Is this the end of football’s transfer system? An immediate reaction to the Court’s ruling in Diarra (C-650/22).

 

Stephen Weatherill, Somerville College and Faculty of Law, Oxford University

Photo credit: Addesolen, via Wikimedia Commons

 

Introduction

 

‘Is this the end of football’s transfer system?’ So shrieked the media in December 1995 when the Court of Justice decided the Bosman case (C-415/93). And the same question has now hit the headlines after the Court’s ruling on 4 October 2024 in Diarra (C-650/22). The answer was ‘no’ back in 1995. And the answer is still ‘no’ today.

 

The transfer system which enmeshed Diarra and led to the litigation is exposed by the Court’s judgment on 4 October as grossly deficient and incompatible with EU law. It will need to be changed. But a system of sorts, specific to football, can survive this judgment. And it is unlikely anything will happen quickly. It took several years after the Bosman ruling for the system to be revised, and Bosman was clearer on what needed to be changed – the exclusion of out-of-contract players - than Diarra is. But there will need to be change. Most of all, the system will need to be made less restrictive and the consequences of unilateral breach of contract will need to be made more predictable.

 

The litigation

 

Diarra played for Lokomotiv Moscow. A dispute arose. The club terminated his contract for reasons related to his conduct and brought a claim for compensation before the Dispute Resolution Chamber under FIFA’s Regulations on the Status and Transfer of Players. The player counterclaimed. In the meantime he tried to find a new club. Diarra’s claim which reached the Court in Luxembourg via a reference from the cour d’appel de Mons in Belgium concerns his failure to find a new club. Under the FIFA Regulations it was possible that the dispute with his old club might, once finally resolved, have resulted in any new club being liable alongside Diarra to pay compensation to Lokomotiv Moscow under the FIFA Regulations. So, Diarra claimed, the transfer system obstructed his chances of finding new employment. This, he also claimed, was not hypothetical. His evidence included a concrete (and remarkably convenient) offer from Charleroi which was stated to be subject to that club not being liable under the FIFA Regulations – a proviso which FIFA refused to accept. So Diarra’s case was that he had been treated by FIFA in breach of EU law – that the transfer system operated as an obstacle to his free movement in violation of Article 45 TFEU and as an anti-competitive practice incompatible with Article 101 TFEU.

 

 

The structure of the ruling

 

Much of the Diarra ruling is entirely familiar and unsurprising to an EU internal market lawyer.

 

An obstacle to inter-State trade within the meaning of Article 45 TFEU (on the free movement of workers) was found. FIFA’s rules, the Court concluded, were liable to obstruct football players resident or working in their Member State of origin who wish to work instead for a new club established in the territory of another Member State by unilaterally terminating their employment contract.

 

Similarly the presence of the key ingredients of Article 101 TFEU (on competition law cartels) were quickly ticked off – FIFA falls within the concept of an undertaking or association of undertakings, its rules were a 'decision by an association of undertakings', and the matter affected trade between Member States.

 

The sports-specific elements in the ruling are also no surprise. The Court follows the model of its December 2023 ruling in the European Superleague case (Case C-333/21), which is cited on 35 different occasions, and this is plainly now the established model for the several cases concerning the regulation of sport which are pending before it. So the Court repeats its (silly and plain wrong) observation that certain specific rules such as those relating to the exclusion of foreign players from the composition of teams participating in competitions between national teams or to the setting of the ranking criteria used to select athletes participating in competitions which were adopted exclusively for reasons of a non-economic nature and relate to matters relating solely to sport as such must be regarded as being unrelated to any economic activity, and so untouched by EU law. But no harm is done because in Diarra the Court quickly dismisses the notion that the transfer system is ‘unrelated to any economic activity’, just as in the Superleague case it had correctly refused to accept that UEFA’s rules on prior approval of new competitions were extraneous to economic activity – and just as it should also appreciate that rules on the composition of national teams and ranking criteria have direct economic impact. EU law applies – the key issue is not using some spurious ‘non-economic’ label to exclude EU law but rather how EU law applies to practices with both sporting and economic motivations and effects.

 

Paragraphs 124-133 address ‘The concept of conduct having as its “object” or “effect” the harm to competition’. Nothing here will surprise anyone familiar with Superleague. If conduct is found to have an anti-competitive object, it is not necessary to examine its effect on competition; the concept of anticompetitive 'object' must be interpreted strictly; it catches only practices which reveal a sufficient degree of harm to competition for it to be possible to consider that an examination of their effects is not necessary (and some such practices are itemised); subjective intention is not decisive; one must examine the content, the economic and legal context and the aims. Familiar fare from Superleague. Moreover, and confirming the revolutionary turn taken by the Court in Superleague, a practice may be excluded from the scope of Article 101(1) where justified by the pursuit of, and necessary to achieve, legitimate objectives in the public interest – but only where the practice exerts an anti-competitive effect, not where it pursues an anti-competitive object. In the latter case only Article 101(3) may save the practice (paras 149-152). The decision in Meca-Medina (Case C-519/04P), which envisaged (in short) a public interest/ legitimate objective exclusion from the scope of Article 101(1) irrespective of whether the challenged practice was a restriction on competition by object or by effect, is banished – so much so that the case is not even cited in Diarra.

 

 

The incompatibility of the challenged transfer system with EU law

 

The flaws in the transfer system, on paper and in practice, are brutally listed by the Court. This leads it to the finding that they violate both Article 45 and Article 101.

 

The Court does not deny that FIFA has a legitimate role a regulator. In interpreting Article 45 it notes that the rules may be appropriate as a means to achieve the objective of ensuring the regularity of club football competitions and by contributing to maintaining a certain degree of stability in the membership of the football clubs likely to participate in those competitions (para 103). In similar vein, in examining Article 101, it refers to the conditions under which professional football clubs may compose the teams participating in such competitions and those in which the players themselves may take part in them (para 143). It may be legitimate for FIFA to seek to ensure the stability of the composition of the squads of players during a given season, for example by prohibiting – as the FIFA Regulations do - the unilateral termination of employment contracts during the season (para 144).

 

But the Court’s detailed assessment is damning.

 

Paragraphs 103-113 deal with compliance with the principle of proportionality in the interpretation of Article 45. The Court does not mince its words. The rules appear to go in several respects beyond, and in some cases far beyond, what is necessary to attain their objectives. They apply to players who have a relatively short career and therefore the impact with typically be great. Compensation is payable by the player in the event of unilateral termination of the employment contract 'without just cause', but that expression is not precisely defined in the Regulations. Some criteria are, as the Court (rather gleefully, I suspect) notes is admitted even in the official FIFA commentary, almost never applied in practice, whereas others (such as the specificity of sport) have no precise definition. This leads to discretionary and unpredictable implementation. Absence of the necessary legal certainty is a central problem. Other criteria, though more objective and verifiable, seem to go far beyond what is necessary. This is especially so in relation to taking into account remuneration and costs in calculating compensation due. The criteria governing compensation – the Court notes drily – seem more attuned to preserving the financial interests of clubs than to ensure the effective organisation of sporting competitions. The ‘sporting sanction’ imposed on the new club, which operates on the basis of a presumption of incitement, appears far removed from the demands of proportionality. The same is true of the impact on the player.

 

It is a sorry list of inadequacies. And it leads the Court to conclude that the proper conduct of sporting competitions cannot provide a justification. The current transfer system violates Article 45.

 

The examination conducted pursuant to Article 101 has much in common with that presented in connection with Article 45. The analysis begins at paragraph 134. The Court notes – in line with its earlier remarks in the light of Article 45 - that the rules are general and imprecise and that they are subject to discretionary implementation which is unpredictable and difficult to control. So too they appear to allow compensation to be set at a very high and dissuasive level.

 

Paragraph 138 draws on the Opinion of Advocate General Szpunar, which itself was a savage indictment of FIFA’s rules. It declares that the transfer system acts as a general and severe restriction on competition between professional football clubs in the market for recruitment of players. The system amounts to a ‘no-poaching’ agreement between clubs which results in the artificial partitioning of national and local markets, which – crucially - is to the benefit of football clubs (para 145). This acts as a general, absolute and permanent prohibition on the unilateral recruitment of players who are already engaged, which the Court treats as a clear restriction on competition between clubs (para 146).

 

This, then, is as ruthless as it is damning. As already in its treatment of Article 45 the Court portrays the transfer system in its current iteration as a means to improve the economic position of clubs at the expense of workers. Given the negligible input into its shaping allowed to workers’ representatives, this comes as little surprise. 

 

The conclusion is therefore that the system counts as a restriction of competition by object. As such, as explained at paragraphs 149-152 and as decided in Superleague, it cannot be saved by reference to the general public interest/ legitimate objective test applied to sport in Meca-Medina, although the Court cites only Superleague and Em akaunt BG (C-438/22), not Meca-Medina. That in turn means that only Article 101(3) can save FIFA’s rules. But the Court’s treatment of Article 101(3) at paragraphs 153-157 is as brusque as it is brisk. The ultimate decision belongs with the national court, but the Court gives a strong steer that the discretionary and/or disproportionate nature of the rules and their severe restriction on cross-border competition between clubs means they cannot be regarded as indispensable or necessary to achieve economic benefit, even were any such benefit shown.

 

 

The legitimate role of FIFA

 

The Court’s ruling treats the transfer system as rotten. But there is plenty in the Court’s judgment for FIFA to be pleased about.

 

The Court’s interpretation of both Article 45 and Article 101 allows for recognition of a legitimate regulatory role performed by FIFA in adopting common rules to regulate sport, and provide some detail on how far this may reach. Paragraphs 100-103, dealing with Article 45 and paragraphs 143-144, dealing with Article 101, contain a receptivity to FIFA’s regulatory aspirations on which FIFA (and other governing bodies) are likely to rely in framing defence of their practices in future.

 

The objective of ensuring the regularity of sporting competitions constitutes a legitimate objective in the public interest which may be pursued by a governing body. Making the organisation and conduct of international competitions subject to common rules intended to guarantee the homogeneity and coordination of those competitions within an overall annual or seasonal calendar is recognised as legitimate. So too the protection of the essential role played by equal opportunities and sporting merit in the conduct of competitions organised at both European and national level; and ensuring teams compete against each other under homogeneous regulatory and technical conditions.

 

These paragraphs of the judgment also reflect specifically on how these common rules shall affect players. The Court accepts that rules are needed to regulate the composition of teams participating in competitions; that there may be rules relating to the time limits for transfers of players during the competition; that there may be rules intended to ensure the maintenance of a certain degree of stability in the squads of clubs, which also entails concern for the continuity of related contracts; rules setting deadlines for player transfers in order to avoid transfers at a late stage of the season which would damage the overall integrity of the competition. Paragraph 144 seems open to prohibiting - as the current Regulations do -the unilateral termination of employment contracts during the season or even in a given year. These interventions, the Court accepts, serve as means to contribute to the pursuit of the legitimate objective of ensuring the regularity of club football competitions.

 

So this is to recognise the need for regulation of the sport generally and regulation of the place of players within it in particular. It is to recognise the place of a governing body in doing so. Presumably these activities, then, fall within the scope of the legitimate regulatory role performed by a governing body, and they are not a practice which has the object of restricting competition. This echoes Superleague. In that ruling UEFA’s detailed procedures on prior approval were condemned as non-transparent, lacking objective criteria and discriminatory – much as FIFA’s transfer system fell apart under scrutiny in Diarra. But in Superleague the Court did not direct that the market for supply of sporting competitions shall become a free-for-all. Quite the reverse. It accepted that a prior authorisation system may be used to refuse a competition which is not based on sporting merit. It seems that the object of requiring that new competitions be open and based on sporting merit is not to restrict competition but rather ‘the pursuit of legitimate objectives, such as ensuring observance of the principles, values and rules of the game underpinning professional football’ (ESL para 176, and see analyses here and here). Superleague provides opportunities for UEFA to re-define its regulatory purposes in defence of the values of the game – provided it meets the required standards of transparency, objectivity and non-discrimination. Similarly Diarra challenges FIFA to pin down with more care how and why rules governing the consequences of unilateral termination of contract are necessary to protect the integrity of sporting competition, and to devise rules that genuinely do so.

 

 

Revising the rules

 

It seems clear that FIFA’s rules on transfers must be made less restrictive and more predictable than they are now. The difference between the status of a player out of contract and a player still in contract will need to be reduced, but I do not think it will need to be eliminated.  The Court leaves room for FIFA to adopt common rules which are necessary to sustain the integrity and regularity of sporting competition. It seems clear from paragraphs 100-103, dealing with Article 45, and paragraphs 143-144, dealing with Article 101, that the Court is not condemning the very idea that sport needs common rules, operating independently of local contract and labour law, which are designed to protect the sport’s functioning and which may have an impact on a player who commits a unilateral breach of contract. The transfer window will survive, even though it plainly exerts some deterrent effect on clubs’ willingness to act in the market for players. I think it remains open to FIFA to devise a system that will maintain some degree of control over the eligibility of the player who commits a unilateral breach of contract. I think FIFA could provide that a player will not be able to quit one club and insist on being available to play for a new club immediately, even if local law permitted that. How long would the player have to wait? – well, that remains to be decided as the FIFA rules come to be revised. In this sense footballers will still not be treated in exactly the same way as plumbers, sausage-makers and University teachers – they will be subject to special rules applied within their industry in addition to applicable local contract and labour law. In some parts of the judgment, especially paragraph 145, the Court seems to assume that clubs can be adequately protected from the harm flowing from a breach of contract through the application of contract and employment law, and that may be so, but there is also the wider interest in the integrity of the sporting competition to take into account. It would be damaging to sporting integrity if the local law entitled the player immediately to take up employment with a new club. It would be especially damaging in a transnational competition if different laws applied in different states, as they doubtless would. So there must be room also for FIFA, as the transnational regulator of the sport, to address the phenomenon of unilateral breach of contract. But – how? There is a tension – when does action taken against a player who has committed a unilateral breach of contract cross the line from a (lawful) scheme designed to protect the integrity of sporting competition to an (unlawful) attempt to use regulatory power to extract advantage to the clubs at the expense of the player? FIFA’s job will be to show when and why such rules are needed given the special demands of sporting competition. None of this is easy, and it will take time, but paragraphs 100-103 and 143-144 of Diarra are a goldmine for FIFA.

 

A major objection which runs through the ruling is directed at the discretionary case-by-case evaluation of the consequences of unilateral breach of contract. The Court in Diarra notes that a system, if shown to be justified and proportionate, may be supported by sanctions but only on condition that they are set according to transparent, objective, non-discriminatory and proportionate criteria and also they shall be subject to review (para 111), which is a requirement which has close thematic links with the Court’s treatment of UEFA’s rules on prior approval in Superleague. FIFA’s rules on transfers need to be made clearer. Probably it is required that it be possible to predict in advance what would be the consequence of a unilateral breach of contract. That, though, will be tricky if the individual circumstances of each case need to be taken into account, as is suggested by the Court in paragraphs 110, 111, 112, and 137. I am not suggesting FIFA’s re-design of its rules will be easy.

 

The Diarra ruling does not require that a renegotiation of the transfer system shall involve a formal role for player unions, but a strong theme in the ruling is that FIFA has presided over a system which is of huge advantage to some stakeholders and operates to the detriment of others. The Court is not shy of commenting on how the system works very well for clubs as employers (paras 107, 145). Re-negotiation of the transfer system through a process which gives thorough and sincere respect to the voice of the workers would increase the likelihood that a revised version will be compatible with EU law. More generally the Court will have performed a great service if this ruling triggers a deeper reform of governance in sport so that all affected interests – players, even fans - enjoy a louder voice in decision-making than occurs right now. Perhaps FIFA will do this; perhaps, if not, the EU will be tempted to adopt legislation mandating improvement in the standard of governance in sport in general or football in particular. I am aware how naïve that may sound.

 

Diarra summarised? Sport is special. Just look at paragraphs 100-103 and 143-144. But sport is not as special as special as the governing body claims, and the particular practices at stake have been found to violate EU law, and will require reform in the shadow of EU law. In that Diarra is in perfect alignment with Bosman and Superleague.

Unemployment, residence rights, social benefits at three crossroads in the Tarola ruling

Francesca Strumia, Senior Lecturer, University of Sheffield School of Law*

*This post draws in part on research supported by a Research Fellowship at the Collegio Carlo Alberto in Torino

Overview

Last week’s CJEU ruling in Tarola, responding to a preliminary reference from the Irish Court of Appeal, interprets yet another cryptic provision of the Citizenship Directive, art. 7(3) on retention of worker status. The ruling sits at the intersection of EU law on free movement of workers, and on free movement of citizens. It is about rights descending from the status of worker. Yet it concerns the situation of unemployed persons at the periphery of workers’ status, whose condition stretches into citizenship territory. For these reasons, the case provided an opportunity for the Court to blend the assertive approach of its case law on workers with the cautious attitude it has adopted in its recent case law on non-economically active citizens. The resulting judgment adds yet another chapter to the tormented story of access to social benefits in the context of free movement.

Analysis

Mr. Tarola, a Romanian national, worked in Ireland in either an employed or self-employed capacity for several periods of a few weeks each in 2007, 2013 and 2014. In 2013 and 2014 he applied there for jobseeker’s and welfare allowances. His applications were refused on the ground that absent proof of ability for self-support and absent a sufficiently long employment record he had not demonstrated habitual residence in Ireland. In the resulting litigation, Mr. Tarola argued that he had the right to reside in Ireland for the six months following a two-week period of employment in July 2014 under art. 7(3)(c) of the Citizenship Directive. The argument did not convince the High Court, however it raised attention at the Court of Appeals that referred to the CJEU.

The referred question revolved around the interpretation of article 7(3)(c). More precisely, paraphrasing Advocate General Szpunar, the question was whether a Union citizen who works in another Member States for two weeks otherwise than on a fixed-term contract and then becomes involuntarily unemployed retains the status of worker and the right to residence that comes with that status.

Article 7(3)(c) of the Citizenship Directive is particularly convoluted. It provides for the retention of the status of worker for no less than six months in two hypotheses not clearly distinguished until yesterday’s ruling. The first situation is fairly straightforward: duly recorded unemployment following termination of a fixed-term contract of less than a year in duration. The second is more nebulous. The text refers in this respect to a person having ‘become involuntarily unemployed during the first twelve months’ and having registered as a job-seeker. The court found in particular that the text left two aspects undetermined: (i)  the type of activity or contract in whose context a person became involuntarily unemployed and 2) the context of the ‘first twelve months’ phrase, whether first twelve months of any employment contract, of a fixed-term contract, of residence in the host Member State, or else (par. 35). 

The court’s solution was that the provision allows retention of the status for workers “in all situations in which a worker has been obliged, for reasons beyond his control, to stop working in the host Member State before one year has elapsed, regardless of the nature of the activity or the type of employment contract entered into for that purpose”. (par 48) This interpretation was drawn from the context, purpose and origin of the provision of art. 7(3)(c).

With regard to context, the court noted that the provision sits within article 7, providing overall for the right of residence, and its retention, for all those who have exercise an activity in an employed or self-employed capacity. As affirmed in Prefeta, retention of that right is granted on the assumption that the citizen is available and able to re-enter the labor market within a reasonable period. (par 39-40) The court added that, within the broader context of the gradation of the right to residence that the Citizenship Directive operates, article 7(3) establishes a gradation also for retention of the status of worker. This gradation is based among others on reasons for inability to work and on the initial duration of the period of activity. On the top grade are those citizens who are unable to work because of accident or illness, because of undertaking vocational training, and because of having remained involuntarily unemployed after having worked for at least one year. All of these retain the status without time limits. On a lower grade are those who have worked for less than one year and who can retain the status for as long as the Member States like, provided this is not less than six months. (par 43-45)

In terms of purpose, the court observed that the offered interpretation of art. 7(3)(c) satisfied the general objective of the EU Citizenship Directive, namely strengthening the right of movement and residence, without undermining its further objective of protecting the Member States’ finances from undue burdens. The interpretation was also consistent with the specific objective of article 7(3) of the Directive, described in previous case law (e.g. Gusa) as that of protecting the right of residence of persons “who are in the absence of work due to circumstances beyond their control”. (par 49-50)

Finally as to the origins of art. 7(3)(c) the court found that its reading of the provision mirrored the intention of the drafters. The travaux preparatoires indicated indeed that the second part of art. 7(3)(c) had been added in the draft directive so as to extend protection to workers in involuntary unemployment after less than a year regardless of the type of contract covering their activity. (par 53)

The ruling concluded with a dictum inspired by the AG opinion and with a note to the referring court.  The dictum is that persons residing on the basis of the Citizenship Directive, including those retaining the right to reside under art 7(3), are entitled to equal treatment with nationals. Hence if national workers who have worked only for a short period of time are excluded from social benefits, the exclusion applies also to migrant EU citizen workers. The note to the referring court was that it was accordingly for it to determine, in light of national law, whether Mr Tarola was entitled, under the principle of equal treatment, to the social benefits he was seeking.

Comment

At least three aspects in this judgment are worthy of note. A first one is the way the court treats the citizenship directive. A second one is the court’s note on entitlement to social assistance. A further one is the balancing exercise the ruling performs between protection of movement and residence rights and protection of state finances. These elements, respectively, help situate the judgment at three crossroads: the one between the law on free movement of workers, and the law on free movement of citizens; the one between EU law on equal treatment, and national law on welfare assistance; and the one between competing objectives pursued by EU free movement law.

With regard to the Citizenship Directive, the court sticks to the rule of interpretation it promises up front. The directive cannot be interpreted restrictively. And indeed the court offers a quite broad interpretation of its relevant provision. That the provisions of the Citizenship Directive require broad interpretation is no novelty. The court has repeated this rule of interpretation again and again in several cases. Yet in recent years it has not always as enthusiastically applied the same rule (a recent example is the SM case, treated here; a slightly older one is Singh and others).  The court’s approach in Tarola is the result of a special conjuncture: the court is de facto ruling on the rights of a non-economically active citizen, but it is formally dealing with a worker-it is not in question indeed that Mr. Tarola meets the EU law definition of worker (par. 25)-. This allows the court to intersect, if not the law, the interpretive approaches belonging to two different strands of its case law: the assertiveness of its case law on workers, and the caution of its recent case law on non-economically active citizens.  Echoes of the former allow the court to deliver, from a relative comfort zone, a result that bears on the social protection of Union citizens.

The caution that characterizes the case law on non-economically active returns, on the other hand, through the court’s drawing of a clear boundary between right to equal treatment and entitlement to social assistance. In the final dictum, the court emphasizes that the right attached to a worker’s, or citizen’s, right to residence, is one of equal treatment. Retention of the status of worker, and of the corresponding right to reside, does not necessarily mean entitlement to obtain social assistance. It simply means entitlement to apply for it, and obtain the same response as a national would get. This sounds as a reminder, and a word of reassurance, to the Member States that they are free to organize their welfare systems as they wish. At the same time the court gives the Member States a gentle nudge: if they do not like paying benefits to those who have worked too little, they had better say so in national law.

The gentle nudge to the Member States ultimately reflects the court’s endeavor to take into account, and balance in Tarola, two competing objectives of the Citizenship Directive. One is the objective of strengthening the right to move and reside for all Union citizens (witness to the case standing at the crossroads of workers and citizenship law, the court refers in reporting those objectives to citizens in one sentence, to workers in the next, par 49-50). The other is the objective to ensure that the Member States’ social security and social assistance systems are not placed under an undue burden. The tension between these two objectives underpins the entire case law on social benefits provision in the context of free movement. This brings the Tarola ruling closer to the line of cases that from Trojani descends to Dano and its progeny. The tension in that case law, however, is not always as clearly acknowledged and as carefully addressed as here. In this respect, Tarola might signal a further turn in a doctrine that has experienced several twists. It may be the first sign of the taking on, on the part of the court, of a more coherent role in reconciling the conflicting objectives of the law on free movement.

Barnard & Peers: chapter 13

Photo credit: BIMIreland.ie

Fair movement of people: equal treatment? (Part Two)

Catherine Barnard and Sarah Fraser Butlin*

*The authors are both at the University of Cambridge and funded by the ESRC’s UK in a Changing Europe programme

Introduction

In the first blog (here), we argued that a future UK/EU migration policy should be based around the notion of fair – not free – movement. One element of this would be a work permit scheme dependent on having genuine employed or self-employed activity (or sufficient resources for migrants and their families), accompanied by a simplified registration scheme, based on the scheme already used for Croatian migrants.

A second element of our scheme would include possible restrictions on the principle of equal treatment in respect of both work and access to benefits.  We suggest that the UK needs to utilise the restrictions on equal treatment that already exist in the Citizens’ Rights Directive 2004/38 while developing the restrictions on the equal treatment principle contained in the Brussels New Settlement Agreement negotiated by David Cameron in February 2016.  We suggest that this may (eventually) be acceptable to the EU because it reflects both the origins of the free movement provisions in the EU and a political realisation that free movement is less popular than it was for Western EU states. Anything negotiated for the UK might offer a path for Austria, Denmark, Germany and other Member States to restrict access to benefits to EU migrants in the first years of their arrival.

II Origins of Free Movement and the equal treatment principle

The 1948 Paris Treaty saw free movement as a way of optimising a natural resource, namely labour, but one which was subsidiary to the objective of seeking full employment for national workers. However, it was also clear that where host States chose to use migrant workers, they had to ensure that migrants enjoyed satisfactory conditions, albeit not necessarily equal treatment. Nevertheless within a year, the five signatory States (Belgium, France, Luxembourg, the Netherlands and the UK) of the Brussels Treaty recognised the need for equal treatment of migrant workers in relation to social security and concluded the Multilateral Convention on Social Security. 

In 1951, the Treaty founding the European Community for Coal and Steel (ECSC) made provision, by way of Article 69(1), for non-discrimination on the grounds of nationality in the coal and steel industries of workers of proven qualifications, subject to the “limitations imposed by the fundamental needs of health and public order”. 

Thus, even before formal discussions about the establishment of the Common, now Single, Market, had begun, ideas of equal treatment of migrant workers and the interrelationship between free movement of labour and social security provision were already in play as a means of facilitating the free movement of labour. In the proposals of the Inter-Governmental Conference (IGC) in June 1956, free movement was to be defined as ‘the right to present oneself in any country of the Community to the posts advertised and to remain in that country if a job is actually obtained’ and this was without ‘any restriction which does not apply to national workers themselves’ i.e. they had to enjoy the principle of non-discrimination which was delivered by Article 45(2) TFEU.

Scroll forward through the ensuing half century and the principle of equal treatment is extended to those EU migrants who were not fully economically active (students, the retired and persons of independent means (PIMs)), and even those without resources by a combination of the Citizens’ Rights Directive 2004/38 (CRD) and the Treaty provisions including those on EU citizenship.

The CRD already contains limits on the right to equal treatment. For those who are not economically active, they are not entitled to equal treatment in respect of social assistance (benefits for the very poor) for the first three months, nor are they entitled to equal treatment in respect of student grants and loans until they have been in the host country for 5 years. The five year restriction on students grants and loans also applies to those who are economically and semi-economically active. Nevertheless, those who are economically active enjoy equal treatment from day one in respect of all other matters. However, the principle of equal treatment has always allowed states to impose, say, a one-year residence requirement before receiving a benefit although only if the residence requirement can be objectively justified and is proportionate.

Notwithstanding the possibilities open to the UK to restrict equal treatment, these limitations were not sufficient for many UK voters. In the run-up to the referendum in the UK there were concerns about EU workers claiming equal treatment in respect of in work benefits such as tax credits. There was particular concern about equal treatment for those who were not economically active. The EU ‘benefit scrounger’ became the bogeyman of the UK’s referendum.

III Recent Court of Justice jurisprudence on citizenship

There were signs that the Court of Justice (CJEU) had started to listen to these concerns, especially about equal treatment for those not economically active. For example, in Collins the CJEU held that a habitual residence requirement prior to claiming a benefit could be objectively justified by the need to ensure that there was a genuine link between the applicant for an allowance and the geographic employment market in question. This decision chimed with a broader recognition by both the Tory and Labour parties that there was a need for “fair contribution” before benefits should be paid.

In Dano (discussed here) the Court suggested that, in the case of a person who was not economically active, the right of lawful residence, acquired by demonstrating possession of comprehensive sickness insurance and sufficient resources, as required by the CRD, was a precondition to the enjoyment of the principle of equal treatment. The Court held expressly that benefit tourism would not be encouraged. 

In Commission v UK (discussed here) the Court confirmed that there was nothing to prevent the grant of social benefits to Union citizens who were not economically active being made subject to the substantive condition of a right to lawfully reside in the Member State.

Thus, the recent case law puts considerable power in the hands of the host Member States: individuals can be excluded from even relying on the equal treatment principle if they do not satisfy the requirements of the CRD. Even if they do satisfy those requirements, states can still impose residence requirements as a precondition to entitlement to benefits, provided those residence requirements are justified and proportionate, and states can impose checks to verify this. There were signs that the Court was beginning to let states take back some control of its welfare states.

IV        “New Settlement” agreement

Some of the restrictions on the principle of equal treatment and benefits recognised by the Court were incorporated in David Cameron’s now defunct ‘New Settlement’ or Brussels Agreement, negotiated with the EU in February 2016. It effectively codified the CJEU’s decisions in Dano and, another case decided at much the same time, Alimanovic (discussed here): Member States could refuse to grant social benefits to people who did not have sufficient resources to claim a right of residence or who were solely entitled to reside because of their job search. 

However, more significantly the Brussels Agreement introduced the idea that there could be an emergency brake on in-work benefits. The agreement proposed amending Regulation 492/2011 ’to take account of a pull factor arising from a Member State’s in-work benefits regime‘ in order to ‘provide for an alert and safeguard mechanism that responds to situations of inflow of workers from other Member States of an exceptional magnitude over an extended period of time’. A Member State wishing to use the mechanism would notify the Commission and the Council that ‘such an exceptional situation exists on a scale that affects essential aspects of its social security system, including the primary purpose of its in-work benefits system, or which leads to difficulties which are serious and liable to persist in its employment market or are putting an excessive pressure on the proper functioning of its public services’.

The proposed mechanism was for the Commission to examine the notification and for the Council to authorise the member state, by way of an implementing act, to restrict access to in-work welfare benefits ‘to the extent necessary’ for a total period of up to four years from commencement of employment.

The rules were sophisticated but needed some careful explaining and, as anyone involved in the referendum discovered, the need to explain meant the debate was lost. However, we suggest that the Brussels agreement, which never came into force following the Leave vote, may help inform any future agreement with the EU in respect of limiting the equal treatment principle.

V. The equal treatment principle in the model of fair movement?

So what might the new scheme of equal treatment look like under our proposed immigration regime? In just the way that the founder Member States recognised that there should be some limits on equal treatment for migrants, we accept that there needs to be some limits on that equal treatment in order to respect the concerns expressed in the referendum. Following the model of the Croatian scheme, proposed in the previous blog, a Croatian national becomes entitled to social security after 12 months of authorised work. This might be the starting point for the new scheme. However, under the Croatian scheme, those in authorised work are entitled to means-tested benefits. Under any new scheme the UK might argue for no means tested benefits such as tax credits for 12 months. More radically, the UK might want to return to the model proposed in the New Settlement Agreement where in-work benefits for those on the lowest pay be phased in over four years of residence.

VI.       Conclusions

Given what was achieved by the Brussels negotiations, together with the jurisprudence of the Court of Justice, is it possible to envisage some form of evolving concept of fair movement, providing a flexible but controlled approach to migration that is strongly aligned to the needs of the labour market, as those negotiating the original version of the Treaty advocated? We are advocating the utilisation of tools already found in the CRD and possibly in the New Settlement Agreement. The rights would apply to those EU/EEA nationals in a recognised category – as a (genuine) worker (as defined in the previous blog, with minimum income thresholds and hours of work?), a self-employed person or a service provider.

EU/EEA nationals could also move as a student or a person of independent means, both needing to show comprehensive sickness insurance and sufficient resources, terms which should be more substantively defined. And they should be registered in the place of residence, with relevant documentation proving their entitlement which employers would need to check before offering work, higher education establishments would check before admission and providers of public services would need to check before offering those services. Once entitlement is established, the principle of equal treatment is applied but phased as the CRD currently provides and nuanced as in the case law of the Court of Justice and in accordance with the terms of New Settlement Agreement.  In particular, the use of residence requirements as a limitation on access to social security benefits would enable the Government to challenge criticisms of “benefit tourism”.

We would suggest that this tempering of the free movement of persons would achieve a balance between the political, social and cultural concerns about immigration with a desire for fairness to EEA migrants. It draws on some of the old thinking: the early drafters of European documents on free movement grappled with some of the issues that are now being faced in the UK. While equal treatment has been at the core, it is a notion which has long been qualified both by the EU’s secondary legislation and the case law of the Court.

Barnard & Peers: chapter 27, chapter 13

Photo credit: politicshome.com

The future of free movement of persons in the UK (Part 1)

Catherine Barnard and Sarah Fraser Butlin*

*The authors are both at the University of Cambridge and funded by the ESRC’s UK in a Changing Europe programme. Thanks go to their colleagues, Graeme Ross, Steve Peers, Jonathan Portes and Madelaine Sumption.

Introduction

Concerns about immigration were a - no, probably the - main reason why many voted to leave the European Union on 23 June 2016. There was a strong perception that the UK had ‘lost control’ of its borders; a Leave vote would enable the UK government to take back that control. At one level, the UK had not lost control in the sense that passport checks were - and remain - firmly in place at its borders.  However, public perception was of a flood of migrants, including criminals, entering the UK with the government having limited ability to stem, let alone reverse, the tide. It was certainly true that migration was at its highest level ever at the time of the referendum. Many saw the Brexit vote as an opportunity to address this.

But protesting about immigration is the easy bit. It is quite another to find a solution to the inherent tension between encouraging those with skills to come to the UK while being seen to ‘take back control’. In Theresa May’s Mansion House speech on 2 March 2018 she made reference to migration for the first time:

[W]e must maintain the links between our people. … We are clear that as we leave the EU, free movement of people will come to an end and we will control the number of people who come to live in our country. But UK citizens will still want to work and study in EU countries - just as EU citizens will want to do the same here, helping to shape and drive growth, innovation and enterprise. Indeed, businesses across the EU and the UK must be able to attract and employ the people they need. And we are open to discussing how to facilitate these valuable links.

However, no further detail as to how this would be achieved was set out.  Indeed, Michael Heseltine in an interview with the Observer said “Why is it that after 18 months since the referendum we have not got any closer with these issues? The answer is simple: because no one has got any answer about how to do it.”

When she was Home Secretary, Amber Rudd, commissioned the Migration Advisory Committee to research what the country needs; it is not due to produce its final report until the Autumn. The immigration white paper, expected last year, is still not published. Meanwhile the Windrush scandal has shone an unforgiving spotlight on the effect of the Home Office’s ‘hostile environment’ on British citizens.

Given the now heightened sensitivity of migration as an issue, the UK seems unable to answer the most basic but fundamental question: whether it will continue to have a two-tier policy for immigration (a preferential regime for EEA nationals and a (significantly) less favourable regime for the rest of the world) or a single policy for all immigration.

There have been hints that the two-tier model is preferred, with preferential access to EEA nationals. If that preferential access was on terms as close as possible to the currently model of free movement, this would certainly help oil the wheels of a future deal and keep the door open for UK participation in a number of schemes including those for EU research funding. Speaking in Denmark on 9 April 2018, the Prime Minister Theresa May said that while she would keep the target of reducing net annual migration to below 100,000, she did recognise that ‘UK citizens will still want to come and study and work in countries in the EU27 like Denmark, and EU citizens like Danish citizens will still want to come and work and study in the UK.’  On 29 April 2018, the Independent reported that ‘Britain [is] set to offer EU Brexit immigration deal “very similar” to free movement.’ 

Yet there has since been a new home secretary, Sajid Javid, who is rumoured to have torn up a proposed policy giving preferential access to EU nationals and also removed Non-EEA health service workers from the Tier 2 cap. This might suggest he is looking to a single policy for EEA and non-EEA nationals in the future. Politically this might not fly. The current visa regime for non-EEA nationals is bureaucratic, complex and very expensive – and of course subject to the cap of 20,700 on the number of migrants coming to the UK (within Tier 2). Businesses in certain sectors are highly dependent on (EEA) migrant workers. In the absence of a dramatic overhaul of the visa scheme, many of those businesses will not be able to get the workers they need.

On the EU side, countries sending migrants, such as Poland, Bulgaria and Romania, may still want their workers to be able to work easily in the UK. So, in the context of the UK’s future relationship with the EU, there may be some appetite for the EU to explore a new arrangement with the UK in respect of migration. The UK, in its turn, may ultimately allow pragmatism to prevail, at least for a transitional period until UK workers are being trained, and may be willing to countenance some preferential – but controlled – regime for EEA nationals. This scheme might be based on a notion not of free movement (after all the UK is leaving the EU and, unless it stays in the EEA, it will not enjoy free movement) but ‘fair movement’ or ‘fair mobility’. The scheme that we propose across three blogs published this week, draws on a historical understanding of the EU’s free movement provisions to inform our suggestions as to what that new scheme might look like. Our proposal is pragmatic and tries to steer a course between the competing interests of the EU which will inevitably tack towards free movement and the UK government which will tack towards greater restrictions.

In the first blog, we argue that when the original EU Treaty (the Treaty of Rome) was drafted its focus was on the rights of individuals to move for work. It was not connected to broader ideas of citizenship and state building. We argue that the UK’s new arrangement with the EU could return to those original ideas. At domestic level the current scheme for Croatians working in the UK might provide a template as to how this can be operationalised.

In the second blog we consider how the equality principle might work in a post-Brexit immigration policy, especially in respect to access to benefits. We argue that there should be a phased approach to equal treatment depending on the migrant’s length of residence, with preconditions to accessing that right and specific exclusions from it, particularly in the early stages of a migrant’s arrival.

In the third blog, we consider the final component of a policy based on fair movement, the introduction of an emergency brake.

We turn now to look at the first element of the proposal for fair movement: connecting movement to economic activity.

Back to the Future

In the debates in the run-up to the Treaty of Rome, the notion of free movement of people was focused on the economically active, namely workers and those seeking to access jobs. The idea of free movement of people can be traced back to the 1948 Paris Treaty which established the Organisation for European Economic Cooperation (OEEC) and provided for Contracting Parties to ‘take the necessary measures to facilitate the movement of workers’. However, this was subsidiary to the aim of providing ‘full employment for their own people’ (emphasis added). 

The emphasis on the movement of workers recurred throughout the formal discussions about the establishment of the EU’s Common Market.  The German, Belgian, Italian, Luxembourg and Dutch delegations proposed that the free movement of people provisions of the Treaty should ‘consist in the free access of nationals of the Member States to economic activities in the territory of the Community’ (emphasis added). In November 1955 the Inter-Governmental Conference considered that the concept of free movement of workers included the right to present oneself in any country of the Community, for the jobs actually offered and to remain in that country without any other administrative restriction if a job is actually obtained’ (emphasis added). (Original text: “une interprétation correcte de la notion de libre circulation des travailleurs: elle comporte le droit de se présenter dans tout pays de la Communauté aux emplois effectivement offerts et de demeurer dans ce pays sans aucune autre restriction administrative si un emploi est effectivement obtenu”.)

This formulation of free movement of people was repeated in the 1956 Spaak report and formed the basis for the initial wording of the Treaty of Rome. Subsequent discussions indicated that the right of free movement should cover work seekers as well as workers.

What is abundantly clear is that the original Treaty drafters were concerned only with the economically active. The semi-economically active (students, the retired, and persons of independent means (PIMs)) were given free movement rights only much later, through the adoption of the Residence Rights Directives in the early 1990s, directives now replaced by provisions in the Citizens’ Rights Directive 2004/38 (CRD), which set the condition of having comprehensive sickness insurance and sufficient resources if EU citizens in this group want to reside longer than three months in another Member State. Free movement rights for the economically inactive were only contemplated by the citizenship provisions in the Treaty of Maastricht (1992), were subsequently fleshed out by the Court of Justice but then curtailed. 

We would argue that the link between economic activity and free movement is key. We would argue that for states, such as the UK, keen to have a deep and special economic relationship with the EU, entitlement to movement should return to having an economic focus as the original drafters of the treaty envisaged.  Those who wish to enter the UK for more than three months must be coming to work.  This, in and of itself, would not affect numbers: most EEA citizens come for work and this group has very high employment rates.

However, to reside in the UK beyond the three-month period, we would suggest that the EEA migrants must have obtained work which must not only be genuine and effective but also significantly more than de minimis (e.g. a minimum of 20 hours a week referenced over a period of, say, 4 months). Further, this work – whether as an employed or self-employed person – must be either at a high skill level or paid above a certain minimum threshold. A recently leaked document suggests that the Government might be sympathetic to this idea. It would require EU workers to earn £20,500 (significantly above a full time minimum wage, or £1,254.60 a month for someone on a 2040 hours a year contract) in order to come to the UK.  This would have the effect of bringing down numbers significantly. In addition, we would suggest that an individual should have to work for a period of, say, three months before they can bring family members with them (parents, spouse, dependent children).

We have shown that connecting movement with economic activity was rooted in the origins of EU law. The requirement for the work to be genuine and effective and not purely marginal and ancillary is already a requirement of EU law. However, threshold requirements in terms of skills and/or pay go significantly beyond the requirements laid down by EU law and the EU may find these difficult to accept in any future negotiations unless they could be introduced only for a transitional period.

The semi-economically active - students, the retired and persons of independent means - add significant economic value to the UK. We would argue for their inclusion in the definition of those who would have the right of fair movement subject to having sufficient resources, with those minima being defined (unlike the position in the CRD), and comprehensive sickness insurance (this could either be via the NHS surcharge or through private health insurance). In other words, we would push that the residence requirements already provided for in Article 7 of the Citizens Rights Directive (CRD) continue to be applied to this group but enforced in their entirety. This group would be entitled to work but only up to 20 hours a week.

Finally, there is an issue of those wishing to come to the UK as a service recipient or provider. In the WTO this is referred to as Mode 2 (consumption abroad such as tourism) and Mode 4 services (natural persons supplying services in another country). To facilitate these arrangements, there should be a window of 90 days when EEA nationals can enter the UK as a tourist and to look for work. Short term service providers would need to register on a database to indicate the nature and duration of their work. Their terms and conditions of employment would be mainly covered by home state rules.

Recent examples linking economic activity with free movement

Requiring a link between free movement and (high skilled) economic activity underpins the scheme currently operated by the UK for Croatian nationals during the seven year transitional period following the accession of Croatia to the EU in July 2013. The Croatian scheme distinguishes between different types of Croatian migrants who are awarded different types of registration certificates:

- Purple registration certificate to work in the UK: this requires the individual to meet the requirements for skilled economic migrants, as obtained for Tiers 2 and 5 of the Points-Based System (PBS), to have a job offer and either a sponsorship number from the employer or in certain circumstances a letter from the employer.  They may only work with this prior work authorisation, unless they fall within limited exceptions. After 12 months of authorised work then permission to work is no longer required.

- Blue registration certificate: where the individual holds a UK degree and is a “highly skilled individual” or holds a Tier 1 (Exceptional Talent) Endorsement (for those who are a “world leader or have the potential to be a world leader”). No work authorisation is required.

- Yellow registration certificate: this is for students and those who are self-sufficient individuals (that is, PIMs). They must produce evidence that they have sufficient resources to support themselves and that they have comprehensive health insurance.  Students may work in limited and restricted circumstances.

After 12 months of authorised work, a Croatian national becomes entitled to social security benefits and has the right to reside as a jobseeker, on the same terms as other EEA nationals.  Moreover, whilst in authorised work, they are entitled to means-tested benefits.  Those who are self-employed or have a blue certificate are entitled to social security benefits from the outset.

Similarly, until 1 January 2014 in order to work in the UK Romanian and Bulgarian workers were required to hold:

- a Seasonal Agricultural Workers Scheme certificate; or

- a registration certificate as a “highly skilled person”.  This required the individual to produce evidence showing qualifications, age, previous earnings and experience of the UK in order to obtain sufficient points to meet the threshold in the Immigration Rules. Alternatively it could be awarded to those who had obtained certain qualifications from a UK institution.  The registration certificate gave the individual unconditional access to the labour market.

- an accession worker card for certain categories of employment including au pairs, ministers of religion, teachers, language assistants or midwives. Students and those who were self-sufficient could also obtain a registration certificate, and students were then permitted to work for 20 hours per week in term time.

The mechanics of a registration scheme

The approach underpinning the Bulgarian/Romanian scheme and subsequently the Croatian scheme is that generally an individual should be undertaking some, usually high skilled economic activity to be permitted to remain in the UK.  We would argue that these schemes could be developed to include a salary threshold as an alternative to a skills requirement outlined in section II.

The Croatian, Bulgarian and Romanian schemes also provide an illustration of how to combine a scheme requiring the migrant to be engaged in economic activity with a relatively simple, cheap registration system. We would argue that the registration schemes used in relation to Croatian, Bulgarian and Romanian migrants might provide a prototype for future arrangements.

Specifically, we would envisage employers issuing an electronic document to an individual with an eligible job offer, certifying that the job offer was genuine and effective and with confirmation of the salary and, where appropriate, highly skilled person status. The prospective employee could then apply online for a residence permit at negligible cost (circa £65, the current cost of the Croatian registration certificates).

Were the employment to end within the first twelve months a simple online notification process could be used to notify the Home Office of the ending of employment, automatically giving the individual a further, say 3 months, to find a new job.  Where an individual sought to move to a new employer, the notification process should deal with this straightforwardly, allowing the new employer to update the relevant details. After twelve months, permanent residence status would be granted and the online system updated allowing future employers to check an individual’s status. 

The advantage of adapting, say, the Croatian model for EEA nationals (and in the future high skilled non-EEA nationals?) are four fold. First, it is an off-the-shelf model; no new IT systems need to be built, just an upgrading of existing ones (they would, however, require significant investment - there are currently lots of online reports of lengthy administrative delays for Croatians applying for these certificates). Second, the numbers coming in for work purposes will be checked systematically. Transparency and the knowledge that comes from this is already a precondition of control. Third, the system is still light touch. It avoids complex, bureaucratic and expensive visa schemes. It could be matched with a legal presumption for the employer that the individual has the right to work once the individual has a registration certificate. Fourth, it gives power to employers to determine the type of person they want and in what field. The scheme is not reliant on the Home Office to release permissions to fill a job on a monthly basis.

Conclusions

No employer wants to go through the huge expense and tremendous bureaucracy of a Tier 1 or tier 2 visa scheme. We recognise that there will inevitably have to be a registration scheme of some sort for newly-arrived EU migrants wishing to work in the UK (and distinct from those already in the UK at the end of the transition who have settled status). What we are proposing is a light touch scheme which allows registration without acting as a significant deterrent for those coming to the UK. Our proposal, relying as it does on the individual showing economic activity (or at least sufficient means to support themselves), reflects the ideas underpinning the original version of the Treaty, namely that migration should be for economic purposes. Relying on this as a basis for a future policy, combined with a simple registration scheme, is the first strand of our approach based on fair movement.

Barnard & Peers: chapter 27, chapter 13

Photo credit: BBC