Human Rights and National Data Retention Law: the Opinion in Tele 2 and Watson

Lorna Woods, Professor of Internet Law, University of Essex

Yesterday’s Advocate-General’s opinion concerns two references from national courts which both arose in the aftermath of the invalidation of the Data Retention Directive (Directive 2006/24) in Digital Rights Ireland dealing with whether the retention of communications data en masse complies with EU law.  The question is important for the regimes that triggered the references, but in the background is a larger question: can mass retention of data ever being human rights compliant. While the Advocate General clearly states this is possible, things may not be that straightforward.

Background

Under the Privacy and Electronic Communications Directive (Directive 2002/58), EU law guarantees the confidentiality of communications transmitted via a public electronic communications network.  Article 1(3) of that Directive limits the field of application of the directive to activities falling with the TFEU, thereby excluding matters covered by Titles V and VI of the TEU at that time (e.g. public security, defence, State security).  Even within the scope of the directive, Article 15 permits Member States to restrict the rights granted by the directive

‘when such restriction constitutes a necessary, appropriate and proportionate measure within a democratic society to safeguard national security, defence, public security, and the prevention, investigation, detection and prosecution of criminal offences or of unauthorised use of the electronic system..’.

Specifically, Member States were permitted to legislate for the retention of communications data (ie details of communications but not the content of the communication) for the population generally. The subsequent Data Retention Directive specified common maximum periods of retention and safeguards, and was implemented (in certain instances with some difficulty) by the Member States.

Following the invalidation of the Data Retention Directive, the status of Member State data retention laws was uncertain. This led both Tele2 and Watson (along with a Conservative MP, David Davis, who withdrew his name when he became a cabinet minister) to challenge their respective national data retention regimes, essentially arguing that such regimes were incompatible with the standards set down in Digital Rights Ireland. The Tele2 case concerned the Swedish legislation which implemented the Data Retention Directive. The Watson case concerned UK legislation which was implemented afterwards: the Data Retention and Investigatory Powers Act (DRIPA). Given this similarity, the cases were joined.

The Swedish reference asked whether traffic data retention laws that apply generally are compatible with EU law, and asked further questions regarding the specifics of the Swedish regime. Watson et al asked two questions: whether the reasoning in Digital Rights Ireland laid down requirements that were applicable to a national regime; and whether Articles 7 and 8 of the EU Charter of Fundamental Rights (EUCFR) established stricter requirements than Article 8 of the European Convention on Human Rights (ECHR) – the right to private life. Although the latter case concerns the UK, the Court’s will still be relevant if the UK leaves the EU because the CJEU case law provides that non-Member States’ data protection law must be very similar to EU data protection law in order to facilitate data flows (see Steve Peers’ discussion here).

Opinion of the Advocate General

The Advocate General dealt first with the question about the scope of the protection under the EUCFR.  This question the Advocate General ruled as inadmissible because it was not relevant to resolving the dispute.  In so doing, he confirmed that the obligation in Article 52 EUCFR to read the rights granted by the EUCFR in line with the interpretation of the ECHR provided a base line and not a ceiling of protection.  The EU could give a higher level of protection; indeed Article 52(3) EUCFR expressly allows for the possibility of ‘… Union law providing more extensive protection’. 

Moreover, Article 8 EUCFR, in providing a specific right to data protection, is a right that has no direct equivalent in the ECHR; the Advocate General therefore argued that the rule of consistent interpretation in Article 52(3) EUCFR does not apply to Article 8 EUCFR (Opinion, para 79). Later in the Opinion, the Advocate General also dismissed the suggestion that Digital Rights Ireland did not apply because the regime in issue in Watson et al was a national regime and not one established by the EU legislature. Articles 7, 8 and 52 EUCFR were interpreted in Digital Rights Ireland and are again at issue here: Digital Rights Ireland is therefore relevant despite the different jurisdiction of the court (paras 190-191).

The Advocate General then went on to consider whether EU law permits Member States to establish general data retention regimes.  The first question was whether Article 1(3) meant general data retention regimes were excluded from the scope of Directive 2002/58 because the sole use of the data was for the purposes of national security and other grounds mentioned in Art 1(3).  The Advocate General made three points in response:

Given that Article 15(1) specifically envisaged data retention regimes, national laws establishing  such a regime were in fact implementing Article 15(1) (para 90).

The argument the governments put forward was related to the access to the data by public authorities, the national schemes concerned the acquisition and retention of that data by private bodies – that the former might lie outside the directive did not imply that the latter also did (paras 92-94).

The approach of the Court in Ireland v Parliament and Council (Case C-301/06), which was a challenge to the Data Retention Directive as regards the Treaty provision on which it was enacted, meant that general data retention obligations ‘do not fall within the sphere of criminal law’ (para 95).

The next question was whether Article 15 of the Directive applied. The express wording of Article 15, which refers to data retention, makes clear that data retention is not per se incompatible with Directive 2002/58. The intention was rather to make any such measures subject to certain safeguards. This means that data retention can be legal provided the scheme complies with the safeguards (para 108). Indeed, following his earlier reasoning, the Advocate General rejected the argument that Article 15 is a derogation and should therefore be read restrictively.

This brings us to the question of whether sufficient safeguards are in place. Since the Advocate General took the view that in providing for general data retention regimes the Member States are implementing Article 15, such measures fall within the scope of EU law and therefore, according to Article 51 EUCFR, the Charter applies, even if rules relating to access to the data by the authorities lie outside the scope of EU law (paras 122-23).  Nonetheless, given the close link between access and retention, constraints on access are of significance in assessing the proportionality of the data retention regime.

Assessing compliance with the EUCFR requires as a first step an interference with rights protected. The Advocate General referred to Digital Rights Ireland to accept that ‘[g]eneral data retention obligations are in fact a serious interference’ with the rights to privacy (Art 7 EUCFR) and to data protection (Art. 8 EUCFR) (para 128). Justification of any such interferences must satisfy both the requirements set down in Article 15(1) Directive 2002/58 AND Article 52(1) EUCFR which sets out the circumstances in which a member State may derogate from a right guaranteed by the EUCFR (para 131). The Advocate General then identified 6 factors arising from these two obligations (para 132):

Legal basis for retention;

Observe the essence of the rights in the EUCFR (just Article 52 EUCFR, rather than Art 15 of the directive);

Pursue an objective of general interest;

Be appropriate for achieving that objective;

Be necessary to achieve that objective; and

Be proportionate within a democratic society to the pursuit of the objective.

As regards the requirement for a legal basis the Advocate General argued that the ‘quality’ considerations that are found in the ECHR jurisprudence should be expressly applied within EU law too. They must have the characteristics of accessibility, foreseeability and providing adequate protection against arbitrary interference, as well as being binding on the relevant authorities (para 150). These factual assessments fall to the national court. 

In the Opinion of the Advocate General, the ‘essence of the rights’ requirement – as understood in the light of Digital Rights Ireland – was unproblematic. The data retention regime gave no access to the content of the communication and the data held was required to be held securely. A general interest objective can also easily be shown: the fight against serious crime and protecting national security. The Advocate General, however, rejected the argument that the fight against non-serious crime and the smooth running of proceedings outside the criminal context could constitute a public interest objective. Likewise, data retention gives national authorities ‘an additional means of investigation to prevent or shed light on serious crime’ (para 177) and it is specifically useful in that general measures give the authorities the power to examine communications of persons of interest which were carried out before they were so identified. They are thus appropriate.

A measure must be necessary which means that ‘no other measure exists that would be equally appropriate and less restrictive’ (Opinion, para 185). Further, according to Digital Rights Ireland, derogations and limitations on the right of privacy apply only insofar as strictly necessary.  The first question was whether a general data retention regime can ever be necessary. The Advocate General argued that Digital Rights Ireland only ruled on a system where insufficient safeguards were in place; there is no actual statement that a general data retention scheme is not necessary. While the lack of differentiation was problematic in Digital Rights Ireland, the Court ‘did not, however, hold that that absence of differentiation meant that such obligations, in themselves, went beyond what was strictly necessary’ (Opinion, para 199).  The fact that the Court in Digital Rights Ireland examined the safeguards suggests that the Court did not view general data retention regimes as per se unlawful. (see also Schrems (Case C-362/14), para 93, cited here in para 203). On this basis the Advocate General opined:

a general data retention obligation need not invariably be regarded as, in itself, going beyond the bounds of what is strictly necessary for the purposes of fighting serious crime. However, such an obligation will invariably go beyond the bounds of what is strictly necessary if it is not accompanied by safeguards concerning access to the data, the retention period and the protection and security of the data. (para 205)

The comparison as to the effectiveness of this sort of measure with other measures must be carried out within the relevant national regime bearing in mind the possibility that generalised data retention gives of being able to ‘examine the past’ (para 208). The test to be applied, however, is not one of utility but that no other measure or combination of measures can be as effective.

The question is then of safeguards and in particular whether the safeguards identified in paras 60-68 of Digital Rights Ireland are mandatory for all regimes. These rules concern:

Access to and use of retained data by the relevant authorities;

The period of data retention; and

The security and protection of the data while retained.

Contrary to the arguments put forward by various governments, the Advocate General argued that ‘all the safeguards described by the Court in paragraphs 60 to 68 of Digital Rights Ireland must be regarded as mandatory’ (para 221, italics in original). Firstly, the Court made no mention of the possibility of compensating for a weakness in respect of one safeguard by strengthening another. Further, such an approach would no longer give guarantees to individuals to protect them from unauthorised access to and abuse of that data: each of the aspects identified needs to be protected. Strict access controls and short retention periods are of little value if the security pertaining to retained data is weak and that data is exposed. The Advocate General noted that the European Court of Human Rights in Szabo v Hungary emphasised the importance of these safeguards, citing Digital Rights Ireland.

While the Advocate General emphasised that it is for the national courts to make that assessment, the following points were noted:

In respect of the purposes for which data is accessed, the national regimes are not sufficiently restricted (only the fight against serious crime, not crime in general, is a general objective) (para 231)

There is no prior independent review (as required by para 62 Digital Rights Ireland) which is needed because of the severity of the interference and the need to deal with sensitive cases (such as the legal profession) on a case by case basis. The Advocate General did accept that in some cases emergency procedures may be acceptable (para 237).

The retention criteria must be determined by reference to objective criteria and limited to what is strictly necessary. In Zacharov, the European Court of Human Rights accepted 6 months as being reasonable but required that data be deleted as soon as it was not needed. This obligation to delete should be found in national regimes and apply to the security services as well as the service providers (para 243).

The final question relates to proportionality, an aspect which was not considered in Digital Rights Ireland.  The test is:

‘a measure which interferes with fundamental rights may be regarded as proportionate only if the disadvantages caused are not disproportionate to the aims pursued’ (para 247).

This opens a debate about the importance of the values protected. In terms of the advantages of the system, these had been rehearsed in the discussion about necessity. As regards the disadvantages, the Advocate General referred to the Opinion in Digital Rights Ireland, paras 72-74 and noted that

‘in an individual context, a general data retention obligation will facilitate equally serious interference as targeted surveillance measures, including those which intercept the content of communications’ (para 254)

and it has the capacity to affect a large number of people. Given the number of requests for access received, the risk of abuse is not theoretical.  While it falls to the national courts to balance the advantages and disadvantages, the Advocate General emphasised that even if a regime includes all the safeguards in Digital Rights Ireland, which should be seen as the minimum, that regime could still be found to be disproportionate (para 262).

Comment

It is interesting that the Court of Appeal’s reference did not ask the Court whether DRIPA was compliant with fundamental rights in the EUCFR. Rather, the questions sought to close off that possibility – firstly by limiting the scope of the EUCFR to a particular conception of Article 8 ECHR and secondly by seeking to treat Digital Rights Ireland as a challenge to the validity of a directive as not relevant within the national field.  Although the Advocate General did not answer the first question, the reasons given for dismissing it make clear that the Court of Appeal’s approach was wrong. Indeed, it is hard to see how Art 52(3) when read in its entirety could support the argument that the EUCFR should be ‘read down’ to the level of the ECHR. The entire text of Article 52(3) follows:

In so far as this Charter contains rights which correspond to rights guaranteed by the Convention for the Protection of Human Rights and Fundamental Freedoms, the meaning and scope of those rights shall be the same as those laid down by the said Convention. This provision shall not prevent Union law providing more extensive protection.

The focus of the second question was likewise misguided. As the Advocate General pointed out, Digital Rights Ireland was based on the interpretation of the meaning of two provisions of the EUCFR, Articles 7 and 8.  They should have the same meaning wherever they are applied.

Quite clearly, the Advocate General aims to avoid saying that mass surveillance – here in the form of general data protection rules – is per se incompatible with human rights. Indeed, one of the headline statements in the Opinion is that ‘a general data retention obligation imposed by a Member State may be compatible with the fundamental rights enshrined in EU law’ (para 7). The question then becomes about reviewing safeguards rather than saying there are some activities a member State cannot carry out.  This debate is common in this area, as the case law of the European Court of Human Rights illustrates (see Szabo, particularly the dissenting opinion).

Fine distinction abound. For example, where the Advocate General relies on the distinction between meta data and content to reaffirm that the essence of Article 7 and 8 has not been undermined.  Yet while the Advocate General tries hard to hold that general data retention may be possible, tensions creep in.  The point the Advocate General made in relation to the ‘essence of the right’ was based on the assumption that meta data collection is less intrusive than intercepting content.  In assessing the impact of a general data protection regime, the Advocate General then implies the opposite (paras 254-5). Indeed, the Advocate General quotes Advocate General Cruz Villalon in Digital Rights Ireland that such surveillance techniques allow the creation of:

‘a both faithful and exhaustive map of a large portion of a person’s conduct strictly forming part of his private life, or even a complete and accurate picture of his private identity’.

The Advocate General here concludes that:

‘the risks associated with access to communications data (or ‘metadata’) may be as great or even greater than those arising from access to the content of communications’ (para 259).

Another example relates to the scope of EU law. The Advocate General separates access to the collected data (which is about policing and security) and the acquisition and storage of data which concerns the activities of private entities. The data retention regime concerns this latter group and their activities which fall within the scope of EU law. In this the Advocate General is following the Court in the Irish judicial review action challenging the legal basis of the Data Retention Directive (the outcome of which was that it was correctly based on Article 114 TFEU).  The Advocate General having separated these two aspects at the question of scope of EU law, then glues them back together to assess the acceptability of the safeguards.

In terms of safeguards, the Advocate General resoundingly reaffirms the requirements in Digital Rights Ireland.  All of the safeguards mentioned are mandatory minima, and weakness in one area of safeguards cannot be offset by strength in another area. If the Court takes a similar line, this may have repercussions for the relevant national regimes, for example as regards the need for prior independent review (save in emergencies). Indeed, in this regard the Advocate General might be seen to going further than either European Court has.  Further, the Advocate General restricts the purposes for which general data retention may be permitted to serious crime only (contrast here, for example, the approach to Internet connect records in the Investigatory Powers Bill currently before the UK Parliament). 

Another novelty is the discussion of lawfulness. As the Advocate General noted, there has not been much express discussion of this issue by the Court of Justice, though the requirement of lawfulness is well developed in the Strasbourg case law. While this then might be seen not to be particularly new or noteworthy, the Advocate General pointed out that the law must be binding and that therefore:

‘[i]t would not be sufficient, for example, if the safeguards surrounding access to data were provided for in codes of practice or internal guidelines having no binding effect’ (para 150)

Typically, much of the detail of surveillance practice in the UK has been found in codes; as the security forces’ various practices became public many of these have been formalised as codes under the relevant legislation (see e.g. s. 71 Regulation of Investigatory Powers Act; codes available here). Historically, however, not all were publicly available, binding documents.

While the headlines may focus on the fact that general data retention may be acceptable, and the final assessment of compliance with the 6 requirements falls to the national courts, it seems that this is more a theoretical possibility than easy reality. The Advocate General goes beyond endorsing the principles in Digital Rights Ireland: even regimes which satisfy the safeguards set out in Digital Rights Ireland may still be found to be disproportionate. While Member States may not have wanted to have a checklist of safeguards imposed on them, here even following that checklist may not suffice. Of course, this opinion is not binding; while it is designed to inform the Court, the Court may come to a different conclusion. The date of the judgment has not yet been scheduled.

Photo credit: choice.com.au

Barnard & Peers: chapter 9

JHA4: chapter II:7

The new Viking/Laval? AG Wahl argues that requirement for prior authorisation of collective redundancies breaches Article 49 TFEU

Menelaos Markakis⃰

⃰ DPhil Candidate, University of Oxford. Academy of Athens and Modern Law Review scholar.

The Advocate-General’s recent opinion in CJEU Case C-201/15 AGET Iraklis is both interesting intellectually and significant politically. AGET Iraklis, which is a subsidiary of LafargeHolcim, is active in the fields of manufacturing, distribution and marketing of cement and has three plants in Greece. As the construction sector took a heavy blow from the economic crisis, AGET Iraklis’ sales plummeted and the company sought to reorganise its business. Under Greek law, a company seeking to carry out collective redundancies has to consult with the workers’ representatives prior to taking action. It was disputed during the hearing whether the company had indeed done so. More importantly, the Minister of Labour is given the power to extend the deadline for such consultations or to refuse to authorise some or all of the projected redundancies. It was the exercise of the latter power by the Greek Minister of Labour which gave rise to the dispute in the main proceedings (Greek Council of State (Fourth Chamber) Decision no 1254/2015).

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, which is in many ways the supreme administrative court of the land, 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 Advocate General opinion

AG Wahl delivered his opinion on the case on 9 June 2016. He argued that the impugned national rule was ‘wholly unconnected’ to Directive 98/59, insofar as that directive ‘[did] not govern the employer’s freedom (or lack thereof) to effect collective redundancies’. As such, Directive 98/59 did not preclude, said he, the enactment of the contested provision (paras 23-34 of the opinion).

As regards EU primary law, AG Wahl opted to examine the contested national rule from the standpoint of the freedom of establishment (paras 35-45). He argued that a requirement for prior authorisation of collective dismissals constituted a restriction on freedom of establishment (para 47). ‘Indeed, in the main proceedings the rule at issue limits an employing undertaking’s freedom to make collective redundancies since, unless the rule is complied with, those redundancies will be invalid. Such a rule thus directly interferes with the internal organisation of undertakings and with the management of their staff, possibly exposing undertakings to the risk of operating at a loss.’ He further argued that Article 49 TFEU should be interpreted in the light of Article 16 of the EU Charter of Fundamental Rights (freedom to conduct a business) and that the impugned national rule restricted the exercise of the latter freedom (paras 49-50).

The Greek Government sought to argue that the contested rule was justified on the ground of the protection of workers, which is an overriding requirement in the public interest. The impugned law provides that applications to carry out collective dismissals 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.

AG Wahl argued (para 66) that the interests of the national economy ‘involve[d] a purely economic objective which [could not] justify restricting the freedom of establishment (nor the freedom to conduct a business)’. As regards the conditions in the labour market and the situation of the undertaking, these criteria were, said the Advocate General, ‘neither appropriate for achieving the objective of protecting workers, nor limited to what [was] strictly necessary in order to achieve that objective’ (para 67).

As regards the conditions in the labour market, AG Wahl noted that, in the event of an administrative refusal to authorise the planned redundancies, the workers would fare even worse, since ‘that undertaking would have a clear incentive to commence proceedings for its dissolution and winding-up, after which it would no longer be bound by Directive 98/59 … and, presumably, would not have the funding required to remunerate the workers concerned in the event that the rule at issue were to continue to apply to such a situation’ (para 68). ‘That would, incidentally, also endanger the jobs of those workers who have not been made redundant.’ As such, AG Wahl expressed his ‘doubts’ as to whether ‘the rule at issue might contribute, in any meaningful way, to lowering the unemployment rate’. In any event, this criterion was not suitable, said he, for achieving the objective pursued, as ‘it [did] not remedy the problems which [had] made the employment situation of the workers concerned uncertain’ and essentially ‘amount[ed] to denying the employers’ right to terminate an employment relationship on the ground that it [was] generally not desirable to have more unemployed persons’ (para 69).

As regards the possibility to rely on the situation of the undertaking for the purposes of blocking collective dismissals, AG Wahl noted that the contention that the authorities of a Member State might be better suited than the management of that undertaking to determine what is most appropriate in its situation struck him as ‘nothing less than remarkable’ (para 70). ‘At any rate, I do not find it appropriate to protect workers by letting an authority overrule the business decisions ultimately taken by the employing undertaking.’ He added that:

Moreover, as argued by the Company, the statutory criteria are unclear and afford excessively broad discretion to the administration, to the detriment of the legal certainty of the employers. This, in fact, appears to frustrate from the outset any possible attempts at reaching a friendly settlement between the employers and the workers by doing away with the need for negotiations – as witnessed in the matter under consideration. An 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).

Furthermore, the Greek Government failed to show, said the Advocate General, that the impugned measure complied with the principle of proportionality, nor did it provide in his opinion specific evidence substantiating the arguments raised (para 72). He added that:

Indeed, by restricting the employer’s ability to dismiss the workers collectively, the rule at issue merely gives the impression of being protective of workers. To begin with, that protection is only temporary until the employer becomes insolvent. Even more importantly, workers are best protected by an economic environment which fosters stable employment. Historically speaking, the idea of artificially maintaining employment relationships, in spite of unsound general economic foundations, has been tested and has utterly failed in certain political systems of yesteryear. That provides confirmation that, in laying down an effective yet flexible protective procedure, Directive 98/59 affords genuine protection for workers, whereas a system of prior authorisation such as that at issue, which tellingly falls outside its scope, does not (para 73).

As such, the Advocate General concluded that the impugned rule was not suitable for the attainment of the objective pursued and that, in any event, it went beyond what was necessary to achieve that purpose (para 76). Moreover, ‘the presence of an acute economic crisis accompanied by unusual and extremely high unemployment rates’ was said to be incapable of justifying the impugned restriction (para 77). This was, said the AG, because ‘[t]hose circumstances, although clearly very serious, [could not] justify restricting the freedoms of establishment and to conduct a business when the statutory criteria [could not] do so on their own’; ‘an acute economic crisis and very high unemployment rates amount[ed] in themselves – at least in part – to purely economic factors’; ‘the socio-economic effects resulting from collective redundancies [were] felt in a given local context and social environment, not at the national level’; and ‘there [was] no reason to believe that a severe economic crisis would not affect businesses just as much as workers’ (paras 78-79). The AG further noted that ‘as the Commission state[d], in times of crisis, it [was] just as important to reduce all the factors which deter[red] new undertakings from investing, as economic efficiency [might] help stimulate job creation and economic growth’ (para 80). ‘That, I presume, is the reason why Greece, as a condition for the financial assistance provided by the European Stability Mechanism, accepted to “undertake rigorous reviews and modernisation of collective bargaining, industrial action and, in line with the relevant EU directive and best practice, collective dismissals, along the timetable and the approach agreed with the Institutions. On the basis of these reviews, labour market policies should be aligned with international and European best practices, and should not involve a return to past policy settings which are not compatible with the goals of promoting sustainable and inclusive growth”.’

Commentary

The AGET Iraklis case arose from the Greek crisis and gave rise to the first Article 267 TFEU preliminary reference from the Greek Council of State to the CJEU in this context. Although the impugned rule was not used as a ‘vehicle’ for indirectly challenging the bailout terms agreed between Greece and its creditors, the case could nevertheless be said to form part of a group of cases brought before the CJEU concerning the legality of national economic policy measures that were enacted in response to the economic crisis. These include the Romanian MoU cases (Cases C-434/11, C-462/11, C-134/12, and C-369/12); the Portuguese MoU cases (Cases C-128/12, C-264/12 and C-665/13); a couple of Greek cases concerning a Council decision adopted within the framework of the excessive deficit procedure (Cases T-541/10 and T-215/11); and a number of cases arising from the Cypriot banking crisis (Case T-327/13; opinion in Joined Cases C-8/15 P, C-9/15 P and C-10/15 P; opinion in Joined Cases C-105/15 P to C-109/15 P; see comments by René Smits).

There is no doubt that the impugned national rule in AGET Iraklis might hinder or render less attractive the exercise of the freedom of establishment, which includes the right of departure from a Member State. It might further constitute a restriction on the freedom to conduct a business which is enshrined in Article 16 of the EU Charter. The application of the Charter is triggered insofar as Greece could be said to derogate from the freedom of establishment. The relationship between the freedom to conduct a business and workers’ rights is clearly complex (see the report by the European Union Agency for Fundamental Rights, Freedom to Conduct a Business: Exploring the Dimensions of a Fundamental Right (pages 9-10), and exigencies of space preclude detailed analysis of this. However, it should be noted in this connection that Article 16 of the Charter can be and indeed is used by corporations to challenge various regulatory requirements which are seen to stand in their way, as evidenced by the factual background to the recent Lidl judgment (in which the argument was unsuccessful).

The Court rulings in Viking Line and Laval set the pace for the relationship between fundamental economic freedoms, on the one hand, and collective labour rights, on the other. Depending on what the Court’s ruling will be, AGET Iraklis might as well soon form part of this group of cases and could also be said to be linked to the Court’s ruling in Alemo-Herron. The reader might perhaps be struck by the tone of the AG opinion, but the reality is that the AG undertakes a careful and balanced analysis of the relevant substantive issues. This is perforce conjecture, but the Court might as well follow the AG opinion, albeit with slightly different wording.

Taking a step back from the pressing legal questions facing the Court in the AGET case, it is clear that the applicant in the main proceedings was caught between a rock and a hard place. Construction activity had come to a grinding halt, but AGET Iraklis failed to obtain the requisite ministerial authorisation and therefore could not carry out collective dismissals, which were a vital part of its restructuring plan. It could only lay off its workers at a pace which would not be caught by the national rules on collective dismissals, but the lay-offs in one of its plants were reportedly found by lower courts to be invalid. On the other hand, the workers that would have been affected by the actions of the company would have been left without a job in a country where the unemployment rate was, according to the order of reference, 27.3% in 2013. The rate for 2014 was 26.5% (note 25 of the opinion), which was clearly not much better either.

It is important to note that the AG opinion leaves some scope for a more ‘balanced’ rule which would not undermine the effectiveness of prior consultations (para 71 of the opinion).[i] What is nevertheless noteworthy is that the AG concluded his opinion with reference to the bailout terms agreed between Greece and its creditors. Had the Court been asked to rule on the validity of these terms from the standpoint of EU law, it would have probably declined jurisdiction, as it did in the Romanian and Portuguese MoU cases. It remains to be seen whether ‘two-pack’ legislation will have an impact in this respect. Be that as it may, the point of controversy in AGET Iraklis might soon become moot, as the relevant issue will be negotiated between Greece and its creditors in the second review of the ongoing ESM programme in the fall of 2016.

Further reading:

On the legality of national economic measures on the economic crisis: see e.g., Federico Fabbrini, Economic Governance in Europe: Comparative Paradoxes and Constitutional Challenges (OUP 2016) ch 2; Alicia Hinarejos, The Euro Area Crisis in Constitutional Perspective (OUP 2015) ch 8; Anastasia Karatzia (presenter) and Theodore Konstantinidis, ‘Who Is Responsible? The Issue of Liability in the Context of EU Macroeconomic Adjustment Programmes and Austerity Measures’ (FIDE Doctoral Conference, Budapest, 18 May 2016).

On economic freedoms and labour rights, see particularly, from the copious literature, Mark Freedland and Jeremias Prassl (eds), Viking, Laval and Beyond (Hart Publishing 2015).

For detailed discussion of the legal quality of the bailout terms and the scope of application of the EU Charter, see Catherine Barnard, ‘The Charter, the Court – and the Crisis’ (2013) University of Cambridge Faculty of Law Legal Studies Research Paper 18/2013; Paul Craig, ‘The Eurogroup, Political Power and Accountability’ (Governing Finances in Europe: Shifting Regimes and Shifting Powers conference, Uppsala, 27-28 May 2016); Alicia Hinarejos (above) 131-36; Claire Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’ (2014) 10 EuConst 393; Koen Lenaerts, ‘Exploring the Limits of the EU Charter of Fundamental Rights’ (2012) 8 EuConst 375; Steve Peers, ‘Towards a New Form of EU Law? The Use of EU Institutions outside the EU Legal Framework’ (2013) 9 EuConst 37, 51-53; Napoleon Xanthoulis, ‘The Participation of Union Institutions in the European Stability Mechanism: Between International Law Competences and EU Treaties Restrictions’ (Jean Monnet Doctoral Workshop, City University of London, 23-24 June 2016).

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Barnard & Peers: chapter 20

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[i]

Testing EU experimentalist governance in the Telecoms sector

Marta Cantero (Postdoctoral Researcher, University of Helsinki | FiDiPro Project)

The building of a Digital Single Market for telecommunications is one of the main priorities of the current European Commission.^[i] Yet, the achievement of an actual single market for telecoms is still far from becoming a reality. The designed (multi-level) regulatory model for telecommunications places sector-specific National Regulatory Authorities at the core in the system for the implementation of the EU regulatory framework for telecoms. Moreover, the enforcement of the framework corresponds to the Member States under the national procedural autonomy. However, in order to preserve the legal integrity of the EU rules, the consistent application of the EU telecoms framework and the achievement of its policy objectives builds on a sector-specific supervisory mechanisms that grants the European Commission greater powers to monitor the different regulatory approaches of national regulators: Articles 7 and 7a of the Framework Directive on telecoms regulation.[ii] These articles put in place a consultation and monitoring system of a post-legislative nature that aims at consolidating the internal market for telecoms based on a combination of hard and soft law techniques, but is this system up to the task?

This brief post examines a pending case (Case C‑28/15, Koninklijke KPN NV and Others v Autoriteit Consument en Markt) that highlights the deficiencies of the market-consolidating mechanism put in place.

Background

In a nutshell, the case deals with a clash between the Dutch telecoms regulator, which issued a regulatory decision implementing a Commission Recommendation on termination rates,[iii] and the Dutch Trade and Industry Appeals Tribunal, which overruled the National Regulatory Authority’s (NRA) decision in the context of a procedure of judicial review following the appeal of the regulatory decision by some market telecoms operators. In particular, the national Court required the NRA to deviate from the Commission Recommendation on the grounds that there were no reasons for justifying a modification in the methodology used for calculating caps on termination rates.

However, this is the second time that the regulatory decision following the Recommendation is contested in front of the national court in The Netherlands. Already in 2010, the Dutch regulator (at that time OPTA, now ACM^[iv]) issued a decision in line with the guidance provided in the Commission Recommendation on termination rates. That triggered an initial response by the telecoms operators, who appealed the regulatory decision. In very broad terms, and leaving aside further competition concerns and issues of market analysis that were also object of the plea, the Court, upholding the appeal, argued that despite the Commission’s Recommendation on termination rates, conditions on the national market remained unchanged and, therefore, there was no reason to adjust the methodology for cost calculation in accordance with the Recommendation. Essentially, the court concluded that the inefficiencies in retail pricing cannot be resolved by imposing a “more invasive measure” at wholesale level, given that the retail mobile market was already considered competitive.^[v] As a result, the Court established new cap prices for termination rates and compelled the regulator to take a new decision setting the relevant rates on the basis of a different cost-methodology than that suggested by the European Commission. As part of the consultation procedure enshrined in Article 7a Framework Directive, the national regulator notified the European Commission the new decision compliant with the court’s judgment. In view of the Commission, that decision could create a barrier to the Internal Market. This led to the opening of a Phase II investigation under Article 7a procedure. Such a situation placed the NRA in the middle of a “tug-of-war” between the European Commission and the national judiciary. At that time, the national regulator could do anything but to give effect to the judgment of the highest administrative court in The Netherlands. However, two years later, in the context of a new market analysis, the regulator –perhaps pressured by the Commission’s investigation under the 7a procedure– issued a new decision following the European Recommendation. As expected, the new decision was again appealed in front of the national court. However, on this occasion, the national court decided to refer the case to the European court for preliminary ruling.

Issues at stake

In brief, the national judge asked the European court to clarify the discretion of the national judge[vi] to depart from a EU Recommendation on the basis national legal and factual(!) circumstances. The national court also seeks clarification as to the competence of the national court to assess the proportionality of the NRA’s performance within the context of the judicial review of regulatory decisions (Article 4 of the Framework Directive). Accordingly, the case addresses three fundamental legal (and institutional) tensions: 1) the legal and factual effect of soft-law; 2) the institutional and substantial limits of the judicial review of the activity of the national regulator; and 3) the proportionality of the NRA’s regulatory activity when giving effect to a EU Recommendation in a situation where the factual circumstances of a national market remain unchanged (reflecting a clash between the national regulator and the national judiciary).

So far, we do not have a final Judgment from Luxembourg. However, the analysis of the recently issued Opinion (28^th April) already provides warnings about the institutional problems that this case entails, in particular, for those other NRAs in Europe that are facing a similar situation and that, therefore, are awaiting a decision.

AG Opinion

In the Opinion, AG Mengozzi holds that, despite its non-binding nature (para. 54), the national court has to “take into consideration” the Recommendation on termination rates (para. 57). Moreover, he also posits that the national judge must act with “extreme caution” when deciding to depart from the methodology suggested by the Commission (paras.53 and 64). Advocate General also considers that it is not a problem of incompatibility of the national law with the EU legal provisions. In particular, he states that he finds (para. 72)

“very difficult to conceive that the national law, as it has stated that court, namely, as proceeds from Union law, requires, by its wording and its capacity, departing from the calculation model recommended by the Commission”

However, and given that that does not mean that there is only one appropriate model to give effect to the provisions contained in the Access Directive[vii], Mengozzi acknowledges, the specific characteristics of the Dutch market could lead the national court to depart from the recommended model (para. 75).

The second part of the Opinion focuses on the assessment of proportionality of the regulatory decision in accordance to the regulatory objectives to be pursued by NRAs under the Framework Directive as part of the judicial review. In Mengozzi’s view, the scope of judicial control of the regulatory activity reaches the proportionality assessment (paras. 80 and 84). As to this proportionality assessment, he holds that, in his view, following the Recommendation would entail a presumption of proportionality with the EU regulatory objectives enshrined in Article 8 of the Framework Directive; namely, promotion of competition, contribution to the development of the Internal Market, and promotion of the interests of the citizens of the European Union. This is important because the regulator’s justification to impose an obligation in a regulated market (wholesale) was based on the effects to be produced on a non-regulated market (retail). Accordingly, when it comes to the burden of proof, and given that it would require the demonstration of an impossible (or excessively difficult to provide) evidence, he concluded that the national court cannot require the NRA to sufficiently prove the effective achievement of the regulatory objectives (paras. 92 and 96).

Comments

Harmonizing the Internal market under a multi-level governance structure is not an easy task, and this case overly illustrates the difficulties that such endeavor entails. The underlying issues that the case involves can be summarized as follows:

1.      First, should the European court follow AG’s Opinion it would mean that the national judge, when deciding on the appeal, can overturn the analysis performed by the regulatory authority, as it already did with the first national ruling; i.e. the national judiciary would be acting as a de facto regulator. This results in an institutional conflict that slows down the integration of the telecoms market –the case has been ongoing since 2010. In my view, this judicial spillover raises the question as to whether the intervention of the national judiciary into the regulatory activity needs to be balanced against the principles of equivalence and effectiveness in the context of the implementation of a non-binding instrument.

2.      Secondly, the case casts doubts on the effectiveness of the sector-specific supervisory mechanism put in place under Articles 7 and 7a procedures of the Framework Directive, and the limits and actual effect of soft law as an integration tool.

3.      Thirdly, the multi-level governance design upon which the sector is build raises the question as to whether the national court should be entitled to determine the effective influence of national regulatory measures beyond the domestic marketplace. If the ECJ agrees with the Opinion, it would be for the national judge to decide on the effect of a national measure on the Internal Market – something that should belong to the ECJ. This calls for further answers concerning the viability of the telecoms market, as a fast-paced market, to coexist with divergences in Europe or, rather, whether the regime should be upgraded (e.g. more formal powers to the European Commission or the creation of a European Telecoms Agency, something that has failed so far).

4.      Finally, the related problem of building a single market for telecoms under a multilevel governance system. Given the relevance of the case for other NRAs around Europe that are facing similar situations, most of the regulatory decisions from European NRAs involved investigations initiated by the Commission under the abovementioned Article 7a procedure are on hold until the case is decided.

Conclusions

The case addresses classic and timely questions about the role and legal effect of EU soft law. In particular, when it comes to the effectiveness of soft law mechanisms for market-integration purposes; which is perhaps the most interesting aspect of the case.

Whatever the final outcome will be, it will have remarkable consequences for the current configuration of the telecoms institutional and procedural framework. One possibility is that the European court does not allow the national judiciary to depart from the Recommendation. In such case, it would mean that there is no room for domestic adaptation and Article 7a procedure would then help to boost non-binding decisions from the Commission. However, the other possibility is that the court follows AG’s interpretation. In my view, allowing departure from the Recommendation would render Article 7a procedure ineffective, provided that the national court would define to what extent the effect on the Internal Market of a national regulatory decision is sufficient so as to justify a mandatory compliance with a non-binding European instrument.

Photo credit: ispreview.co.uk

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[i] Political Guidelines for the next European Commission – A New Start for Europe: My Agenda for Jobs, Growth, Fairness and Democratic Change (15 July 2014), Jean-Claude Juncker.

[ii] Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), as amended by Directive 2009/140/EC and Regulation 544/2009.

[iii] Without much elaboration on the technical details, termination rates are the rates which telecoms networks charge each other to deliver calls between their respective networks; i.e. how much mobile phone operators can charge to connect calls on each other’s networks. The Commission Recommendation aims at harmonizing the costing methodology used in the calculation of price caps for termination rates; Commission Recommendation (2009/396/EC) of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU. OJ L 20.5.2009, pp. 67-74.

[iv] OPTA (Onafhankelijke Post en Telecommunicatie Autoriteit, "Independent Post and Telecommunications Authority", in English) was replaced by a single “super watchdog” body: the Netherlands Authority for Consumers and Markets (‘ACM’) after the merger of the Netherlands Competition Authority (NMa), the Netherlands Consumer Authority, and the Independent Post and Telecommunications Authority of the Netherlands (OPTA). ACM became operational as of 1^st April 2013.

[v] CBb Judgment of 31^st August 2011, 4.8.3.4.

[vi] Interestingly, the national court poses question(s) of the legitimacy of the court to deviate from the Recommendation, but it does not refer to the NRA’s discretion to not follow the recommended costing methodology, which is the situation in some other Member States.

[vii] Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive).