Who is entitled to family benefits? Lights and shadows of the ECJ rulings in WS and VR

1. Introduction

On 25 November 2020 two further preliminary rulings have enriched the case law of the Court of Justice (the ‘ECJ’ or the ‘Court’) on equal treatment of third-country nationals (TCNs) with regard to family benefits. The two judgments – delivered in cases C-302/19 ¹ and C-303/19 ²  – deal with the interpretation of Article 12 of Directive 2011/98/EU (the Single Permit Directive) ³ and Article 11 of Directive 2003/109/EC (the Long-Term Residents’ Directive). ⁴ These clauses provide that selected TCNs must be treated equally to Member States’ nationals for what concern access to branches of social security as defined in Article 3 of Regulation n. 883/2004. ⁵

In particular, the key issue raised in the two preliminary references relates to entitlement of single permit holders and long-term residents to the Italian family unit allowance (assegno per il nucleo familiare) where their household’s members reside abroad. Indeed, the Italian legislation treats TCNs whose family members do not reside in Italy less favourably than European citizens. While the outcome of the two ECJ rulings is to be welcomed, some findings are likely to provide uncertainty over the correct identification of beneficiaries of a family benefit, thus eventually widening the scope of derogations from equal treatment. Having analysed the commendable aspects of the two judgements, the present case note will address such issue, advocating for a different solution in that specific regard.

2. National legal framework and facts of the cases

The family unit allowance has been introduced in the Italian social security system by Decree-Law 13 March 1988, n. 69. ⁶ Such benefit is granted to every employee working in Italy or pensioner whose family unit income falls under the threshold defined by that piece of legislation. The amount of the benefit, paid by the Istituto Nazionale della Previdenza Sociale (hereinafter, the ‘INPS’), largely depends on the composition of the family unit. Indeed, according to Article 2(2) of the mentioned Decree-Law, the allowance is paid at different rates based on the number of the family members, being the latter defined in para. 6 therein as including the spouse of the worker and eventual minor or disabled children. ⁷ Nevertheless, according to para. 6-bis therein, the children and spouse not residing in Italy shall not be considered part of the family unit for the calculation of the benefit when the applicant is a foreign national. ⁸ This derogation has a detrimental effect on TCNs: indeed, while EU citizens can receive an amount calculated on all the members of their households, irrespective of their place of residence, the former would see their allowance reduced, or even cancelled, if their family members reside abroad.

The compatibility of this social security regime with EU law has been questioned in the two disputes referred to the ECJ. The first case originated from a complaint filed by WS, a Sri Lankan national holding a single permit under Directive 2011/98/EU. ⁹ For approximately two years between 2014 and 2016, his spouse and their two children resided in their third country of origin. ¹⁰ Consequently, relying on Article 2(6-bis) of Decree-Law n. 69/1988, the INPS rejected WS’s application seeking to obtain the family unit benefit in respect of that period. ¹¹ Since all the members of his household were not residing in Italy, WS was deemed not to be in the position to assert the existence of a relevant family unit for the purposes of the allowance.

WS challenged the refusal in court, submitting that the exclusion of TCNs’ family members residing abroad from the scope of the benefit should be deemed as in breach of the equal treatment rule as enshrined in Article 12 of Directive 2011/98/EU. The Labour Court of Alessandria dismissed the action, ¹² while the Court of Appeal of Torino subsequently upheld WS’s complaint. ¹³ Following a further appeal lodged by the INPS, the Court of Cassation referred the case to the ECJ for a preliminary ruling. In particular, the Italian Supreme Court sought to ascertain if a difference in treatment between Italian citizens and TCNs such as the one enshrined in the Italian family unit allowance discipline could be compatible with Article 12 of the Single Permit Directive. ¹⁴

The case of VR is very similar to the previous one, with the sole difference in the status of the applicant. Indeed, the latter is a Pakistani national holding a long-term residence permit under Directive 2003/109/EC. ¹⁵ From 2011 to 2014 his wife and five children returned to their country of origin; relying on the exclusion laid down in Article 2(6-bis) of the Decree-Law, VR has been considered as not eligible for the family unit allowance concerning that period. ¹⁶ The refusal has been challenged in court by the TCN in question, alleging that the exclusion of family members residing abroad from the relevant family unit breached equal treatment with regard to ‘social security and social assistance’ as enshrined in Article 11 of the Long-Term Residents’ Directive. Both the Labour Court and the Court of Appeal of Brescia upheld VR’s claim. ¹⁷ Having appealed the judicial decision to the Supreme Court of Cassation, the latter decided to stay the proceedings and rely on the preliminary reference procedure under Article 267 TFEU. In particular, the referring judge demanded that the ECJ assess if the exclusion of family members not residing in Italy from the calculation of the family unit allowance can be regarded as compatible with equal treatment under Directive 2003/109/EC where the scope of such restriction is limited to TCNs. ¹⁸

Notwithstanding self-evident similarities between the two cases, the interpretative issues raised pertain to different secondary law provisions, thus requiring separate analysis. Therefore, the subsequent section will deepen the AG opinion and the ECJ ruling on the issue of equal treatment of TCNs under the Single Permit Directive, while section 4 will assess those related to the Long-Term Residents’ Directive. Then, in section 5 some critical comments on the judgments will be provided, followed by concluding remarks in the last section.

3. Access to the Italian family unit allowance under the Single Permit Directive: The Advocate General opinion and the ECJ ruling in case WS

The ECJ framed the issue referred in terms of interpretation of the right to equal treatment with regard to branches of social security enshrined in Article 12(1)(e) of Directive 2011/98/EU. As recalled by AG Tanchev, to guarantee a common set of minimum rights to single permit holders represents one of the main goals of the directive itself. ¹⁹ Therefore, the right to equal treatment constitutes the general rule, while any derogation laid down in Article 12(2) of the Single Permit Directive can be invoked only if the Member State concerned has clearly stated its intention to rely on them. ²⁰ In the case at hand, no derogation to equal treatment laid down in the Single Permit Directive applied to the applicant’s situation ²¹ and, in any case, Italian authorities have never stated the intention to rely on them. ²²

Against this background, both the INPS and the Italian government firstly argued that the contested discipline affects only the amount of the benefit. Conversely, AG Tanchev clarified that national legislation under analysis affects also TCNs’ right to the allowance itself. ²³ On this point the Court took rather a more critical stance: wherever the exclusion impacted the entitlement to the benefit or only its amount, the difference in treatment would be nonetheless contrary to the right to equal treatment as enshrined in the Single Permit Directive. ²⁴

Having established the existence of a difference in treatment between TCNs and Italian nationals, the ECJ secondly rejected the justifications put forward by INPS and the Italian government. In particular, the defendants maintained that the derogation to equal treatment under analysis reflects the different positions of TCNs and nationals as regards the host Member State. ²⁵ They added that the disputed exclusion of TCNs’ family members residing abroad meets the objective of fostering integration, ²⁶ being also justified by the existence of practical burdens on national authorities in assessing the situation of individuals abroad. ²⁷ Instead, the Court considered that where EU law provides for an equal treatment obligation subject to limited exceptions, any argument based on alleged substantial differences between nationals’ and TCNs’ positions in respect of the Member State concerned cannot be accepted. ²⁸ Moreover, as recalled by the Court, Directive 2011/98/EU states clearly in recital 2 ²⁹ that integration of TCNs is achieved only by ensuring equal treatment for TCNs as required by Article 12 therein. ³⁰ In a similar view – and consistently with settled case law ³¹  – the ECJ also ruled that ‘any difficulties in checking the situation of beneficiaries […] when the members of the family do not reside in the territory of the Member State concerned […] cannot justify a difference in treatment’. ³²

Thirdly, since the referring court stated that in the context of the allowance scheme in question family members shall be regarded as in substance beneficiaries of the benefit, ³³ the INPS and the Italian government submitted that Article 12(1)(e) cannot be interpreted as extending equal treatment to persons other than the holder of the single permit. In their view, a reference to recitals 20 and 24 of the Single Permit Directive should support such a conclusion.

In particular, recital 20 states that equal treatment shall be extended also – and, in the INPS’s view, only – to TCNs’ family members who access the Member State’s labour market by relying on different EU provisions. ³⁴ Since the members of WS’s household do not fall under such definition, the defendants deem their exclusion from the right to equal treatment as consistent with EU law. According to the Court, such interpretation cannot be accepted. Indeed, recital 20 of the Single Permit Directive relates to situations where family members are entitled on their own to equal treatment in respect to a specific benefit. ³⁵ But such range of situations does not include the Italian family unit allowance. As recognized by the ECJ, such benefit is directly linked to the position of the TCN worker holding a single permit. ³⁶ While the TCN’s household certainly enjoys the allowance – ‘the nature of a family benefit is to benefit the family’ AG Tanchev recalled ³⁷  – this circumstance does not suffice to qualify its members as actual recipients of the social security scheme. Consequently, recital 20 cannot be invoked to justify the exclusion provided by Article 2(6-bis) of Decree-Law n. 69/1988.

Any reference to recital 24 is deprived of any relevance as well. Indeed, the latter simply recalls that the Single Permit Directive ‘does not itself grant rights to third-country nationals holding single permits in situations where there are no harmonized rules in EU law’. ³⁸ In any case, since the preamble of an EU act is deprived of any legal binding legal force and ineligible for derogating from any provision of the directive, ³⁹ the exclusion of the TCN’s family members from the computation of the allowance cannot be justified on such ground.

Fourthly, the defendants argued that the exclusion of TCNs’ family members is consistent with Regulation (EC) n. 1231/2010. ⁴⁰ Since the latter extends the application of Regulation n. 883/2004 to third-country nationals and their family members legally residing in the Member State concerned, the INPS and the Italian government submitted that the residence requirement should be teleologically inferred also in the context of the Single Permit Directive. Conversely, the ECJ ruled that any reference to Regulation (EC) n. 1231/2010 holds no relevance for the solution of the case. As both the Court and AG Tanchev considered, the latter instrument is only intended to confer rights on individuals who are in a situation falling under the scope of the Regulation itself. ⁴¹ Consequently, the fact that the extension enshrined in Regulation (EC) n. 1231/2010 is limited to family members residing in a Member State cannot be invoked to justify a restriction vis-à-vis a different secondary law instrument such as the Single Permit Directive. ⁴²

Finally, the Italian government proposed to rely on a comparison between the status of a TCN holding a single permit and the one granted to long-term residents. Directive 2003/109/EC enshrines the possibility of excluding from equal treatment specific situations where family members of the long-term resident do not reside in the territory of the Member State concerned. Such provision is not included in the Single Permit Directive: therefore, the government argued that the enhancement of the ‘particularly privileged status’ afforded to long-term residents should lead to extend the derogation in question also to single permit holders. ⁴³ Both the ECJ and the AG rejected such argument: with equal treatment being the general rule, a specific derogation cannot be inferred from a different piece of legislation if it is not expressly enshrined. ⁴⁴

Connecting the dots of the previous considerations, both the Court and the AG concluded that the right to equal treatment as enshrined in Article 12(1)(e) of Directive 2011/98 precludes national legislation – such as Article 2(6-bis) of the Italian Decree-Law n. 69/1988 – which excludes family members of a TCN holding a single permit from the computation of the family unit of relevance for entitlement to a social security benefit, if such exclusion does not apply to nationals of the Member State concerned. ⁴⁵

4. Long-term residents’ entitlement to the Italian family unit allowance: The Advocate General opinion and the ECJ judgment in case VR

The ECJ in case C-303/19 deals with the same interpretative issue – namely the compatibility vis-à-vis EU law of the discriminatory exclusion of TCNs’ family members residing abroad from the calculation of the Italian family unit allowance – in respect to the Long-Term Residents’ Directive. The analysis below will leave aside issues that have already been considered with regard to single permit holders.

The INPS and the Italian government argued that the exclusion of the long-term resident’s household residing abroad derives from the very definition of ‘family members’ under Directive 2003/109/EC. Article 2(e) of the latter defines them as ‘the third-country nationals who reside in the Member State concerned in accordance with Council Directive 2003/86/EC […]’, ⁴⁶ thus disqualifying individuals such as VR’s household members. According to both the ECJ and AG Tanchev, such definition is only intended to define the notion of ‘family members’ where such expression is textually reproduced in any provision of the directive itself. This is not the case of the norm on equal treatment invoked in the case under analysis, which does not include the expression ‘family members’. ⁴⁷ Moreover, a different conclusion would be incoherent with further provisions such as Article 11(2) of the same directive. ⁴⁸ This clause, allowing Member States to derogate from equal treatment where a TCN claims benefits on behalf of his/her family members not habitually residing therein, would be paradoxical if the definition of Article 2(e) should be interpreted as excluding family members ab origine from the right to equal treatment.

Therefore – with the only exception of cases where long-term residents seek a benefit on behalf of their family members as enshrined in Article 11(2) – ‘Art. 11(1)(d) of Directive 2003/109 precludes a provision […] pursuant to which the spouse and the children or equivalents of a third-country national who are not resident in the territory of the Italian Republic do not form part of the family unit’. ⁴⁹ While the defendants sought to justify the discrimination in question by relying also on the derogation enshrined in Article 11(4), according to which Member States are allowed to restrict equal treatment to core benefits, this argument has not been considered by the Court, and the AG briefly rejected it. In particular, the latter built upon Kamberaj, ⁵⁰ affirming that the derogation does not apply to social security as defined by national law. Moreover, even if the referring court deemed the family unit allowance to be a form of social assistance or social protection excluded from the category of core benefits, Article 11(4) would nonetheless be inapplicable since Italy has never expressed its intention to rely on it. ⁵¹

On the applicability of the optional derogation provided in Article 11(2), the INPS submitted that the applicant shall be deemed as claiming a benefit on behalf of its family members residing abroad, thus falling under the scope of the mentioned clause. ⁵² Conversely, the Italian government considered that only the applicant is entitled to the family unit allowance. ⁵³ Against these contrasting allegations, the ECJ confirmed that Article 11(2) of Directive 2003/109/EC would be potentially applicable to benefits such as the one in the main proceedings. Nevertheless, by recalling its previous judgments in Martinez Silva ⁵⁴ and Kamberaj ⁵⁵ the Court ruled that the INPS could not rely on such derogation, since the Italian legislature failed to declare its intention to invoke it. ⁵⁶ While AG Tanchev shared these findings, his reasoning was more articulated. Indeed, the AG doubted on the possibility to consider a family benefit such as the one in the main proceedings as claimed on behalf of the long-term resident’s family members according to Article 11(2) of Directive 2003/109/EC. Neither the text of such provision nor its legislative history provides valuable elements in that regard. ⁵⁷ Without providing any justification in this regard, he nonetheless agreed with the ECJ in considering the facts in the main proceedings as potentially falling under the scope of the mentioned derogation. ⁵⁸ Such an interpretation of Article 11(2) raises several critical concerns, which will be discussed in the next section.

Given the considerations referred, the Court concluded that the right to equal treatment with regard to social security and social assistance under Article 11(1)(d) of the Long-Term Residents’ Directive prohibits the exclusion of TCNs’ family members not residing in Italy from consideration for the Italian family unit allowance, where such restriction does not apply to Italian nationals and the Member State concerned has not expressed its intention to rely on the derogation enshrined in Article 11(2) of the same directive.

5. Comment

The two judgments under analysis are a further refinement of the ECJ case law inaugurated in Kamberaj and Martinez Silva, where the ECJ held for the first time that any exception to equal treatment enshrined in EU secondary law cannot be relied on by Member States unless they clearly express such intention. It seems that the rulings of the Court in WS and VR once more confirmed that trend in case law, while further underlining systemic deficiencies affecting the Italian social security system with regard to equal treatment of TCNs. Indeed, the two cases analysed herein are explicative of the attitude of the Italian authorities towards EU provisions on equal treatment. While not correctly transposed in national legislation, the INPS and the Italian government deemed derogations enshrined in EU law as hermeneutically underpinning heterogenous restrictive clauses provided in national law. This approach is once more stigmatized in the cases at hand, confirming a well-settled stream of national case law which set apart such national provisions on family benefits contrasting with EU law. ⁵⁹ Nevertheless, it shall be noted that the Italian legislative framework on the family unit allowance is currently under reform, since a bill recently adopted by the Italian Parliament demands that the government establish a new single family unit allowance. ⁶⁰ While this enabling act provides for no differences between Italian nationals, EU citizens and TCNs, a possible indirect discrimination is likely to arise. Indeed, the new provisions horizontally require a minimum two-year period of residence or work in Italy, thus putting EU citizens and TCNs in a disadvantaged position if compared to nationals. ⁶¹ It is worthy of note that the changing approach of the Italian legislature towards family benefits could pave the way for new possible kinds of discrimination.

Turning to the weaknesses of the two rulings under analysis, it has been already anticipated that the conclusion of the Court in VR hides a sticking point, whose assessment is crucial for the present case note. Indeed, the ECJ held that family members are to be regarded as beneficiaries of the family unit allowance, thus being potentially excluded from equal treatment under Article 11(2) of the Long-Term Residents’ Directive. Yet this finding is open to criticism: it will be demonstrated that the Court should have reached a different conclusion in this specific regard, thus radically excluding family unit allowances such as the contested one from the application of the mentioned derogation. To that aim, three different arguments are provided below.

First of all, the contested finding lacks an appropriate interpretative criterion capable to justify the potential application of Article 11(2) of Directive 2003/109/EC to the benefit in question. Indeed, as AG Tanchev recognized, whether the facts of the main proceeding could be deemed to be a TCN claiming a benefit on behalf of his/her family members is doubtful. ⁶² Therefore, both the Court and the AG were confronted with a double interpretative choice: namely, to extend the meaning of Article 11(2) so as to include family benefits meant to assist household maintenance such as the one in the main proceedings or, conversely, to limit its scope to allowances to which TCNs’ family members are autonomously entitled. In such a situation, the general rule of restrictive interpretation of derogations enshrined in EU law should have guided the hermeneutic approach. Since Article 11(2) constitutes an exception to the general rule of equal treatment, a restrictive interpretation shall be preferred. ⁶³ On the contrary, both the AG and the ECJ recognized a wider scope of such derogation, thus stretching its meaning to include benefits such as the Italian family unit allowance. What is worse, they did not express which interpretative reasoning supported such a conclusion, thus rendering this finding even more questionable.

Second – and from a systematic point of view – the interpretation advanced by the Court would introduce an element of incoherence in the relationship between the statuses of the single permit holder and long-term resident. While the latter should be granted a ‘particularly privileged status’, ⁶⁴ the solution upheld by the Court is likely to confer on holders of a single permit a stronger right to equal treatment. Indeed, since a derogation clause such as Article 11(2) of Directive 2003/109/EC is not present in the single permit case, Member States would be able to restrict access to benefits such as the Italian family unit allowance by long-term residents and not by single permit holders. While the Court itself affirmed that such reasoning cannot be relied upon to introduce a similar derogation in Directive 2011/98/EU, ⁶⁵ nothing would have prevented the ECJ from considering the status of single permit holders as a benchmark to assess the more privileged position of long-term residents. Consequently, if the exclusion of TCNs’ family members enshrined in the Italian discipline is not permitted in any case under the Single Permit Directive, such circumstance should lead to reach a similar conclusion while interpreting derogation clauses under Directive 2003/109/EC.

Third, it shall be noted that the Court’s finding under analysis originally stems from a consideration made by the referring court. Indeed, the Italian Supreme Court stressed that workers’ family members play a pivotal role in the context of the family unit scheme, since they shall be regarded as in substance beneficiaries of the allowance. ⁶⁶ But does ‘in substance’ mean that members of the TCN’s household are entitled themselves to the family unit allowance? The Court’s ruling in VR seems to reply in the affirmative: it is quite curious that a finding made by a referring court to emphasize the role of family members for the TCN’s position with regard to social security rights has ultimately led to an interpretation potentially allowing unexpected restrictions of equal treatment based on Article 11(2) of Directive 2003/109/EC. Some elements from the previous case law as well as from the current political discourse on family benefits oppose the Court’s reasoning.

In particular, the ECJ itself in WS made clear that the family unit allowance is primarily linked to the situation of the worker, and not of his/her family members. ⁶⁷ This circumstance is far different from the ones where family members are themselves entitled to a social benefit: the Court relied precisely on this point to reject the INPS’s argument based on recital 20 of Directive 2011/98/EU in WS. ⁶⁸ Given this precedent, the choice to consider family members as formal beneficiaries seems scarcely justified. Moreover, in Caisse pour l’avenir des enfants as well as in Martinez Silva the Court held that family benefits are intended to ‘to alleviate the financial burdens involved in the maintenance of children’. ⁶⁹ Therefore, it would be paradoxical to consider family members such as children as actual beneficiaries of an allowance primarily intended to support the worker in their maintenance. Family members do certainly benefit from the allowance, but this is not enough to make them formal beneficiaries of it. ⁷⁰

The current debate on the indexation of family benefits can provide further guidance in this regard. Recently, Austria has reformed the national legislation on family benefits, indexing the amount of the allowance to the average living costs in the state where the worker’s household resides. ⁷¹ Other states are considering taking the same step, even though the Commission is opposing this move by referring Austria to the Court of Justice for an infringement proceeding. ⁷² An assessment of the compatibility of this reform vis-à-vis EU law largely exceeds the scope of the present comment. Nevertheless, the increasing interest by some national governments in linking the amount of family benefits to the cost of maintenance of the household further confirms that the main individual involved within these schemes is the worker who has to maintain his/her household and to whom family allowances accrue.

Therefore, it follows from the three arguments provided that family members cannot be regarded as individuals on whose behalf the TCN claims the benefit, thus exceeding the scope of the derogation enshrined in Article 11(2) of the Long-Term Residents’ Directive. Conversely, the latter provision shall be interpreted as regarding only situations where family members enjoy an autonomous entitlement to a social benefit under national law.

6. Concluding remarks

In WS and VR, the Court of Justice held that the right to equal treatment under EU law prevents national provisions which discriminatorily exclude family members of a TCN holding a single permit or a long-term resident status from the calculation of the family unit for entitlement to a family benefit. These two rulings should be welcomed as further refinements of the recent Court’s stream of case law on equal treatment with regard to social benefits and as an additional confirmation of deficiencies of the Italian legislation in this regard.

Besides, the analysis has identified an issue concerning the interpretation of Article 11(2) of the Long-Term Residents’ Directive given by both the ECJ and AG Tanchev. Rather than considering family members as real beneficiaries of the allowance at stake, the Court should have recognized that only the long-term resident is entitled to the allowance in question. Therefore, circumstances in the main proceeding should have been deemed as radically different from cases where the TCN seeks a benefit on behalf of his/her household’s members. The different position assumed by the Court in VR allows a potential extension of the derogation enshrined in Article 11(2) to family benefits, thus reducing the scope of equal treatment under EU law.