Relocation: how far can trade unions go to prevent businesses going elsewhere for cheap labour?

The opportunities for European businesses to take advantage of the cheaper labour available in the EU accession states was challenged recently in the European Court of Justice (ECJ) by a landmark case.

International Transport Workers Federation and another v Viking Line demonstrated the conflict between two fundamental rights enshrined in EU law: an employer’s right to provide its services to any member state on the one hand, and the right of trade unions to take collective action on behalf of their members on the other.

Freedom to do business

The key question is how far can collective action be used to prevent a business operating freely?

Organisations operating in the UK, France and Germany, where labour costs are traditionally high, will be concerned as to how this ruling could affect plans to relocate and make the most of cheaper labour in the EU accession states.

In practice, UK unions working alone have not had much success in preventing moves by UK business to close plants and relocate. Peugeot is closing its Ryton factory near Coventry, and Cadbury is seeking to move its Somerdale factory near Bristol to Poland and there is little, it seems, the unions can do.

The unions will try to do their best by persuasion, such as putting forward an alternative business case to closure, scaling down or relocation. They might ballot for industrial action, but this can be counter-productive or lead to an acceleration of the closure process.

Despite the unions’ lack of success, there may be scope in future for UK unions to enlist the support of European and international trade union federations of which they are members.

Unite, for example, is currently building alliances across Europe and America which it hopes might one day ‘blossom into full international unions’.

Works councils

Employee representatives could also work in conjunction with European Works Councils, which operate within international firms.

Unite indicated that this route could also lead to support from unions in other member states, such as the Polish unions that backed its campaign against Cadbury, and the Slovakian unions that joined its fight against Peugeot’s relocation.

It is, therefore, not impossible to foresee that in future such alliances could call in workers from another member state for collective action to prevent incoming businesses from establishing themselves.

The International Transport Workers Federation and another v Viking Line case will, ultimately, be sent back to the UK courts.

The courts will then have to consider whether the union’s actions meet a legitimate aim (such as the protection of workers), and whether or not it goes further than is strictly necessary to protect the workers.

Restrictions apply

The ECJ decision is, therefore, neither a triumph for business or the unions the right to take collective action is not absolute – it is subject to restrictions.

And the extent to which it can be used by unions to prevent businesses relocating within Europe will be for national courts to decide.

The problem for employers is that, in the interim, unions can seriously hamper their operations when dis­agreements arise.

By Ranjit Dhindsa, partner, Reed Smith Richards Butler. Written in conjunction with Ruth Bonino, professional support lawyer, employment team, Reed Smith Richards Butler

Key points for employers

  • The right to take collective action is a fundamental right under EU law.
  • It is not ‘above the law’ though, and it is limited by other fundamental rights (such as the right of establishment).
  • Where these rights conflict, collective action will be unlawful unless it can be justified by an overriding aim that is clearly in the public interest (such as the protection of workers).
  • The national courts must decide whether such collective action is justified.

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