CWS 3.0: December 7, 2011 - Vol. 3.35

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Europe: AWR Deadline Passes. What's Next?

This week marks one of the most significant events in the history of temporary staffing in Europe. On Dec. 5, the Temporary Agency Work Directive (AWD) finally came into effect across the EU, establishing for the first time minimum standards for temporary staffing legislation across 27 different countries and affecting more than 500 million citizens. Well, sort of. In reality, Dec. 5 was just one more stage in the progress of the AWD with the prospect of further developments to the European regulatory environment over the next two years.

Loosening Restrictions
Following many years of difficult negotiation, the AWD was passed in November 2008, giving member states three years to consider how to transpose the Directive into national law. The aim of the Directive is to set out the principle of equal treatment among workers, that "the basic working and employment conditions of temporary agency workers shall be, for the duration of their assignment at a user undertaking, at least those that would apply if they had been recruited directly by that undertaking to occupy the same job". While this is regarded as a step back in terms of employment flexibility in the U.K. and Ireland, Article 4 of the Directive obliges member states to review all prohibitions or restrictions on the use of temporary agency work, thereby opening up the prospect of deregulation in a number of continental European staffing markets. The types of prohibitions and restrictions we might have hoped to have seen reviewed and removed as part of this process are:

  • Restrictions on assignment duration: Belgium, France, Germany, Italy, Luxembourg, Spain, Sweden
  • Limitations on the percentage of temporary agency workers: Austria, Germany, Ireland, Luxembourg, Spain, Sweden
  • Sector prohibitions: Belgium, Germany, Spain
  • Assignment justification notification: Belgium, France, Italy, Spain
  • Limitations on contracts: Belgium, France, Italy, Luxembourg

With the Dec. 5 deadline behind us, however, the hoped-for liberation has been rather disappointing. The most significant improvement we have witnessed so far is the opening of the French public sector to temporary agency workers. Outside of this, certain sectoral bans have also been lifted in Romania and Spain, the range of contracts temporary work agencies can offer have been extended in France and Italy, and the maximum length of agency work assignments have been increased in Romania and Poland. In Spain, the government opened up the construction sector to temporary agency workers in September 2010 before closing it again six months later following pressure from unions.

The negotiating parties to the AWD perceived the final Directive as a balanced instrument that on the one hand provided protections for temporary agency workers, but on the other, removed unjustifiable restrictions on trade. However, given the failure of most governments to complete the mandatory review of all prohibitions and restrictions by the Dec. 5 deadline, the outcome so far is disappointing. Accordingly, Eurociett, the European confederation of private employment agencies, has delivered a warning to the Directorate General for Employment, Social Affairs and Inclusion at the European Commission:

“Further action is needed at national level to review and lift existing, unjustified restrictions on the agency work industry, especially in countries that face major labor market challenges such as Spain – where labor market reforms fell short in implementation, and Greece – where there is a lack of government commitment to lifting unjustified restrictions.” said Annemarie Muntz, president of Eurociett.

Differing Results
EU Directives are key to making the economic union of Europe a reality by establishing a level playing field across the continent and are “binding, as to the result to be achieved, upon each Member State”. Most EU law relating to employment and industrial relations is contained within Directives. However, there are two reasons why the final regulatory outcome might not necessarily look identical in each country.

First, with different cultures, traditions and differing political and economic pressures, member states are normally afforded some degree of flexibility in the way they can interpret Directives. Within the AWD, this flexibility is best evidenced by the derogation permitted via agreements at a national level by social partners or through collective labor agreements whereby a (potentially limitless) qualifying period can be applied before the right to equal treatment arises. Such an agreement was subsequently concluded in the UK providing the legal basis for a 12 week qualifying period, however, similar discussions broke down in Ireland meaning equal treatment will apply from day one. Derogations have also been negotiated via collective labor agreements in Germany, Netherlands, Sweden and Denmark.

The second reason for variable outcomes is the very poor record of member states in transposing Directives into national law in a timely and appropriate manner. Member states are obliged to achieve the aims contained within Directives by a stipulated date; however, delay in implementation has become an all too familiar response from successive governments, concerned not to make themselves unpopular with their electorate by passing legislation certain to upset key pressure groups.

Compliance
The EU monitors the rate of compliance among the member states ("transposition deficits") by way of an internal market scoreboard, the latest of which was published in September 2011. The transposition deficit shows the percentage of existing Directives not yet addressed by national law (transposed). The target established by European heads of state and government is for at least 99 percent of Directives to be transposed — or no more than 1 percent not addressed. The most recent Scoreboard available takes into account all notifications of Directives (not just the AWD) due by April 30, 2011, at which point 1,525 Directives were in force.

A total of 16 member states fail to meet the 99 percent target; the Czech Republic is the worst performer, with 31 Directives not yet transposed. Austria and Poland follow, both with 26 un-transposed Directives.

Given the poor record of timely implementation, the heads of state and government also set a ‘zero tolerance’ target for Directives whose transposition is overdue by two years or more. Not surprisingly, some countries fail to meet even this low threshold, namely Luxembourg, the Netherlands, Austria and Sweden.

EU Member States Exceeding Compliance Target
Click image to enlarge.

Sixteen member states have not met the target compliance rate of 99 percent, meaning more than 1 percent of existing Directives have not been addressed by local laws.

Infringement Proceedings and Fines
Failure to implement a Directive, partial implementation, or incorrect implementation often leads to a complaint by the Commission to the European Court of Justice (Article 258 TFEU). If they have evidence that a member state has either failed to transpose a directive properly, or is not enforcing legislation correctly, then they will begin legal proceedings to rectify the situation, known as infraction or infringement proceedings. The September Internal Market Scorecard finds that the average number of open infringement proceedings is as high as 37 cases per Member State! Despite being home to many EU institutions, Belgium has the most infringement proceedings (101) , followed by Greece and Italy, while Malta and Latvia account for the least (12 and 10 respectively). On average, the duration of infringement proceedings ranges from one year to almost three years.

The powers that allow the European Commission to carry out infringement proceedings are provided for in Articles 258 and 260 of the Treaty on the Functioning of the European Union. Infringement proceedings typically go through a number of stages as follows:

  1. Article 258 letter. The letter informs the member state that the European Commission considers it may be in breach of EU law. The member state is normally given two months to reply.
  2. Article 258 ‘Reasoned Opinion’. This is a formal determination by the European Commission that the member state is in breach of its legal obligations. The opinion requires the member state to comply with its EU obligations within a given time limit, normally two months.
  3. Court of Justice referral under Article 258. If the member state fails to comply with a reasoned opinion within the prescribed period, the European Commission can apply to the Court of Justice for a ruling that the member state is in breach of the Treaty. If the infraction is due to late transposition the European Commission can now ask the Court to issue financial penalties on the member state at this stage.
  4. Article 260 letter. If a member state has received a ruling from the Court of Justice and taken no action to comply with it, the European Commission will issue this formal notice indicating that it has failed to comply with a judgment of the Court of Justice. The member state will be given a set timeline to make the necessary changes.
  5. Court of Justice referral under Article 260. If the member state fails to meet the Article 260 deadline the European Commission can refer them back to the Court of Justice for financial penalties.

Failure to properly transpose and enforce an EU obligation can eventually lead to a fine. The maximum fine that could be imposed is €534,000 (approximately $713,000) per day.

As well as facing legal action from the EU, member states that fail to implement Directives also expose themselves to the risk of legal action from individual citizens. In Francovich v Italy, the European Court of Justice established that member states could be liable to pay compensation to individuals who suffered a loss by reason of the member state's failure to transpose a Directive into national law (known as the ‘principle of state liability in European Union law’). To establish state liability on the basis of the failure to implement a Directive, claimants must prove that the Directive conferred specific rights on them, identifiable in its wording, and that there is a causal link between the state's failure to implement the Directive and the loss suffered.

What Happens Next?
So, given what we know about regulatory changes already in place as a result of the AWD and member states past records in transposing Directives, what can we expect to happen over the next few years?

Clearly, all social partners across the EU will now be looking closely at the level of compliance with the AWD and making sure legislators are fully aware of any failings. The EU will put pressure on any member state that has failed to review prohibitions and restrictions on the use of temporary agency workers and, no doubt, we will soon see a number of infringement proceedings underway (although fines are actually quite rare, with the European Commission preferring to work hard with member states to avoid financial penalties wherever possible). Member states have generally proven better at transposing Directives relating to workers’ rights and conditions than they are in addressing other topics. Only 3.1 percent of all infringement proceedings relate to workers’ rights and conditions (compared with 23.4 percent relating to taxation).

Once government reviews have been completed, attention will then focus on the specific level of compliance with the AWD; it is here that we will likely see a number of legal challenges mounted by employers’ groups and staffing associations. However, proving whether member states are compliant might not be so simple, as the wording relating to the review of prohibitions and restrictions is open to interpretation. The AWD states that “prohibitions or restrictions on the use of temporary agency work shall be justified only on grounds of general interest relating in particular to the protection of temporary agency workers, the requirements of health and safety at work or the need to ensure that the labor market functions properly and abuses are prevented.” While there is some jurisprudence on what is perceived as a restriction in terms of the EU treaty, views as to what might constitute ‘general interest’ or what might ensure a ‘labor market functions properly’ are likely to differ.

Even in the U.K., where the Agency Workers Regulations were implemented in October, there is already the prospect of change. On Nov. 24, the government announced the most radical reform to the employment law system in decades, which included reviewing the Agency Workers Regulations and any associated paperwork relating to the implementation of the AWD in 18 months with a focus on looking for opportunities to simplify it. Realistically, a small degree of simplification is probably the most that employers and staffing firms can hope for given that the government’s hands are tied by the ongoing need to conform to the AWD and the necessity not to destabilize the rather delicate agreement between the CBI and TUC that underpins the 12-week qualifying period.

There is a third stream of activity that may result in further progress. As mentioned previously, the AWD allows some flexibility for member states to derogate from the principle of equal pay and, in the case of open-ended contracts, for providing pay between assignments by way of collective labor agreements. Therefore, social dialogue will be an ongoing process following the conclusion of the implementation phase. Eurociett's Muntz added, “Provision for derogations through collective labor agreements and open-ended contracts offers a needed level of flexibility and ensures that the interests of business and workers are balanced in an appropriate way, while strengthening the sectoral social dialogue and collective bargaining within the agency work sector.”

Since the low point of the economic crisis, private employment agencies have created more than 900,000 new jobs in Europe. As countries seek to reduce unemployment and boost labor market participation, the need for employers to make use of flexible work arrangements is increasingly important.

Past experience tells us that the majority of member states will be compliant with the AWD within two years of the implementation date, so we may see continued progress through to 2013. However, Article 12 of the AWD states that by Dec. 5, 2013, "the Commission shall, in consultation with the Member States and social partners at Community level, review the application of this Directive with a view to proposing, where appropriate, the necessary amendments.” It is anticipated that this review will get underway in 2012 so that the Commission is informed and ready to take action in 2013. At that point, the whole process will ramp up again with social partners lobbying variously for and against further deregulation and politicians posturing to support either employers or employees depending on their political persuasion. While Dec. 5 may be a landmark of sorts for the staffing industry and users of contingent workers, it is not by any means the end of the story.

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