A resounding slap in the face for the European Commission

No ruling by the European Court of Justice (ECJ) had been expected with so much suspense for a long time. Under the microscope was one of the cornerstones of the German social market economy.

The European Supreme Court had to rule on whether the German regulations on Supervisory Board worker participation breached the ban of discrimination on grounds of nationality (in article 18 TFEU) and the ban on unjustified restrictions on the free movement of workers (article 45 TFEU). It is in the nature of the case that the German legislature can only require elections to the employee seats on supervisory boards in Germany. In these circumstances, the plaintiff saw this as a “restriction by discrimination” in the German main proceedings: the lack of an active and passive voting right discriminates against foreign workers and therefore also hinders the exchange of workplaces in a foreign subsidiary because it threatens the loss of the voting right.

The ECJ has to respond to questions submitted by the national courts. No, the scandal was the Commission’s behaviour.

If the ECJ had accepted this argument, it could have resulted in the removal of employee representatives from supervisory boards. The real scandal, however, was not that an opponent of worker participation could be found to act as the plaintiff in the main proceedings – there is no shortage of enemies of worker participation. The scandal was also not that the Berlin administrative court referred the case to the ECJ, even if one can only shake one’s head in regret at its doing so. And the scandal was also not that the ECJ accepted the referral of the question and considered the case. The ECJ has to respond to questions submitted by the national courts. No, the scandal was the Commission’s behaviour.

At first, the Commission, in its written comments to the ECJ, accepted the position of the plaintiff without reservation: German co-determination was an unjustified restriction on the free movement of workers and was therefore contrary to European law (go here for comments on this). At the hearing, the Commission then corrected its legal position. In order to be able to classify this correction intelligibly, it is necessary to understand that the European Court of Justice follows two steps in such cases. In the first step, the question is whether there is a restriction of a basic freedom. If this is the case, a justification test follows in a second step: if the restriction a compelling matter of the public interest, is applied without discrimination, actually achieves the objective pursued and does not go beyond what is necessary for this purpose, it is compatible with European law. At the hearing, the Commission took the view that German worker participation constituted a restriction of the free movement of workers, but was justified by overriding reasons of public interest.

This would have opened the door for a considerable acceleration of the deregulation policy being pursued by the European Union.

Compared to the Commission’s written opinion, that was not so bad, but Makroskop nevertheless warned against breaking out into applause for the Commission (here) too soon. Its gift to the unions was poisoned. For the ECJ, if it had followed the Commission’s wishes, would have taken a far-reaching step in judicial projection. It would have affirmed the restriction of the free movement of workers in a case where the alleged restriction resulted solely from differences in the social regimes of the Member States. Each component of the Member States’ social and labour regulations would have been qualified as a restriction which would have to pass the justification test. This would have opened the door for a considerable acceleration of the deregulation policy being pursued by the European Union.

The judgement of the ECJ is now with us, and it can only be described as a resounding slap in the face for the Commission (ECJ ruling “Erzberger against TUI”, C-566/15 of 18 July 2017, here). The ECJ fully accepts the final submission of the Attorney General (see the final submission here). Reasonably enough, the ECJ, as previously the Attorney General, analyses the case from two perspectives. It first considers workers employed in foreign groups and notes that there is no restriction on the freedom of movement for workers because they have not exercised their right to freedom of movement and apparently have not even attempted to do so (marginals 24-30 of the judgement). The European Supreme Court then turns to German workers and asks whether they are prevented from exercising their right to free movement. The crystal-clear response of the ECJ is as follows (and here the slap in the face for Brussels is especially resounding): It is not the purpose of the free movement of workers, nor can it be, to guarantee an unchanged regulatory environment for workers in the event of a move abroad (marginals 31-41).

The dispute once again highlights the deregulation potential of the European fundamental freedoms.

The plaintiff and the Commission have therefore lost completely. For strategic (and largely comprehensible) reasons, the various stakeholders had largely held back criticism of the Commission’s bizarre approach. It is to be hoped that a few clear words will now be sent in the direction of the Brussels body and that the Commission will be encouraged to answer the question what this was all about and how its adventurous legal approach is in reality supported by its plans for a “social pillar” for the EU.

However, the medium- to long-term implications are far more important, because the dispute once again highlights the deregulation potential of the European fundamental freedoms. The case “Erzberger versus TUI” has been won, but further cases will follow. With the free movement of capital, the opponents of co-determination have a further free shot to attack worker involvement on a European level. With its broad interpretation of the freedom to provide services, the ECJ has already effectively honed the principle of territoriality of labour law (one country, one labour law) and thereby in particular intervened in the right to strike. The next bone of contention could be the master craftsman’s certificate, the compatibility of which with European law has long been questioned by the Commission. Even passionate advocates of “More Europe” will therefore have to ask themselves how the labour and social regimes of the Member States are to be better protected against illegitimate overlaps of fundamental freedoms and European competition law than in the past (go here for some further considerations).

photo: Court of Justice of the European Union