(BRUSSELS) - Europe's top court on Tuesday ruled against a Swedish trade union that tried to force a Latvian company to pay its staff higher rates, in a widely-watched wage-dumping test case.

The European Court of Justice (ECJ) judged that the union had impinged on the firm's right to provide services by blockading sites where it was working in Sweden, even though the employees were working for lower wages.

"Such action in the form of a blockade of sites constitutes a restriction on the freedom to provide services, which, in this case, is not justified with regard to the public interest of protecting workers," the court said.

The case concerned Latvian company Laval un Partneri, which posted workers to Swedish building sites, mainly on extensions at a school in the town of Vaxholm in 2004. The works were handled by a susidiary, L and P Baltic Bygg.

Sweden's Byggnads construction union accused Laval of paying rates far lower than permissable and blockaded three of its building sites to pressure the subsidiary into signing a collective wage agreement.

The action forced L and P Baltic Bygg into bankruptcy.

The rift has been followed closely in Sweden, where it was seen as a direct consequence of EU enlargement amid concerns about an influx of cheap labour from eastern European countries, such as Latvia, which joined the bloc in May 2004.

In its ruling, the Luxembourg-based court recognised the right of workers to take collective action but it said that the picketting in this case had restricted the right of the Latvian company to provide services.

The ECJ noted in particular that since Sweden has no mininum pay levels, the union had no right to set a wage level that the Latvian company would have to respect.

It said that, in this case, the right to collective action was liable to make it more difficult for the firm "to carry out construction work in Sweden and therefore constitutes a restriction on the freedom to provide services."

But "the right to take collective action for the protection of workers of the host state against possible social dumping may constitute an over-riding reason of public interest" in some cases, the court said.

The European Trade Union Confederation (ETUC) was suprised by the ruling and officials said it would have to be carefully analysed before the ramifications were properly understood, while parliamentary groups too were disappointed.

"Our disappointment is focused on the challenge it poses to the very successful flexible Swedish system of collective bargaining and those of certain other Nordic countries," ETUC said in a statement.

It said the decision could have "negative implications" for other nations and impede the ability of trade unions "to promote equal treatment and protection of workers regardless of nationality."

The head of the European Parliament's Socialist bloc, former Danish prime minister Poul Nyrup Rasmussen said: "Europe has shot itself in the foot today."

"How can the court spread so much uncertainty on such a fundamental question? On the one hand they recognize the right to collective action by trade unions, on the other hand the Court creates uncertainty on which agreements should be respected," he said in a statement.

The Greens bloc at the assembly said: "Today's ruling by the ECJ opens the door for wage dumping in the EU and is a blow for workers rights."

"This ruling strikes at the very heart of employment rights in the EU."

A spokesman for the European Commission said that, like the trade unions, the EU's executive arm would "analyse the judgement very carefully."

Judgment of the European Court of Justice in Case C-341/05 (press release, pdf)
Laval un Partneri

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