freedom of movement in relation to the reflagging of the Rosella. While the action was pending, the manning agreement for the Rosella was renewed until February 2008. As a consequence, the date of 28th February 2005 ceased to be of critical importance, but the Rosella continued to operate at a loss, as a result of working conditions that were less favourable for Viking Line than Estonian working conditions. It remained important, therefore, that the position be resolved. By judgment of 16th June 2005, the Commercial Court granted final injunctions upon an undertaking being given by Viking Line not to make any employees redundant as a result of the reflagging(6).

On 30 June 2005, the ITF and the FSU filed an appeal against that judgment before the Court of Appeal (Civil Division). By order of 3rd November 2005, the Court of Appeal referred ten questions to the Court of Justice for a preliminary ruling(7).

3. THE KEY ISSUES OF THE CASE

As Advocate General Poiares Maduro underlines these questions were <<meticulously worded>>(8), however they can be summarised in three key issues.

First of all does collective action such as that under consideration fall outside the scope of Art. 43 EC and Art. 1 (1) of Council Regulation (EEC) No 4055/86(9) by virtue of the Community’s social policy?

Second, do those same provisions have horizontal direct effect so as to confer rights on a private undertaking which may be relied on against … a trade union or association of trade unions in respect of collective action by that union or association of unions?

Third and finally, do the actions under consideration constitute a restriction of freedom of movement? If so, are they objectively justified, appropriate and proportionate? In other words do they “strike a fair balance between the fundamental social right to take collective action and the freedom to establish and provided services”(10).

1. The scope of Art. 43 EC

With regard to the scope of Art. 43 – the provision of the Treaty on Freedom of establishment – the ECJ stated that this provision should be interpreted as meaning that, in principle, collective action initiated by a trade union or a group of trade unions against an undertaking in order to induce the latter to enter into a collective agreement is not excluded from the scope of that article(11). In brief, the ECJ justifies this interpretation first by underlying that according to settled case-law, Art. 43 EC (but also Arts 39 and 49 EC concerning freedom of movement of workers and freedom to provide services) do not apply only to the actions of public authorities, but extend also to rules of any other nature aimed at regulating in a collective manner gainful employment, self-employment and the provision of services(12). In fact the Court underlines the fact that limiting application of the prohibitions laid down by these articles to acts of a public authority would risk creating inequality in its application.

From a comparative perspective, in underlining that collective action is not excluded from the scope of Art. 43 EC, it is interesting to note that the Court dissents with the two observations one submitted by the Danish Government the other submitted by both the Danish and Swedish Governments.

First of all, the Danish Government submitted that the right to strike falls outside the scope of the fundamental freedom laid down in Article 43 EC since, in accordance with Article 137(5) EC, as amended by the Treaty of Nice, the Community does not have competence to regulate this right. The ECJ disagreed with this observation pointing out that, even if, in the areas which fall outside the scope of the Community’s competence, the Member States are still free, in principle, to lay down the conditions governing the existence and exercise of the right to strike, the fact remains that, when exercising that competence, the Member States must nevertheless comply with Community law(13).

Second, the Danish and Swedish Governments argued that the right to take collective action, including the right to strike, constitutes a fundamental right which, as such, falls outside the scope of Article 43 EC.

Here the ECJ recalls the fact that the right to take collective action, including the right to strike, is recognised both by various international instruments which the Member States have signed or cooperated in(14) and by instruments developed by those Member States at Community level or in the context of the European Union(15).

It thus points out that the right to strike must be recognised as a fundamental right which forms an integral part of the general principles of Community law, the observance of which the Court ensures. Notwithstanding this, the Court goes on to underline the fact that the exercise of the right to strike may be subject to certain restrictions. In particular the ECJ makes reference to Article 28 of the Charter of Fundamental Rights of the European Union according to which the workers and employers have, in accordance with Community law and national laws and practices, the right to strike in order to defend their interests in cases of conflict. As stated in previous case law, the Court points out the fact that the protection of fundamental rights is a legitimate interest which, in principle, justifies a restriction of the obligations imposed by Community law, even under a fundamental freedom guaranteed by the Treaty, such as the free movement of goods(16) or freedom to provide services(17). However, referring to the same case law, the Court also underlines that the exercise of fundamental rights does not fall outside the scope of the provisions of the Treaty. On the contrary such exercise must be reconciled with the requirements relating to rights protected under the Treaty and in accordance with the principle of proportionality(18).

2. Horizontal direct effect

With regard to the second key issue, i.e. whether Art. 43 EC has horizontal direct effect so as to confer rights on a private undertaking which may be relied on against a trade union or an association of trade unions, unsurprisingly the Court appears to have no doubt. Here it suffices to say that in its ruling the Court points out that it is clear from its case-law that the abolition of obstacles to freedom of movement for persons and freedom to provide services would be compromised if the abolition of State barriers could be neutralised by obstacles resulting from the exercise, by associations or organisations not governed by public law. The fact that certain provisions of the Treaty are formally addressed to the Member States does not prevent rights from being conferred at the same time on any individual who has an interest in compliance with the obligations. Furthermore, the prohibition on prejudicing a fundamental freedom laid down in a provision of the Treaty that is mandatory in nature, applies in particular to all agreements intended to regulate paid labour collectively(19).

3. Collective action vs. Right of Establishment

Finally, and most importantly in the context of this case note, the third key issue: do the actions under consideration constitute a restriction of freedom of movement and if so, are they objectively justified, appropriate and proportionate?

1. Is collective action a restriction?

In paragraphs 67 to 73 the Court addresses the question of whether collective action constitutes a restriction to the freedom of establishment. As with the issue of horizontal direct effect, the answer of the Court is not surprising: collective action such as that at issue in the main proceedings does constitute a restriction on freedom of establishment within the meaning of Article 43 EC. In justifying this conclusion the Court begins by stating that <<freedom of establishment constitutes one of the fundamental principles of the Community and that the provisions of the Treaty guaranteeing that freedom have been directly applicable since the end of the transitional period. Those provisions secure the right of establishment in another Member State not merely for Community nationals but also for the companies or firms referred to in Article 48 EC>>(20). The Court then goes on to state that <<according to the settled case-law of the Court, the definition of establishment within the meaning of those articles of the Treaty involves the actual pursuit of an economic activity through a fixed establishment in another Member State for an indefinite period and registration of a vessel cannot be separated from the exercise of the freedom of establishment where the vessel serves as a vehicle for the pursuit of an economic activity that includes fixed establishment in the State of registration(21)>>. The Court concluded from this that the conditions laid down for the registration of vessels must not form an obstacle to freedom of establishment. For this reason the Court states that it cannot be disputed that collective action such as that envisaged by FSU has the effect of making less attractive, or even pointless, Viking’s exercise of its right to freedom of establishment and the collective action taken in order to implement ITF’s policy must be considered to be at least liable to restrict Viking’s exercise of its right of freedom of establishment.

2. Are the restrictions justified?

Now to the crucial point of the decision: are these restrictions justified? The ITF, supported, in particular, by the German, Irish and Finnish Governments, maintained that they are justified since they are necessary to ensure the protection of a fundamental right recognised under Community law and their objective is to protect the rights of workers, an overriding reason of public interest which, according to the case law of the ECJ constitutes a restriction on freedom of establishment that can be accepted. With regard to this argument the Court acknowledges the fact that <<the right to take collective action for the protection of workers is a legitimate interest which, in principle, justifies a restriction of one of the fundamental freedoms guaranteed by the Treaty and that the protection of workers is one of the overriding reasons of public interest recognised by the Court>>. Significantly the Court goes on to add that since the Community has <<not only an economic but also a social purpose, the rights under the provisions of the Treaty on the free movement of goods, persons, services and capital must be balanced against the objectives pursued by social policy>> (italics added).

At this point, given that the judgment consists of a preliminary ruling under Art. 234 EC, the Court indicates what the national court has to ascertain, determine and examine. First, in Paragraph 80, it states that <<it is for the national court to ascertain whether the objectives pursued by FSU and ITF by means of the collective action which they initiated concerned the protection of workers>> and then, in paragraphs 81-83, it explains how the Court of Appeal can go about this. In particular, it is for the national court to determine whether the jobs or conditions of employment of that trade union’s members were jeopardised or under serious threat. If this is the case it would then have to ascertain whether the collective action initiated by FSU is suitable for ensuring the achievement of the objective pursued and does not go beyond what is necessary to attain that objective. At this point the Court, in paragraph 85, makes a statement which is of the utmost interest from a comparative standpoint: <<it must be pointed out that, even if it is ultimately for the national court, which has sole jurisdiction to assess the facts and interpret the national legislation, to determine whether and to what extent such collective action meets those requirements, the Court of Justice, which is called on to provide answers of use to the national court, may provide guidance, based on the file in the main proceedings and on the written and oral observations which have been submitted to it, in order to enable the national court to give judgment in the particular case before it>> (italics added). Under normal circumstances, there would be nothing unusual about this statement, given that the ECJ is delivering a preliminary ruling. In this particular case, however, the national court is the Court of Appeal of England and Wales (Civil Division) while the national legislation is that of Finland: as illustrated this means that the Latin brocard iura novit curia assumes a rather peculiar meaning in this context. In other words the Court of one Member State (the United Kingdom) is called upon to interpret the legislation of another Member State (Finland)(22).

4. CONCLUDING REMARKS EN ATTENDANT THE COURT OF APPEAL

The ECJ thus rules that, first, Article 43 EC is to be interpreted as meaning that, in principle, collective action initiated by a trade union or a group of trade unions against a private undertaking in order to induce that undertaking to enter into a collective agreement, the terms of which are liable to deter it from exercising freedom of establishment, is not excluded from the scope of that article; second, Article 43 EC is capable of conferring rights on a private undertaking which may be relied on against a trade union or an association of trade unions and, third, Article 43 EC is to be interpreted to the effect that collective action such as that at issue in the main proceedings, which seeks to induce a private undertaking whose registered office is in a given Member State to enter into a collective work agreement with a trade union established in that State and to apply the terms set out in that agreement to the employees of a subsidiary of that undertaking established in another Member State, constitutes a restriction within the meaning of that article. The Court goes on to underline that restriction may, in principle, be justified by an overriding reason of public interest, such as the protection of workers, provided that it is established that the restriction is suitable for ensuring the attainment of the legitimate objective pursued and does not go beyond what is necessary to achieve that objective(23).

One cannot draw any conclusions with regard to the relationship between the right of establishment and the right to collective action until the Court of Appeal has delivered its final judgment (this will be the object of a forthcoming case note), but there is no doubt that the ECJ has clearly laid the foundations for a decentralised (or if one prefers a diffused) system for the protection of these two rights. In other words it is the task of the national courts to establish whether the restriction to the right of establishment was appropriate and proportionate and therefore to find a balance between the two rights. What is undoubtedly curious, however, is the fact that a Court in London will be deciding inter alia whether Finnish legislation on the right to strike is appropriate and proportionate. Certainly this is a new frontier in European and comparative law, but it would also appear to be – if one will allow the quip – another “Viking” invasion of Britain…

NOTAS:

(1). Actually due to a “diary clash” the British Prime Minister Gordon Brown signed the treaty three hours later than the 26 other EU leaders, thus controversially missing the official ceremony and group photograph.

(2). EDM 597, ECJ Ruling on Viking Line (see http://edmi.parliament.uk/EDMi/EDMList.aspx)

(3). See Opinion in Case C-438/05 The International Transport Workers’ Federation and The Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti [2007], paragraph 1.

(4). Ibidem, paragraphs 5-8.

(5). Where the ITF is based.

(6). See Opinion in Case C-438/05 The International Transport Workers’ Federation and The Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti [2007], paragraphs 10-11.

(7). See http://www.bailii.org/ew/cases/EWCA/Civ/2005/1299.html.

(8). See Opinion in Case C-438/05 The International Transport Workers’ Federation and The Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti [2007], paragraph 12.

(9). Article 1(1) of Regulation No 4055/86 provides: «Freedom to provide maritime transport services between Member States and between Member States and third countries shall apply in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended».

(10). See Opinion in Case C-438/05 The International Transport Workers’ Federation and The Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti [2007], paragraphs 13-15.

(11). See Case C-438/05 The International Transport Workers’ Federation and The Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti [2007], point 55.

(12). The Court makes reference to the following case-law: Case 36/74 Walrave and Koch [1974] ECR 1405, paragraph 17; Case 13/76 Donà [1976] ECR 1333, paragraph 17; Bosman, paragraph 82; Joined Cases C-51/96 and C-191/97 Deliège [2000] ECR I-2549, paragraph 47; Case C-281/98 Angonese [2000] ECR I-4139, paragraph 31; and Case C-309/99 Wouters and Others [2002] ECR I-1577, paragraph 120).

(13). By analogy the Court refers to, in relation to social security, Case C-120/95 Decker [1998] ECR I-1831, paragraphs 22 and 23, and Case C-158/96 Kohll [1998] ECR I-1931, paragraphs 18 and 19; in relation to direct taxation, Case C-334/02 Commission v France [2004] ECR I-2229, paragraph 21, and Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraph 29. See Paragraphs 39-40 of the judgment.

(14). Such as the European Social Charter, 1961 and Convention No 87 concerning Freedom of Association and Protection of the Right to Organise, 1948.

(15). Such as the Community Charter of the Fundamental Social Rights of Workers, 1989 and the Charter of Fundamental Rights of the European Union, 2000.

(16). See Case C-112/00 Schmidberger [2003] ECR I-5659, paragraph 74.

(17). See Case C-36/02 Omega [2004] ECR I-9609, paragraph 35).

(18). See Case C-112/00 Schmidberger [2003] ECR I-5659, paragraph 77 and See Case C-36/02 Omega [2004] ECR I-9609, paragraph 35.

(19). Here the Court makes reference to the landmark Defrenne case (see Case 43/75 Defrenne [1976] ECR 455, paragraphs 31 and 39).

(20). Case 81/87 Daily Mail and General Trust [1988] ECR 5483, paragraph 15.

(21). Here, unsurprisingly, the Court makes reference to the famous Factortame Case (see Case C-221/89 Factortame and Others [1991] ECR I-3905, in particular paragraphs 20 to 22).

(22). It should be noted that in the decision with which the Court of Appeal referred its questions to the ECJ, it does mention the “Findings of the judge as to Finnish law”. In particular, the Court comes to the conclusion that, under Finnish law, the right to strike is subject to three sets of circumstances where it cannot be invoked: a) where the right to strike is ousted by a Finnish statute; b) where the strike is contra bonos mores; or c) where the strike is in breach of EC law directly applicable between the parties (see [2005] EWCA Civ 1299, Part B, Paragraph 26.

(23). Points 1, 2 and 3 of the preliminary ruling.