1 By application lodged at the Registry of the Court of Justice on 13 July 2000, the Commission of the European Communities brought an action under Article 226 EC for a declaration that, by requiring undertakings engaged in the provision of temporary labour which are established in other Member States to maintain their registered office or a branch office on Italian territory, and to lodge a guarantee of ITL 700 million with a credit institution having its registered office or a branch office on Italian territory, the Italian Republic has failed to fulfil its obligations under Articles 49 EC and 56 EC. National legislation
2 Legge No 196, Norme in materia di promozione dell'occupazione (Law No 196 laying down rules on the promotion of employment) of 24 June 1997 (GURI No 154, 4 July 1997, Ordinary Supplement No 136/L, p. 3, hereinafter Law No 196/97), restricts, under Article 2(1) thereof, the carrying on of the business of providing temporary labour to companies registered on the list kept for that purpose by the competent department of the Ministry of Labour and Social Security. To be registered on that list, those companies must obtain from that ministry a licence, which is granted initially on a temporary basis, then, after the business has operated for two years, for an unlimited period. The grant of that licence is in turn subject to meeting certain conditions laid down in Article 2(2) of Law No 196/97.
3 That provision is as follows: The conditions required for carrying on the business mentioned in paragraph 1 are the following: (a) incorporation of the company, in Italy or another Member State of the European Union, as a company with share capital or as a cooperative; inclusion in the company's name of the words, "company providing temporary labour"; indication of that business as the sole purpose of the company; paid up capital of at least one million Lire; registered office or branch office on Italian territory; ... (c) as security for the claims of the workers employed under the contract covered by Article 3 [contract for the supply of temporary labour] and for the corresponding claims of the provider bodies for social security contributions, the lodging, for the first two years, of a deposit of 700 million Lire with a credit institution having its registered office or a branch office on Italian territory; from its third calendar year, the provision, in place and instead of the deposit, of a bank or insurance guarantee equivalent to at least 5% of its turnover before VAT of the previous financial year and, in all cases, of at least 700 million Lire; ....
4 Under Article 10(1) of Law No 196/97, persons who provide temporary labour without the licence required by Article 2 of that Law are liable to administrative or penal sanctions. Pre-litigation procedure
5 Since it considered that Article 2(2)(a) and (c) of Law No 196/97 was incompatible with Article 59 of the EC Treaty (now, after amendment, Article 49 EC) and Article 73b of the EC Treaty (now Article 56 EC), by letter dated 29 July 1998, the Commission gave the Italian Government formal notice to submit its observations within two months.
6 By a letter of 6 November 1998, the Italian Government replied that those provisions of Law No 196/97 were justified on grounds of public policy within the meaning of Article 56 of the EC Treaty (now, after amendment, Article 46 EC) and Article 66 of the EC Treaty (now Article 55 EC), as they seek to provide effective protection of workers' rights in respect of pay and social security contributions against their actual employer, that is the undertaking providing the supplies of temporary labour.
7 Deeming the reply of the Italian Government unsatisfactory, on 28 April 1999 the Commission sent a reasoned opinion to the Italian Republic, requesting it to adopt, within two months from the notification of that opinion, the measures necessary to fulfil its obligations under Articles 59 and 73b of the Treaty.
8 Since the Italian Government did not reply to that reasoned opinion, the Commission brought the present action. Preliminary comment
9 In its rejoinder, the Italian Government states that Article 117(1) of Law No 388 of 23 December 2000 (GURI No 302, 29 December 2000, Ordinary Supplement No 219/L, p. 1) amended Article 2(2)(a) and (c) of Law No 196/97 by adding to each of those two provisions, after the words having its registered office or a branch office on Italian territory, the words or in another Member State of the European Union. In those circumstances, it asks the Commission to withdraw its action in relation to the first of its two complaints (concerning the requirement to have the registered office or a branch office on Italian territory), as well as the second part of the second complaint (concerning the obligation to lodge a guarantee with a credit institution having its registered office or a branch office on Italian territory).
10 The Commission has not responded to that request and it must be pointed out that, under consistent case-law, the question whether a Member State has failed to fulfil its obligations must be determined by reference to the situation prevailing in the Member State at the end of the period laid down in the reasoned opinion and that the Court cannot take account of any subsequent changes (see, in particular, Case C-435/99 Commission v Portugal [2000] ECR I-11179, paragraph 16, and Case C-111/00 Commission v Austria [2001] ECR I-7555, paragraph 13).
11 It is therefore necessary to consider all the complaints raised by the Commission in its action. The requirement to have the registered office or a branch office on Italian territory
12 The Commission claims that Article 2(2)(a) of Law No 196/97, which requires undertakings providing temporary labour to have their registered office or a branch office on Italian territory, is contrary to Article 49 EC on the ground that it constitutes a de facto negation of the freedom to provide services guaranteed by that provision which deprives it of any useful effect (see, to that effect, among others, Case 205/84 Commission v Germany [1986] ECR 3755, paragraph 52).
13 Relying on the Court's judgments in Case C-288/89 Collectieve Antennevoorziening Gouda [1991] ECR I-4007, paragraph 11, and Case C-484/93 Svensson and Gustavsson [1995] ECR I-3955, paragraph 15, the Commission maintains that such discriminatory restrictions with regard to businesses established in other Member States may only be allowed if they are justified by one of the derogations expressly provided by Article 46 EC, in conjunction with Article 55 EC. So far as concerns, in particular, the grounds of public policy, included among the grounds of public interest set out in Article 46 EC and which have been relied upon by the Italian Government in its reply to the letter of formal notice, the Commission submits that the concept of public policy must be interpreted restrictively (see Case C-260/89 ERT [1991] ECR I-2925, paragraph 24, and Case C-355/98 Commission v Belgium [2000] ECR I-1221, paragraph 28), and that, in any case, recourse to that concept presupposes the existence, in addition to the perturbation of the social order which any infringement of the law involves, of a genuine and sufficiently serious threat affecting one of the fundamental interests of society (see, among others, Case C-350/96 Clean Car Autoservice [1998] ECR I-2521, paragraph 40, and Commission v Belgium, cited above, paragraph 28). The Commission adds that, in this case, the arguments relied upon by the Italian Government to justify those restrictions on the freedom to supply services are without foundation.
14 After pointing out that, in its judgment in Case 279/80 Webb [1981] ECR 3305, paragraph 18, the Court recognised that the provision of manpower is a particularly sensitive matter from the occupational and social point of view, the Italian Government submits that the market for temporary labour is still today characterised by widespread fraud and infringement of the rights of workers.
15 That government maintains that, in such a context, the requirement for an undertaking providing temporary labour to have its registered office or a branch office on Italian territory is a means of guaranteeing the protection of the rights of workers in relation to their pay and payment of social security contributions, to the extent that, in the absence of such requirement, workers, in order to enforce their rights in that connection, would be forced to bring complex legal proceedings against their employer in a foreign court, with scant prospects of success.
16 The Italian Government states that the obstacles which the said requirement is intended to overcome are essentially economic and result from the fact that, in order to recover a sum that is usually modest, the worker would be confronted by costs of an equal or even greater amount, if he were obliged to take proceedings in the courts of another Member State.
17 In order to decide whether the first complaint of the Commission is well founded, it is appropriate to point out that the requirement that undertakings providing temporary labour which wish to supply manpower to customers established in Italy must have their registered office or a branch office on Italian territory is directly contrary to the freedom to provide services, in so far as it renders impossible, in that Member State, the supply of services by undertakings established in other Member States (see, to that effect, Commission v Belgium, cited above, paragraph 27, and Case C-263/99 Commission v Italy [2001] ECR I-4195, paragraph 20).
18 In order for such a requirement, which, as the Court has repeatedly held, is the very negation of the fundamental freedom to provide services, to be accepted, it must be shown that it constitutes a condition indispensable for attaining the objective pursued (see Case C-222/95 Parodi [1997] ECR I-3899, paragraph 31, and Case C-493/99 Commission v Germany [2001] ECR I-8163, paragraph 19).
19 In that regard, it follows from the case-law of the Court that the protection of workers is among the overriding reasons of public interest capable of justifying a restriction on the freedom to provide services (see Webb, cited above, paragraph 19; Collectieve Antennevoorziening Gouda, cited above, paragraph 14; and Joined Cases C-369/96 and C-376/96 Arblade and Others [1999] ECR I-8453, paragraph 36).
20 The fact remains, however, that the requirement to have the registered office or a branch office on Italian territory, under Article 2(2)(a) of Law No 196/97, goes beyond what is necessary to achieve the objective of protection of workers relied upon by the Italian Government.
21 The said requirement applies equally to every undertaking providing temporary labour established in a Member State other than the Italian Republic, without any distinction according to the place of residence of the workers whom such an undertaking employs.
22 However, it cannot be excluded that the workers made available to a user of temporary manpower established in Italy, by an undertaking providing temporary labour which is established in another Member State, may reside in that latter State, so that the need to protect the workers, relied on in this case by the Italian Government to justify the requirement in issue, does not exist so far as they are concerned.
23 The same applies in cases in which the worker usually works in Italy under an individual employment contract.
24 Under Article 5(1) of the 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (consolidated version) (OJ 1998 C 27, p. 1), workers can sue their employers in the courts of the contracting State in which they usually work, even if the employer is domiciled in the territory of another contracting State.
25 Further, the Italian Government has put forward no convincing argument to show that an action brought by a worker resident in Italy, but employed by an undertaking providing temporary labour established in another Member State, who is made available to a user of temporary manpower established in Italy, against his employer in a court of the second State must necessarily, in all cases, be more complex and have lesser prospects of success than a similar action which he could have brought in an Italian court.
26 It follows that the Commission's first complaint must be upheld. The obligation to establish a guarantee with a credit institution having its registered office or a branch office on Italian territory
27 The Commission claims that the obligation to establish a guarantee in Italy, as required by Article 2(2)(c) of Law No 196/97, is also contrary to Article 49 EC, in so far as it clearly constitutes an interference with the carrying on, in Italy, of the business of providing temporary labour by undertakings established in other Member States, which have already had to satisfy the requirements laid down by the legislation of the State in which they are established.
28 By analogy with the judgment in Svensson and Gustavsson, cited above, the Commission claims further that the obligation to establish such a guarantee with a credit institution having its registered office or a branch office on Italian territory is contrary to both Article 56 EC and Article 49 EC, and can only be justified on the grounds of public interest expressly mentioned in Article 46 EC, in conjunction with Article 55 EC.
29 The Italian Government submits that the purpose of the obligation to establish a guarantee is to secure the salary claims and payment of the corresponding security contributions of workers employed by undertakings providing temporary labour. It argues that the guarantee required by the Italian legislation cannot be considered to be analogous or comparable to the guarantees required by the laws of other Member States, in so far as the latter are intended to secure claims arising in another Member State or pursue objectives other than that of the guarantee required by Article 2(2)(c) of Law No 196/97.
30 In relation to the obligation to establish the said guarantee with a credit institution having its registered office or a branch office on Italian territory, the Italian Government refers to the reasons put forward in the context of the first complaint raised by the Commission, claiming that the establishment of a guarantee with a credit institution having its registered office or a branch office in another Member State would involve higher costs for the worker. The obligation to establish a guarantee
31 It is settled case-law that Article 49 EC requires not only the elimination of all discrimination on grounds of nationality against providers of services who are established in another Member State, but also the abolition of any restriction, even if it applies without distinction to national providers of services and to those of other Member States, which is liable to prohibit, impede or render less advantageous the activities of a provider of services established in another Member State, where he lawfully provides similar services (see, among others, Parodi, cited above, paragraph 18, and Arblade and Others, cited above, paragraph 33).
32 It is not disputed that the obligation to establish a guarantee, which is a condition for obtaining the licence required to carry on, in Italy, the business of providing temporary labour, is liable to hinder the business of a provider established in another Member State and therefore constitutes a restriction on the freedom to provide services within the meaning of Article 49 EC.
33 In relation to the arguments relied upon by the Italian Government to justify that restriction, it is appropriate to point out that it is also settled case-law that the freedom to provide services, as one of the fundamental principles of the Treaty, may be restricted only by rules justified by overriding requirements relating to the public interest and applicable to all persons and undertakings operating in the territory of the State where the service is provided, in so far as that interest is not safeguarded by the rules to which the provider of such a service is subject in the Member State where it is established (see, in particular, the above-cited judgments in Parodi, paragraph 21; Arblade and Others, paragraph 34; and Commission v Italy, paragraph 23).
34 By requiring that all undertakings establish the guarantee required by Article 2(2)(c) of Law No 196/97 in order to obtain the licence required to carry on, in Italy, the business of providing temporary labour, that Law precludes the taking into account of obligations that, by virtue of their purpose, are comparable, to which the provider is already subject in the Member State in which it is established (see, to that effect, as well as the above-cited judgments in Commission v Belgium, paragraph 38, and Commission v Italy, paragraph 24, Case C-358/98 Commission v Italy [2000] ECR I-1255, paragraph 13).
35 Therefore, the second complaint of the Commission, in so far as it challenges the obligation to establish a guarantee, is well founded. The obligation to establish a guarantee with a credit institution having its registered office or a branch office on Italian territory
36 In this regard, it is appropriate to point out, firstly, that it is not disputed that it follows from point IX of the nomenclature of capital movements appearing in Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty (OJ 1988 L 178, p. 5), that guarantees granted by non-residents to residents or by residents to non-residents constitute movements of capital within the meaning of Article 1 of that directive and are therefore covered by Article 56(1) EC (see, to that effect, Case C-222/97 Trummer and Mayer [1999] ECR I-1661, paragraphs 21 to 24).
37 Secondly, the obligation to establish a guarantee with a credit institution having its registered office or a branch office on Italian territory, as follows from Article 2(2)(c) of Law No 196/97, is a restriction on capital movements within the meaning of Article 56(1) EC, in so far as it impedes an undertaking wishing to carry on the business of providing temporary labour in Italy from putting forward, in order to obtain the licence required for that purpose, a guarantee established with a credit institution established in another Member State.
38 Further, a national provision such as Article 2(2)(c) of Law No 196/97, in that it restricts the establishment of the guarantees required to obtain the said licence to credit institutions having their registered office or a branch office in Italy, also constitutes discrimination against credit institutions established in other Member States, and is prohibited by the first paragraph of Article 49 EC (see, to that effect, Svensson and Gustavsson, cited above, paragraph 12).
39 With regard to the arguments put forward by the Italian Government to justify Article 2(2)(c) of Law No 196/97, it need merely be pointed out that the establishment of the guarantee required by that provision is the responsibility of the undertaking providing temporary labour and therefore does not give rise to expense for the workers employed by the latter.
40 In those circumstances, it must be held that the second complaint of the Commission, in so far as it challenges the obligation to establish a guarantee with a credit institution having its registered office or a branch office on Italian territory, is also well founded, with the result that that complaint must be upheld in its entirety.
41 It follows from all the preceding considerations that, by requiring undertakings engaged in the provision of temporary labour which are established in other Member States to maintain their registered office or a branch office on Italian territory, and to lodge a guarantee of ITL 700 million with a credit institution having its registered office or a branch office on Italian territory, the Italian Republic has failed to fulfil its obligations under Articles 49 EC and 56 EC.