The EU's highest court rules that a Latvian builder doesn't need to pay union wages to foreigners working in Sweden
The EU's highest court has delivered a blow to the Swedish system of collective bargaining -- seen as underpinning the country's highly successful social model - by ruling that Swedish unions cannot force a foreign company to observe local pay deals.
In a keenly awaited judgement, the court said that a trade union blockade which forced a Latvian company using cheaper Latvian labourers into bankruptcy was illegal.
"Such action in the form of a blockade of sites constitutes a restriction on the freedom to provide services, which, in this case, is not justified with regard to the public interest of protecting workers," said the court.
The case arose in 2004, shortly after eight central and eastern European states with cheaper and more flexible labour forces, joined the European Union and was seen as a testing ground for member states with a more rigid and socially protected workforce.
The dispute centred around wages with the trade unionists urging Latvia's Laval - building a school in the Swedish city of Vaxholm - to pay higher Swedish construction sector wages to its Latvian workers.
The company refused leading the unionists to block the site eventually forcing Laval to leave.
But the court said that while such collective action can sometimes be justified under community law to protect against social dumping -- using workers with less social rights and lower wages - it cannot be used to force a company to enter into negotiations on pay where it is not clear what the outcome will be.
"Collective action cannot be justified with regard to the public interest objective of protecting workers where the negotiations on pay...form part of a national context characterised by a lack of provisions," said the court.
The court also said that union action forcing foreign companies into wage negotiations of "unspecified duration" is liable to make it "less attractive or more difficult" for a company to carry out construction work and "therefore constitutes a restriction on the freedom to provide services."
The freedom to provide services is a key pillar of the EU's internal market rules.
In a more positive note for trade unions, it said that if collective action is aimed at giving workers rights, which are already defined in national law, then it is justifiable under EU law.
The Nordic social model
The Nordic states say the collective system is the basis for their highly successful Nordic social model, which sees high employment and high social protection.
Reacting to the case, leftist Danish MEP Soren Sondergaard said it was a "catastrophe for the Nordic model, where trade unions have the right to protest against employers to secure decent collective agreements."
The Laval case stirred an impassioned debate in the EU as it was seen not only as a fundamental dispute between 'old' and 'new' member states but also whether the EU's internal market rules would trump rules on social protection.
At the time, internal market commissioner Charlie McCreevy caused outrage in Sweden by saying that he would argue against the country in the court case.
Reacting to the judgement, the commission on Tuesday said it was a "very nuanced" ruling and that it would analyse it "very carefully."
But it drew attention to what is set to be a key part of the ruling which states that organisations in one member state must take into account collective wage agreements of a foreign company "irrespective" of their content, or risk breaching EU law.