Posted Workers Directive and Proposed Revisions

Briana Chui // 9 February 2017

The European Union has ensured free movement between Member States for posted workers with the 1996 Posting of Workers Directive; that is, it has established a set of protections for workers sent, by their employers, under a temporary contract to a firm in another Member State. While one Member State’s working conditions may differ from another’s, these protections include minimum wages, limitations to work periods, health and hygiene conditions, equal treatment of men and women, etc. as a minimum requirement categorically. In March, 2016, the European Commission revisited these rules and proposed revisions so that the rules continue to preserve workers’ rights, but the current rules remain until the European Parliament and the Member States agree to the recently proposed revisions.

 

When presenting the revisions, older Member States argued that new Member States abuse the current Directive’s rules for social dumping: paying for cheaper labour than is available in their own country. The March proposal consists of revisions for the rules of remuneration, temporary work agencies, and long-term posting with the goals of increasing transparency, increasing legal certainty, furthering protection of workers, and forming symmetry between domestic firms and posting firms with respect to wage-bargaining systems. However, a recent study by the Lithuanian Free Market Institute reveals that these proposed changes would not dispel old Member States’ concern over social dumping.

 

First, in terms of remuneration of posted workers, the March proposals differ from the current rules in that they ensure that posted workers are to be receive equal pay and the same working conditions as local workers. The current rules merely ensure that posted workers receive a minimum wage and a minimum set of working conditions. These changes would mean that, within each Member State, the differences between posted workers and domestic workers would be diminished because posted workers from other countries would be allowed the same privileges of promotions, raises, bonuses, and the like that are already granted to domestic workers.

 

In order to be certain that firms adhere to these standards of fairness, the Member States would have to make explicit the composition of remuneration within their respective territories. Such a requirement not only forces Member States to conform to the potential revisions of the Directive but also promotes transparency in order for posted workers to have access to full information. Ideally, that transparency will encourage competition between Member States’ processes and regulations of working conditions for the posted workers’ labour.

 

Second, the proposed revision to rules for temporary work agencies works similarly. Within a Member State, when an agency posts workers who are established abroad, the Member State’s national rules on temporary agency work must apply. That is, when an employer in one Member State sends for a worker from another Member State, the employer must apply his Member State’s rules on temporary work to the incoming worker. Again, such a protection allows for posted workers to determine which Member States have the most desirable working conditions, encouraging competition for labour.

 

Third, the proposal in March addresses long-term postings—ones that occur for longer than two years. Under the revisions, a worker who has been posted to another Member State for more than two years will thereafter work under the labour laws of the receiving country if they benefit the worker. This allowance supposedly awards the worker the best of the two countries’ working conditions after being posted for over two years.

 

Overall, the Directive and its revisions aim to level the playing field between posted workers and domestic workers and that between companies in different Member States. But based on the analysis from the Lithuanian Free Market Institute, the proposed revisions represent a misunderstanding of the economic differences between Member States. More importantly, the LFMI’s analysis reveals that the old Member States’ worries over minimum wages and the principle of “equal pay for equal work in the same place” are not grounded in the Member States’ differences in protective labour laws.

 

As such, the proposed revisions would not necessarily lead to competition between Member States in the labour market. The LFMI argues that the difference in minimum wages is not a matter of competition; rather, it is a matter of the difference in level of economic development between the Member States. Additionally, the principle of equal pay for equal work cannot exist across Member States of the European Union without first existing within each Member State—which, according to the LFMI, it does not. There is no indication that one domestic worker would be paid the same as another domestic worker providing similar labour; so there is no reason to believe that the Directive’s revisions will equate the pay of domestic workers and posted workers providing the same labour.

 

Accordingly, the revisions may do little to actually boost competition in the labour market between Member States. To level the playing field, the European Commission will have to consider factors influencing the labour market of its Member States than mere protections to working conditions.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).