(BRUSSELS) - The European Court of Justice on Tuesday upheld the right of EU companies to shift activities to another member state, dealing a blow to trade unions seeking to prevent so-called social dumping.

However in the same ruling, regarding a Finnish shipping company's move to sail under the Estonian flag, the court also ruled that unions were allowed to take collective action to persuade a company not to decamp to a cheaper location and workforce.

That right, the court in Luxembourg ruled, only applies where jobs or employment conditions are "jeopardised or under serious threat."

The general ruling resulted from a particular case involving the London-based International Transport Workers Federation (ITF) and the Finnish shipping company.

The federation was unhappy that the Finnish shipping company, Viking, in a cost-cutting move, sought in October 2003 to staff one of its passenger ferries, the loss-making Rosella, with a cheaper Estonian crew and sail it under the Estonian flag for its Tallinn-Helsinki trips.

The ITF sent a circular to all its affiliates asking them not to deal with the Viking Line, with the threat of sanctions attached.

This had the effect of preventing Estonian trade unions from entering into negotiations with Viking.

After Estonia joined the EU in 2004, Viking brought the case to the British courts seeking to force the ITF to withdraw its circular and asking the court to order the Finnish Seamen's Union, an ITF affiliate, to honour its right to reflag the ferry.

Britain's Court of Appeal referred the case to the European Court of Justice which ruled Tuesday that the union action amounted to "restrictions on the freedom of establishment ... (which) cannot be objectively justified.

"Such a restriction can be accepted only if it pursues a legitimate aim such as the protection of workers," the court said, throwing it back to the British courts to decide whether the collective action went "beyond what was necessary."

Judgment of the Court of Justice in Case C-438/05
The International Transport Workers' Federation et The Finnish Seamen's Union - European Court of Justice press release (pdf)

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