Opinion of Mr Advocate General Ruiz-Jarabo Colomer delivered on 5 April 2001. - Commission of the European Communities v Federal Republic of Germany. - Failure by a Member State to fulfil its obligations - Articles 52 and 59 of the EC Treaty (now, after amendment, Articles 43 EC and 49 EC) - National legislation on the contracting out of labour in the construction industry - Exclusion of undertakings not party to a collective agreement for that industry and not having an establishment in the Member State in which services are to be provided - Proportionality. - Case C-493/99.



European Court reports 2001 Page I-08163



Opinion of the Advocate-General

1. At the end of 1999, the Commission brought infringement proceedings under Article 226 EC against the Federal Republic of Germany for infringement of Articles 49 EC and 43 EC, which prohibit, respectively, restrictions on the freedom to provide services in the Community and on the right of establishment of nationals of one Member State in the territory of another Member State.

The infringement complained of includes the following infractions: hindering the hiring out of construction workers for building work, to the detriment of undertakings of other Member States; limiting the hiring out of employees in the construction industry to those undertakings party to the same collective agreement; and regarding construction undertakings only those which employ on sites their own workers in excess of 50% of the working hours.

I - The German legislation at issue

2. According to the first sentence of Paragraph 1(1) of the Arbeitnehmerüberlassungsgesetz (Law on the supply of temporary workers), with the sole exception of the construction industry, the hiring out of employees is an activity which is permitted in Germany, subject to authorisation.

None the less, the second sentence provides that there is no hiring out of employees where it takes place within a construction consortium, of which the employer is a member, provided the collective agreements for the sector apply to all the members of the group and they are independently bound by the obligations arising under the contract governing the consortium.

3. Under the second sentence of Paragraph 1b, the hiring out of labourers among construction undertakings is permissible where they are party to the same framework collective agreements and social fund collective agreements or are generally bound by such agreements. That provision was inserted into the Law by Paragraph 63(5) of the Law of 24 March 1997, with effect from 1 January 1998, replacing Paragraph 12a of the Law on promotion of employment, worded identically, to which the Commission referred throughout the pre-litigation procedure.

II - The pre-litigation procedure

4. In September 1997, the Commission sent a letter to the German authorities, pointing out that the legislative situation described infringed the right of establishment and freedom to provide services.

5. The reply which the Government transmitted to the Commission towards the end of the year explained that the undertakings which participate in temporary consortia are not required to have their principal office in Germany; it suffices that the collective agreements for the sector apply to all the members of the consortium. In order for them to apply, it suffices, according to the case-law, that an undertaking has a subsidiary in Germany which employs construction workers. It assured the Commission that, throughout the previous 10 years, there had been no circumstances in which the second sentence of Paragraph 1(1) of the Law on the supply of temporary workers had been interpreted otherwise. The same is true as regards the hiring out of employees among undertakings in the construction industry, which are also not required to have their registered office in Germany.

On the other hand, the requirement that the undertakings be party to the same collective agreements is imperative, given that that industry is precarious and at risk of falling victim to pay-related dumping practices, contrary to the directive concerning the posting of workers.

6. The Commission was not persuaded by those arguments and, in December 1998, sent a reasoned opinion to the German Government, which did not reply within the period of two months prescribed for the purpose.

7. The competent state secretary in the Ministry of Labour and Social Affairs in June 1999 sent Mr Monti, Member of the Commission, a letter announcing that the national legislation was to be amended. He appended a copy of the draft of the expected amendment and asked the Commission to delay bringing its action before the Court of Justice.

8. In view of the fact that they were draft amendments and that the planned changes did not suffice to remove the infringement of the Treaty, the Commission decided to bring the present action.

III - Procedure before the Court

9. The Commission's application was lodged at the Court on 21 December 1999 and the defence on 9 March 2000. Both those documents elicited a response in the shape of a reply and a rejoinder.

10. At the end of the written procedure, since the parties did not request to be heard, the Court, pursuant to Article 44a of the Rules of Procedure, decided that there was no need to open the oral procedure.

IV - Examination of the application

A. Infringement of Article 49 EC

11. The Commission is of the view that the German legislation infringes the freedom to provide services on two grounds: first, because it hinders the participation of undertakings from other Member States in consortia established in order to carry out construction work; and, secondly, because it prevents the hiring out of employees among construction undertakings, unless they are party to the collective agreements for the industry. I shall examine those two grounds in that order.

(a) Participation of the undertakings from other Member States in consortia established in order to carry out construction work

12. The Commission submits that, by providing that, in certain circumstances, the hiring out of employees for construction work does not constitute hiring subject to authorisation, the second sentence of Paragraph 1(1) of the Law on the hiring out of employees leads to the result that undertakings from other Member States can only participate in consortia if they have a subsidiary in Germany employing construction workers and are party to the German collective agreements for the sector.

The fact of the matter is that it is impossible for them to post workers from their principal place of business or from subsidiaries in other Member States to consortia established in Germany, which normally take the form of a private-law company,without those consortia thereby forfeiting the possibility of invoking the second sentence of Paragraph 1(1) of the law on the supply of temporary workers, which requires that the German collective agreements for the sector apply to all the members of the consortium, if that operation is not to be regarded as the hiring out of employees. That is why undertakings from other States of the European Union which do not meet that requirement are not allowed to participate in such consortia, with the result that they cannot exercise the freedom to provide services provided for in the Treaty.

Thus small and medium-sized undertakings from other Member States are prevented from participating in long-term construction projects in Germany since, in most cases, it is possible to carry out such a project only by the grouping of various undertakings of that type within a consortium, and large-scale construction work requires the same solution, even where the largest construction undertakings are involved.

13. The German Government agrees with the facts and with the description of the pre-litigation procedure as set out in the application. However, it does not agree with the legal assessment it contains.

It points out, first, that the requirement that an undertaking be party to a collective agreement does not discriminate against foreign undertakings, since German undertakings are subject to the same requirement. Secondly, it states that because collective agreements apply only within the national territory, it is essential that foreign undertakings should have a subsidiary in Germany which is covered by the collective agreements for the sector. Such a subsidiary has to be entirely separate from the main undertaking established in another Member State and must employ construction workers, although it is not essential that it employ the workforce on its own behalf. In any event, it considers that the legislation at issue, which is intended to authorise, by way of exception and under very strict conditions, the commercial supply of workers to the construction industry, is not contrary to Community law.

14. I agree with the Commission in that the German legislation entails covert discrimination on grounds of nationality.

15. The obligation to abolish restrictions on the freedom to provide services was interpreted by the Court of Justice as the prohibition of all discrimination against the person providing the service by reason of his nationality or the fact that he is established in a Member State other than that in which the service is to be provided. The principle of equal treatment, of which Article 49 EC embodies a specific instance, prohibits not only overt discrimination by reason of nationality, but also all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result.

16. The German legislation applies both to national undertakings and to those established in other Member States, but it imposes a condition which is met by most of the former but by very few of the latter. In practice, in order to hire out employees for the purpose of carrying out construction work in the framework of a consortium, an undertaking established in another Member State is obliged to establish a permanent subsidiary and employ construction workers in Germany as, otherwise, it would not be complying with the condition laid down by the Law that all the undertakings in a consortium must be party to the collective agreements for the sector. Thus, any foreign undertaking which does not comply with that condition cannot be accepted as a member of the consortium and cannot exercise its freedom to provide services.

It is true that German undertakings are not required to conclude a collective agreement, so that they are not all in the same legal situation. However, those which wish to form part of a consortium need only subscribe to the agreement governing the remaining undertakings in the group, whereas undertakings from other Member States have to establish a permanent subsidiary, which must be more than a branch since, moreover, they must employ construction workers in Germany. Furthermore, according to the interpretation of the Court of Justice, if the requirement of an authorisation constitutes a restriction on the freedom to provide services, the requirement of a permanent establishment is the very negation of that freedom. It has the result of depriving Article 49 EC of all effectiveness, a provision whose very purpose is to abolish restrictions on the freedom to provide services of persons who are not established in the State in which the service is to be provided.

I agree with the Commission that that equality of treatment of national and foreign undertakings is merely formal, and that it in effect prevents construction undertakings established in other Member States from offering their services in Germany.

(b) Hiring out of employees among construction undertakings where they are not party to the collective agreements for the sector

17. The Commission submits, in this respect, that, by restricting authorisation for the hiring out of employees among construction undertakings to those which are party to the same framework collective agreements, social fund agreements or are generally bound by such agreements, the second sentence of Paragraph 1b of the Law on the supply of temporary workers imposes a condition which can be met only by undertakings established in Germany and which employ workers in that State. In practice, a construction undertaking which is active in another Member State cannot hire out employees to German undertakings, nor even to undertakings in Germany belonging to its own group.

18. The defendant Government acknowledges that the prohibition on the hiring out of employees at issue is a restriction, albeit minimal, on the freedom to provide services. It states that, in order to be party to a collective agreement in Germany, it is not necessary for the foreign undertakings to move their registered office to that State; it is sufficient that they open a permanent establishment which is party to a collective agreement declared to be generally binding or that it concludes a company-wide collective agreement. It points out that it has followed the example of Italy, which prohibits the hiring out of employees in general, and of the Netherlands, where such hiring-out is prohibited in the construction sector. In Germany, the prohibition is not absolute, for there is provision for exceptions in order that the social and labour provisions applicable to all workers in the construction industry should be identical.

19. As the Commission quite rightly points out in its reply, the fact that the German legislature adopted provisions such as those contained in the second sentence of Paragraph 1(1) and in the second sentence of Paragraph 1b of the Law on the supply of temporary workers shows that there is a need for hiring out employees among construction undertakings, in an industry which is characterised by cyclical and fluctuating demand, depending on the region. In those circumstances, undertakings established in other Member States, being excluded, in principle, from being able to pursue that activity, find themselves at a competitive disadvantage on the German market, so that their opportunities to hire out employees as well as to provide services in the construction sector are restricted.

20. I therefore take the same view as the Commission in considering that the German provisions at issue discriminate against construction undertakings established in other Member States.

B. Infringement of Article 43 EC

21. The Commission submits that, according to the German legislation, only those undertakings in which more than 50% of working time on sites is accounted for by its own employees are regarded as construction undertakings. As a result of that requirement, there is no advantage to construction undertakings from other Member States in establishing branches in Germany employing exclusively or mainly commercial and technical staff in order to advertise directly or launch projects.

This assessment follows from Article 1, Section IV, paragraph 4 of the Framework Collective Agreement and from Article 1, Section IV, of the Social Fund Collective Agreement for that industry. They also cover those undertakings which, in the context of a consortium with construction undertakings, carry out, exclusively or principally, on behalf of its members, tasks relating to management, sales, planning, research or accounting, on condition that those undertakings are not party to a specific collective agreement. Thus, a German branch which employs essentially technical and commercial staff and which is associated with construction undertakings, whose labour force is made up of more than 50% of construction workers, may invoke the second sentence of Paragraph 1b of the Law on the supply of temporary workers and hire out employees, whilst a branch of an undertaking established in another Member State and which employs only technical and commercial staff in Germany, cannot do so, since the construction undertakings with which it is associated are abroad.

22. The German Government admits that, in order for the provision at issue to apply, it is a requirement that the hiring-out takes place in order to carry out work which the labourers generally perform and that the undertakings should be party to the same collective agreements. In order to meet those conditions, undertakings must employ construction workers and pursue essentially, that is to say, during more than 50% of the total working hours of the undertaking, activities specific to the construction industry.

It argues that the provision of the Framework Collective Agreement for the construction industry referred to by the Commission is irrelevant. It is a provision adopted by the two sides of industry, the purpose of which is to prevent workers in the construction industry from being excluded from the Agreement in the event of their branch of industry being cut off, but it is not intended to facilitate the hiring out of employees. The provision is not applicable, since the activities it envisages are not carried out by the labourers. Accordingly, those undertakings in Germany employing exclusively or mainly commercial and technical staff do not, as such, fall within the scope of Paragraph 1b of the Law on the supply of temporary workers and cannot dedicate themselves to the hiring out of employees, since they do not employ their own construction workers.

23. I also agree with the Commission in this respect. There is discrimination against undertakings established in other Member States which seek to establish themselves in Germany, in that they are obliged to take up a particular form of establishment and to forgo establishing branches employing technical and commercial staff. In the event that they win an order they cannot carry out the work by resorting to workers employed by other branches or by the parent company situated in another Member State but have to have a permanent establishment which employs construction workers. By contrast, branches of German undertakings are always regarded as construction undertakings, even if they do not satisfy, strictly speaking, the 50% rule.

I am of the opinion, therefore, that the legislation at issue is discriminatory inasmuch as it provides for different treatment as between branches of German undertakings and those of undertakings established in other Member States, to the detriment of the latter.

C. Whether the discriminatory German legislation is justified

24. In view of the fact that the second sentence of Paragraph 1(1) and the second sentence of Paragraph 1b of the Law on the supply of temporary workers contain covert discrimination on the ground of nationality, prohibited by Articles 49 EC and 50 EC on the freedom to provide services, and by Article 43 EC on the right of establishment, it remains for me to examine whether those provisions are justified.

25. The German Government dedicates a sizeable proportion of its pleadings to justifying the different treatment described. It starts by arguing that the freedom to provide services is a right which may be limited by provisions intended to protect the general interest. By prohibiting the hiring out of employees in the construction industry, and imposing restrictive conditions before authorising exceptions, the legislature sought to protect the rights of workers from the abuses to which they are exposed as precarious workers in that sector of industry, and secure for them the necessary social protection.

Before those provisions came into force, construction undertakings used to hire out employees in order to disguise unlawful practices which used to flourish under cover of the conditions which characterise employment in this sector of the economy, threatening good order in that labour market and the social-security rights of a section of the labour force. The situation greatly complicated any monitoring by the authorities in their fight against black-market work. That was the reason why the hiring out of employees in the construction sector in Germany by an undertaking established in another Member State was restricted by way of provisions which comply with the principle of proportionality, inasmuch as they are suitable for achieving the objective pursued, necessary and appropriate to achieve it.

They are suitable because they avoid the presence on sites of workers not covered by collective agreements for the construction industry. They make it impossible for pay-related dumping to take place which gives rise to distortions of competition since, otherwise, undertakings which hire out employees would enjoy the advantage of not being required to contribute in respect of their workers to the industry's social funds.

They are necessary because, if undertakings not party to collective agreements for the sector were totally free to hire out employees, most workers would be excluded from the protection afforded to them in respect of working hours, leave, holiday pay and other social benefits.

Finally, they are appropriate because they maintain order in the construction industry employment market. Bearing in mind the objective pursued, requiring undertakings which hire out employees in the construction sector to be party to the collective agreements for the industry amounts to a minimal and adequate restriction on the freedom to provide services, as well as on the right of establishment.

26. I would not deny that I sympathise with the reasoning deployed by the German Government in that respect. I would disagree with it, however, insofar as it considers that the threat to workers' rights in the hiring out of employees, which is particularly acute in the construction industry, is sufficient to justify covert discrimination.

27. The Court has previously ruled, in the Webb case, that, where an undertaking hires out, for remuneration, staff who remain in the employ of that undertaking, no contract of employment being entered into with the user, its activities constitute an occupation which satisfies the conditions laid down in the first paragraph of Article 50 EC which, accordingly, must be considered a service within the meaning of that provision.

28. The first paragraph of Article 49 EC and the first paragraph of Article 43 EC impose on the Member States the obligation of abolishing restrictions on the freedom to provide services and on the right of establishment. The third paragraph of Article 50 EC confers on the person providing a service the right to pursue his activity temporarily in another Member State under the same conditions as are imposed by that State on its own nationals, while, under the second paragraph of Article 43 EC, freedom of establishment includes the right to take up and pursue activities as self-employed persons and to set up and manage undertakings under the conditions laid down for its own nationals. Both provisions have direct effect and may be relied upon before national courts, from the end of the transitional period.

29. The Court of Justice maintains in this regard that national rules which are not applicable to services without distinction as regards their origin and which are therefore discriminatory are compatible with Community law only if they can be brought within the scope of an express derogation. Article 55 EC states that Articles 45 EC to 48 EC, which appear in the Chapter devoted to the right of establishment, are to apply to the freedom to provide services. Article 46 EC identifies as exceptions to both freedoms measures contained in national provisions providing for special treatment for foreign nationals on grounds of public policy, public security or public health.

Given that the German legislation at issue is discriminatory, it could only be justified on one of those three grounds, from which public security and public health can immediately be ruled out.

30. As regards the ground of public policy, according to the interpretation of the Court, the concept assumes a genuine and sufficiently serious threat affecting one of the fundamental interests of society. Like all derogations from a fundamental principle of the Treaty, the public policy exception must be interpreted restrictively. In any event, the right of Member States to restrict the free movement of persons and services on grounds of public policy, public security or public health is to allow Member States to refuse access to their territory or residence there to persons who might endanger the safeguarding of such general interests.

31. As the defendant Government pointed out, the hiring out of employees within a consortium for the purposes of carrying out construction work in Germany, by undertakings established in other Member States, or the hiring out of employees by those undertakings to other German construction undertakings may render more difficult for the authorities to check whether workers' labour and social security rights are being observed; but it cannot be reasonably argued that they may go so far as to endanger public policy in the Federal Republic of Germany.

32. There are none, therefore, in my view, of the grounds provided for in Article 46 EC which would justify legislation which discriminates against undertakings, established in other Member States, which seek to exercise the right of establishment or to provide services in Germany.

33. For the reasons set out above, I am of the opinion that the Commission's application is well founded and must be upheld.

V - Costs

34. Under Article 69(2) of the Rules of Procedure, the unsuccessful party shall be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since I propose that the Commission's application should be upheld and since it has requested that the Federal Republic of Germany be ordered to pay the costs, the latter must be ordered to pay those costs of the proceedings.

VI - Conclusion

35. In view of the foregoing conclusions, I suggest that the Court of Justice:

(1) declare that: by requiring that, in order to hire out employees, all undertakings of a consortium set up in order to carry out construction work should be party to all the national collective agreements for the construction sector; by restricting the hiring out of employees among construction undertakings to those which are party to the same collective agreements; and by regarding as construction undertakings only those in which more than 50% of the working hours on sites are accounted for by its own workers, the Federal Republic of Germany has failed to fulfil its obligations under Articles 49 EC and 43 EC;

(2) order the Federal Republic of Germany to pay the costs.