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Free 2.2 Law Essay: (Masters Level)

On the subject of outsourcing, discuss the balance between the need for the protection of employees' interests, particularly in low paid service occupations, against the interests of business and employers' freedom to change contractors. Is the balance right in your view?

Introduction:
The EU is based on four freedoms which are freedom of goods, freedom of workers, freedom of establishment and freedom of services. These freedoms ensure that the market is open and deregulated in order to promote competition and it is these freedoms that have led to the belief that the race to the bottom is necessary for an open market. This includes the right to change contractors, which is a right of a company to make decisions that are in the best financial interests of the company; however this does mean that labour agreements and employee's rights can be ignored. Therefore this discussion will consider the deregulation that the EU is experiencing in favor of companies changing their outsourcing and companies they contract with; however this will be compared with the importance that the EU places on the workers' rights. It is essential to point out that it is the low paid jobs that are hardest hit in this because the factories are moved to the cheapest option rather than relying on the previous conduct and contracts that the company has been dealing with. The EU has traditionally been strict in its protection of labour and employee rights as its social programme and the fear that the race to the bottom and the right to change contracts and outsource at whim will adversely affect the labour rights that the EU has traditionally protected. This a sea-change from the cases that highly protected workers' rights as been seen in the cases, such as Foster v British Gas where the European Court of Justice (ECJ) extended the protection for government workers to those companies that are run by the government or regulated by the government. Therefore the balance between the rights of competition and choice of outside contractors and employees' rights is threatened by the EU's adaptation of the race to the bottom and the deregulation of the decision making of companies in pursuance of competition and choice for outsourcing.

In order to do so this discussion will consider the conflict of laws by considering whether the recent case law within the EU law is limiting the choice of laws for domestic systems and the introduction of regulations on areas such as labour law and social protection, i.e. the opening of the door to the race to the bottom has put too much emphasis on a truly free competitive market, rather than the right of states to choose laws and also restricting the choice of jurisdiction; whereby every act is tied to the competition of companies and the economic market rather than certain important practises, which may be classed as protectionism, that protect social and cultural policies. The cases that are the cornerstone of the EU's economic integration are the Cassis de Dijon holds that there can be no barrier to the free movement of goods, such as banning imports or creating unfair taxing or barriers for these goods. Bosman holds the same basic precept for workers as does Gebhard for establishment and Alpine Investments for services. Finally the Dassonville formula has been created to force member-states towards integration rather than allowing derogations and the case of Keck and Mithouard imported goods cannot be treated any differently from domestic goods. Even if this was not so and the tax or limitation to trade was fair, non-discriminatory, objective and proportionate there is the added problem that possibly the money or trade advantage is going back to the member-state manufacturers and sellers. However, the EU must consider if it does create a truly free market but would the cost be too high, i.e. the social policies. The race to the bottom usually has a highly negative effect on social policies. This can be seen in the effects of using the poorest and the easily exploitive members in the poorest countries where social considerations are left on a backburner for economic goals.

EU Protection of Labour Rights v The Race to the Bottom's De-Regulation:
EU law provides many protections to its citizens in the form of labour and social rights. The problem with the race to the bottom is whether it means all aspects of company law will become deregulated, i.e. the social and labour protections. This is very unlikely in the EU, rather the deregulation will be aimed at ensuring that companies can become more efficient and is not barred by technicalities of burdensome rules that are not integral to protecting social and labour rights. The problem may not be the race to the bottom per se, i.e. the promotion of competition between states, but the deregulation of social policies which may be seen to impede this competition. It may not be the race to the bottom that promotes business investment rather the notion of regime shopping, i.e. the less restrictive markets are the target of investment. Therefore the rulings of the ECJ that promote the race to the bottom causes problems because it creates a conflict in laws between what is prudent in the protection of social and labour policies and a regime creates an open, competitive market with minimal regulation. In order for true competition to occur there should be no barriers or regulations governing companies, i.e. a true laissez faire society. On the other hand, this creates problems for protecting workers and protecting the markets from unfair advantages and dominance of companies. Therefore it is necessary that there is some regulation; however the following discussion will illustrate that the ECJ's focus on strict adherence to competition laws has led to promoting competition between states; however the investment from companies have more to do with the deregulation associated with promoting competition than the race to the bottom, i.e. company investment is primarily based upon regime shopping where the freer the market the likelihood of investment is higher. Therefore the goals of promoting competition between states backfire and the social policies that the EU is based upon are jeopardized. Also where is the rule that there cannot be social regulation and not competition between the states?

Rather the EU's actions in the stricter laws than the EU's minimum should be respected on social policies, i.e. the Smoking Directive, because they are not truly impeding competition between states on the whole rather protecting society. In fact for a truly stable market there has to be some regulation, rather than the deregulated chaos that regime shopping promotes, as Bagheri in Competition and Integration among Stock Exchanges: The Dilemma of Conflicting Regulatory Objectives and Strategies argues: In a further attempt, we discuss the tension between the principles of competition and prudence. Regulatory objectives in securities markets could clash as the applicability of competition principles to the securities markets could be counterbalanced by principles of prudence. The unique characteristics of such markets may not allow the absolute application of competition principles. Free competition in the exchange business does not necessarily work as it does in other sectors. Financial services are different from others in the sense that free trade and competition arguments are counterbalanced by prudential concerns. In other words, excessive free trade and a race to the bottom in financial services may have serious repercussions, destabilising the markets. On the other hand, an obsession with prudential concerns should not undermine the proper application of competition policy.

In this argument the race to the bottom, Bagheri is arguing, is not appropriate for the financial markets because it can adversely affect the markets by destabilising them. This could also be the case for the goods and services markets because if a truly laissez faire system then the social policy which the EU prides itself on in respect to its social and labour protections are at risk. These protections include the regulation in respect to the protection of consumer protection and equalization of wages throughout the EU. This will probably not be the problem in the EU's race to the bottom strategy, rather lesser important social policies as contained under Directive 98/43/EC which prohibited all consumer-orientated advertising of tobacco products away from the point of sale. This directive has now seen to be illegal because the ECJ has started to question the limits of the EU's incursion into state law on the basis of company and competition law. In the case of Germany v European Parliament and Council the Court emphasised that the Community Legislature had not been afforded a general power to regulate the internal market. It emphasised that the only time that the EU can become involved within internal markets with further regulation, under Article 95EC is when national laws which either constitute barriers to the exercise of the four freedoms or distort conditions of competition in an economic sector; whereby the actions in respect to regulation must be consistent with the establishment and the functioning of the market. The point of this directive was to limit competition and advertisement of tobacco products on social and health reasons; however because of its limitations on the market and restriction of competition it decided to reverse this directive, find it illegal and heralds the new approach of the ECJ of the EU's race to the bottom approach. As Syrpis states the reasoning for finding that the Directive was not a legal contribution to competition of the common market was:
[It] did not contribute to the establishment and functioning of the market. First, the Directive was not adopted in response to the differences between the laws of the Member States capable of impeding free movement or creating appreciable distortions of competition. Second, because the Directive did not harmonise the laws of the Member States (or at least the free movement of products in conformity with its provisions), it did not, in any event, contribute to the elimination of any barrier and/or distortion.
Therefore this illustrates the first step of the EU from protecting social policies and the liberalizing of the market regardless of the consequences. This case has wider implications other than allowing liberalized advertisement of tobacco products, because no longer can Articles such as 95 be used to institute social policy unless it specifically refers to remedying distortions of competition. The fears that this may adversely affect labour provisions is not a huge concern because of the substantive rights that the EU is afforded in the Protocol and Agreement on Social Policy, which is contained in Articles 136-145EC allows for the protection and development of collective labour law without strict adherence to competition law, integration and deregulation of the market. However as Syrpis argues:
The effect of the internal market case law is stark. National rules which creates barriers may be annulled by the courts; unless they can be justifies according to a set of Community law requirements…The central problem is that by invoking rules aimed at protecting the integrity of the internal market, the Court has often limited the autonomy of Member States and thereby restricted the scope for differentiation and experimentation at state level. The European project cannot require simultaneously both differentiation and experimentation, and the elimination and of differences between the laws of Member States. A reconciliation between the social an internal market is required.
Therefore the argument of Syrpis sets forth that it is not necessary for there to be a complete deregulation of the EU markets and still promote competition because this is at the expense of the social policies that the EU is equally formed upon. The case of Albany International supported collective labour agreements even though they impede competition in the EU; however this victory is a double-edged sword for labour and social policy lawyers because only those cases that are beyond the scope of Article 81(1)EC are capable of this protection. Therefore lesser social policy objectives such as the previously mentioned Smoking Directive would be subject to competition and race to the bottom objectives. In Rush Portuguesa a problematic conclusion occurred because it was held that collective labour agreements were the ambit of national law where the person was employed and protected by that set of laws even if higher; however this causes problems with hindering the free movement of workers because it limits the relocating of employees and therefore is incompatible with Germany v European Parliament and Council . Another possible reason could be because the social objectives are justifiable, but as the court did not divulge this the case seems to be an anomaly and possibly creates false hope for social policy lawyers.

The realization that such actions constituted false hope has been argued by Antoine Lyon-Caen and Simitis because the focus on race to the bottom economics became the key within EU law . These cases held that allowing different standards between member states in respect to labour law impedes internal market liberalization and integration. However the case of Keck and Mithouard seems to be arguing that no differentiation in national law should be held as incompatible, even if it impedes the liberalization of the internal market, unless it specifically falls within the scope of an EU Article and breaches it or is held as discriminatory. This approach was based upon the Weiler approach where:
Market regulation rules - whether selling arrangements or otherwise - that do not bar market access should not be caught unless discriminatory in law or in fact.
Therefore this approach would create a fairer method to market integration; however allowing member states to protect social policies which are higher than the minimums set by the EU. The leading case promoting the liberalization of the economic over the protection of social policies is Germany v European Parliament and Commission and the race for the bottom.

Conclusion:
The 21st Century where social conscience is being advanced with a higher trade in fair-trade goods it seems that the EU is stepping back into the 1980s where the market was heralded the key aim of the community. The focus on the race to the bottom through creating competition between member states has had highly negative effects of social policies. There may be problems with the idea behind the race to the bottom whereby the competition between states is not the key for business and company investment, rather it is regime shopping, i.e. the most deregulated systems allow exploitation for the cheapest price therefore allowing the rights of the employee to be abused through the use of contractors in outsourcing. This has been illustrated by the EU case law that has promoted competition law over restricted social policies, which the EU now turning its back on social policy for economic gains, also the competition it seems to be advancing may not be the outcome with deregulation, as it hurts the consumer power of the poorest workers, whose job are lost because of the companies use of outsourcing in a deregulated system. Also such an approach could reduce employment in favour of developing countries and consequently the employment conditions of the EU in order to promote domestic and regional employment. Therefore an approach such as Weiler needs to be advanced where higher social policies should be protected as long as they do not breach a specific competition article or is discriminatory, i.e. they do not impede competition between states but create an obstacle in respect to businesses who are regime shopping. Therefore if it is a race to the bottom the EU is promoting then the dismantling of social policies are not necessary; however it seems that regime shopping and state competition have been confused. The cases that have opened up deregulation and the Centros Case seem to imply the inevitable road that the EU's race to the bottom, which is not necessarily a bad road; however if it is confused with regime shopping and deregulation of social policies on the belief of promoting state competition then the exploitation by companies will ensue, i.e. if this deregulation leads to the right in changes in outsourcing and neglect of the employees' rights in this outsourcing will mean that the labour rights that the EU has based its formation on will be lost and the balance prior to this deregulating in favour of competition will be lost.

Bibliography:

Bagheri, 2004, Competition and Integration among Stock Exchanges: The Dilemma of Conflicting Regulatory Objectives and Strategies, OLJS 24(69)

Catherine Barnard, 2000, Social Dumping And The Race To The Bottom: Some Lessons For The European Union From Delaware E.L. Rev. 2000, 25(1), 57-78

Paul Craig & Grainne De Burca, The Evolution of EU Law, (Oxford University Press, Oxford, 1999)

The European Union at a Glance, EUROPA: Gateway to the European Union, http://europa.eu.int

Laurent Garzaniti. David Pope, 1993, Single Market-Making: Ec Regulation Of Securities Markets Comp. Law. 1993, 14(3), 43-54

Law Society Gazette, The currency of law -- as Euroland prepares to enter the final stages of monetary union, how will a single currency affect UK lawyers -- whether we embrace the euro in this country or retain the pound, THE LAW SOCIETY VOL 98 No 38 p 28, October 2001

NM Selwyn (2000) Selwyn's Law of Employment (11th Edition), London, Butterworths

S. Simitis and A. Lyon-Caen, 1996, 'Community Labour Law: A Critical Introduction to its History' in P. Davies et al. (eds), European Community Labour Law: Principles and Perspectives; Liber Amicorum

IT Smith & GH Thomas (2000) Smith & Woods Industrial Law (7th Edition), London, Butterworths

Siems, 2003, Convergence, Competition, Centros and Conflicts Of Law: European Company Law In The 21st Century, E.L. Rev. 2002, 27(1), 47-59

Josephine Steiner & Lorna Woods, Textbook on EC Law, ( Blackstone Press, Gosport Hants, 2001)

Swarb, information on Consumer Law found at: http://swarb.co.uk/lisc/Consumer.shtml

Syrpis, 2001, Smoke without Fire: The Social Policy Agenda and the Internal Market, ILJ 2001(30)

Stephen Weatherill (2000) Cases & Materials on EC Law (5th Ed), London, Blackstone Press

Weiler, 1999, The Constitution of the Common Market Place: Text and Context in the Evolution of the Free Movement of Goods in Craig & De Burca (eds), 1999, The Evolution of EU Law, Oxford University Press, Oxford

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