Tuesday, 3 January 2017

Case C-201/15 AGET Iraklis: Can governments control mass layoffs by employers? Economic freedoms vs labour rights

Menelaos Markakis

DPhil Candidate, University of Oxford; Researcher, Erasmus University of Rotterdam.

The public and scholarly attention given to the AGET Iraklis case has never been commensurate with its legal and political significance. The AG opinion (which was analysed previously on this blog) was delivered shortly before the UK referendum on UK’s membership of the EU and largely flew under the radar of most commentators. The Grand Chamber judgment in AGET Iraklis, which was handed down on 21 December 2016, was delivered on the same day as the Court’s judgment on the retention of data by providers of electronic communication services (analysed here) and AG Sharpston’s opinion on the EU-Singapore Free Trade Agreement (commentary here). The ECJ Grand Chamber ruling in AGET Iraklis is nevertheless very important, as it sheds light on the sometimes strained relationship between fundamental economic freedoms and collective labour rights.

Background to the case

As regards the factual and domestic law background to the case, it will be recalled that AGET Iraklis is in the business of cement production and has three plants in Greece. The company sought to reorganise its business and shut down one of its three plants. It further sought ministerial authorisation to carry out collective redundancies, as required by Greek law. More specifically, Greek Law No 1387/1983 provides that the Minister of Labour may refuse to authorise some or all of the projected redundancies. The impugned law further provides that applications to carry out collective redundancies are to be considered on the basis of the following criteria: ‘the conditions in the labour market’; ‘the situation of the undertaking’; and ‘the interests of the national economy’. Authorisation is a condition for the validity of the redundancy measures. In the case of AGET, the Minister of Labour refused to provide the requisite authorisation.

The company sought to argue that the impugned national rule was not compatible with Council Directive 98/59/EC on the approximation of the laws of the Member States relating to collective redundancies and Articles 49 (freedom of establishment) and 63 (free movement of capital) of the TFEU. The Greek Council of State asked the CJEU whether the contested rule contravened the aforementioned rules and in case the answer to the preceding question was in the affirmative, whether it could perhaps be justified if there were serious social reasons, such as an acute economic crisis and very high unemployment.

The compatibility of the impugned national law with Council Directive 98/59/EC

The Court ruled that ‘Directive 98/59 [could not], in principle, be interpreted as precluding a national regime which [conferred] upon a public authority the power to prevent collective redundancies by a reasoned decision adopted after the documents in the file [had] been examined and predetermined substantive criteria [had] been taken into account’ (para 34). The Directive merely set out the process to be followed before such dismissals were carried out and explicitly authorised the Member States to apply or to introduce laws, regulations or administrative provisions which were more favourable to workers (paras 27-33). ‘However, the position would, exceptionally, be different if, in the light of its more detailed rules or of the particular way in which it [was] implemented by the competent public authority, such a national regime were to result in Articles 2 to 4 of Directive 98/59 being deprived of their practical effect’ (para 35). ‘That would be so in the case of national legislation under which collective redundancies require[d] the prior consent of a public authority if, on account, for example, of the criteria in the light of which that authority [was] called upon to take a decision or of the specific way in which it interpret[ed] and applie[d] those criteria, any actual possibility for the employer to effect such collective redundancies were, in practice, ruled out’ (para 38).

The provisions of Council Directive 98/59/EC were ‘clearly based on the premiss that collective redundancies [should] – once the procedures established by those provisions [had] been exhausted, including where the consultations [had] not led to an agreement – at least remain conceivable, albeit subject to the fulfilment of certain objective requirements laid down by the applicable national legislation, if such requirements exist[ed]’ (para 41). However, AGET Iraklis argued that the Greek authorities had systematically opposed projected collective redundancies of which they had been notified (para 42). The Court of Justice left it to the referring court to decide whether, on account of the three assessment criteria and of the specific way in which the competent public authority had applied those criteria, the Directive was deprived of its practical effect (para 43).

Freedom of establishment and Article 16 of the Charter

The Court went on to examine the compatibility of the impugned national measure with Article 49 TFEU (freedom of establishment). It noted that such a national measure ‘constitute[d] a significant interference in certain freedoms which economic operators generally enjoy[ed]’ (para 55). It further ruled that ‘[n]ational legislation such as that at issue in the main proceedings [was] thus such as to render access to the Greek market less attractive and, following access to that market, to reduce considerably, or even eliminate, the ability of economic operators from other Member States who [had] chosen to set up in a new market to adjust subsequently their activity in that market or to give it up, by parting, to that end, with the workers previously taken on’ (para 56). As such, it was ‘liable to constitute a serious obstacle to the exercise of freedom of establishment in Greece’ (para 57). Indeed, the court noted that the case concerned an investment by a company from another Member State (para 47). As the impugned national law derogated from a fundamental economic freedom, Article 16 of the Charter (freedom to conduct a business) was also engaged (paras 62-69).

The Court ruled that such a restriction might be justified by overriding requirements in the public interest, such as ‘the protection of workers’ or ‘the encouragement of employment and recruitment’ (paras 73-75). It is noteworthy and indeed commendable that the Court digressed to the social policy objectives pursued by the EU Treaties, thereby discussing Articles 3(3) TEU, 151 TFEU, 147 TFEU and 9 TFEU at some length (paras 76-78). It further noted that the Member States had ‘a broad discretion when choosing the measures capable of achieving the aims of their social policy’ (para 81).

Next, the Court held that ‘the mere fact that a Member State provide[d], in its national legislation, that projected collective redundancies [should], prior to any implementation, be notified to a national authority, which [was] endowed with powers of review enabling it, in certain circumstances, to oppose the projected redundancies on grounds relating to the protection of workers and of employment, [could not] be considered contrary to freedom of establishment as guaranteed by Article 49 TFEU or the freedom to conduct a business enshrined in Article 16 of the Charter’ (para 83). The freedom to conduct a business was not absolute and should be viewed in relation to its social function (para 85). The wording of Article 16 of the Charter resembled, said the Court, that of certain provisions found in Title IV of the Charter (Solidarity), and the freedom to conduct a business might be subject to a broad range of interventions on the part of public authorities that might limit the exercise of economic activity in the public interest (para 86). Alemo-Herron (in which the Court ruled against the UK’s application of the Directive on workers’ acquired rights) was quickly discussed and brushed aside (para 87). A regime which ‘[did] not have, in any way, the consequence of entirely excluding, by its very nature, the ability of undertakings to effect collective redundancies, since it [was] designed solely to impose a framework on that ability’ did not affect, held the Court, the essence of the freedom to conduct a business (para 88).

The Court further noted that, according to Article 52(1) of the EU Charter, ‘limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others’, such as the Article 30 Charter right to protection against unjustified dismissal, in accordance with Union law and national laws and practices (para 89). ‘Thus, a national regime imposing a framework … [should] seek, in this sensitive area, to reconcile and to strike a fair balance between the interests connected with the protection of workers and of employment, in particular protection against unjustified dismissal and against the consequences of collective dismissals for workers, and those relating to freedom of establishment and the freedom of economic operators to conduct a business enshrined in Articles 49 TFEU and Article 16 of the Charter’ (para 90). Such a mechanism ‘[might] – in the absence, especially, of any rules of EU law that [were] intended to prevent such redundancies and [went] beyond the fields of information and consultation covered by Directive 98/59 – prove to be a mechanism of the sort that [could] contribute to enhancing the level of actual protection of workers and of their employment, by laying down substantive rules governing the adoption of such economic and commercial decisions by undertakings’ (para 92). ‘Such a mechanism [was] thus appropriate for ensuring the attainment of the objectives in the public interest thereby pursued’ (para 92). ‘Furthermore, in the light of the discretion available to the Member States when pursuing their social policy, they [were], in principle, justified in considering the existence of a mechanism imposing such a framework to be necessary in order to ensure an enhanced level of protection of workers and of their employment’ (para 93). ‘In particular, it [was] not apparent that measures of a less restrictive kind would ensure attainment of the objectives thereby pursued as effectively as the establishment of such a framework’ (para 93). As such, the Court concluded that such a regime was in principle capable of satisfying the requirements stemming from the principle of proportionality and was therefore compatible with Articles 49 TFEU and 16 ECFR (para 94).

However, as regards the specific characteristics of the impugned national measure, the criteria applied by the competent national authority when deciding whether to oppose the projected redundancies (viz., ‘the conditions in the labour market’ and ‘the situation of the undertaking’) were ‘formulated in very general and imprecise terms’ (para 99). ‘…[I]n the absence of details of the particular circumstances in which the power in question [might] be exercised, the employers concerned [did] not know in what specific objective circumstances that power [might] be applied, as the situations allowing its exercise [were] potentially numerous, undetermined and indeterminable and [left] the authority concerned a broad discretion that [was] difficult to review’ (para 100). ‘Such criteria which [were] not precise and [were] not therefore founded on objective, verifiable conditions [went] beyond what [was] necessary in order to attain the objectives stated and [could not] therefore satisfy the requirements of the principle of proportionality’ (para 100). What is more, ‘the legislation concerned also fail[ed] to provide the national courts with criteria that [were] sufficiently precise to enable them to review the way in which the administrative authority exercise[d] its discretion’ (para 101). Consequently, the impugned regime was incompatible, because of its ‘particular detailed rules’, with the requirements flowing from Articles 49 TFEU and 16 ECFR (paras 102-04).

The impugned measure could not be saved, said the Court, if there were serious social reasons, such as an acute economic crisis and very high unemployment. As regards Council Directive 98/59/EC, the Member State concerned was not allowed to deprive the provisions of the Directive of their practical effect, ‘as the directive [did] not contain a safeguard clause for the purpose of authorising by way of exception a derogation, in the event of such a national context, from the harmonising provisions which it [laid] down’ (para 106). Nor did the EU Treaties and related case law provide for a derogation in such cases (para 107). As such, the peculiar context of the Greek crisis did not have a bearing, said the Court, on the finding of incompatibility of the impugned national law with Articles 49 TFEU and 16 ECFR (para 108).


This commentary should be read together with the previous post on the AG opinion. The analysis here will only cover those aspects of the case which were not already discussed in the previous post.

This judgment was expected with great interest from the Greek Government and the Troika (now the ‘Quadriga’), as the second review of the ongoing financial assistance programme is also focusing on labour market issues. More specifically, the Greek Government has come under pressure to strip the Minister of Labour of its power to control mass layoffs by employers or at the very least lax the relevant requirements for such dismissals. What are then the effects of the preliminary ruling in AGET Iraklis in this respect?

We have seen that the CJEU ruled that Council Directive 98/59/EC might not necessarily be deprived of its practical effect by the impugned national measure. The referring court could therefore ‘save’ this measure by holding that the criteria as set out in the impugned law and applied by the Minister of Labour did not deprive the Directive of its practical effect. This would of course depend on whether it was indeed the case that the Greek authorities systematically opposed collective redundancies (as argued by AGET Iraklis) or not. It remains to be seen whether the Greek Council of State will take the view that the impugned national law is compatible with the Directive. To be sure, this point might be somewhat moot by then, for the reasons explained below.

As regards the compatibility of the impugned national law with Articles 49 TFEU and 16 ECFR, the situation is far more complicated for the Greek authorities. The Court of Justice is essentially asking the Greek authorities to devise a new mechanism whereby the criteria applied by the national authorities would not be formulated ‘in very general and imprecise terms’. These criteria would have to be based on objective conditions the fulfilment of which could be reviewed by the courts. The Court did not offer more guidance on how the new mechanism should look like, presumably seeking to respect the broad margin of appreciation casually granted to national authorities in this sensitive area. As AG Wahl had argued in his opinion, ‘[a]n alternative might have consisted in listing the types of dismissals considered to be unjustified, as in the case of the list which appears in paragraph 3 of the section of the Appendix to the Social Charter relating to Article 24 thereof’ (para 71). That would indeed be an option.

Be that as it may, it should not escape our attention that the new law would be drafted by the Greek authorities in cooperation with the European Commission, the ECB, the IMF, and the ESM. As such, the broad margin of appreciation in principle enjoyed by the Greek authorities would de facto be diminished. This is not a critique of the Court’s reasoning and should not be seen in this light. It is rather an attempt to bring a dose of realism to the debate. Absent an authoritative interpretation by the CJEU as to how this new mechanism should look like, the Greek authorities are likely to succumb to the pressure exerted by the country’s lenders to create a more ‘flexible’ labour market. This is because, as argued elsewhere, the Troika possesses a much more credible ‘enforcement mechanism’, insofar as the release of further loan instalments is made conditional upon successful completion of the review of the programme.

In light of the above, there are two ways of looking at the judgment in AGET Iraklis, depending on one’s perspective. The Greek Government would presumably seek to argue in its negotiations with the Troika that the impugned national law is not in principle incompatible with EU law, and that EU law does not require that such a law be disapplied. Fine-tuning the relevant provisions in line with the EU acquis would make do. On their part, the Troika would probably argue that EU law does not require that such a protective regime for workers exist, and that therefore it could perhaps be abolished. Given that a state which is seemingly constantly on the brink of insolvency does not have equal bargaining power as its lenders, it would not be surprising if the Greek authorities came under tremendous pressure to relax the requirements for carrying out collective redundancies. This is more especially so because the successful completion of the second review of the programme is linked to measures of debt relief for Greece as well as participation in the ECB’s quantitative easing programme.

This was most certainly not a Viking/Laval moment for the Court, as it very carefully examined the merits and demerits of the opposing arguments and handed down a very measured judgment. The Court surely cannot be expected to broker an agreement between Greece and the institutions, as its proper role is to interpret and rule on the validity of EU law. The ball is now firmly back with the referring court and the negotiating parties, the latter being responsible to come up with a solution that would unlock much-needed funding for the Greek economy while being respectful of the interests of workers.

Barnard & Peers: chapter 9, chapter 20
Photo: AGET Heracles cement factory
Photo credit: Greekreporter.com

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