Restricted rights: obstacles in enforcing the labour rights of mobile EU workers in the German and Dutch construction sector

Introduction

The European Union (EU) has constructed an internal labour market through institutionalizing the free mobility of labour and services. EU citizens can take up employment in another EU country via posted work, regular employment, self-employment or temporary agency work. Though these workers often perform similar jobs, their rights depend on whether their employment in the host EU Member State comes under Directive 2004/38/EC on the free movement of persons (host country-based employment), under Article 56 TFEU on the free movement of services and thus under the Posted Workers’ Directive 96/71/EC (posted work) or under Articles 49–55 TFEU on freedom of establishment (self-employment). Weakly regulated, this transnational labour market is driven by employers using it as a way of recruiting lower-wage workers from countries with low labour costs, often thereby circumventing host country regulations and wage expectations (Cremers, 2011). The academic debate has focused on how this ‘regime shopping’ is made possible through regulatory gaps between countries and sectors (Houwerzijl, 2014; Lillie et al., 2014; Cremers, 2011). However, there is little insight into how the (non-) enforcement of labour standards contributes to the persistence of these gaps. This poses the following questions. Which enforcement gaps exist in relation to EU labour mobility at national and international level? Which circumstances lead to these particular enforcement gaps? What is being done to close those gaps? This article examines the interaction of key institutions: the respective labour enforcement agencies and trade unions in Germany and the Netherlands. We have chosen Germany and the Netherlands for our discussion as in both these countries there are usually strong institutions for labour regulations. This article looks specifically at the construction sector in these countries, because of the high presence of mobile EU workers in this industry in both countries. Our empirical material is based on 83 interviews with mobile EU workers and 50 expert interviews in Germany and the Netherlands. Our discussion of mobile EU workers deals with EU workers employed within the national regulatory context (mostly people working for Dutch or German temporary work agencies), as well as workers employed via posted (agency) work or working in a self-employed capacity.

Findings point to difficulties in enforcing the rights of mobile EU workers: 1) at international level between national enforcement agencies, 2) at national level within enforcement agencies or actors involved in enforcement, and 3) at workplace level between host country collective representation channels and mobile EU workers. These enforcement gaps point to certain practical difficulties in safeguarding the rights of mobile EU workers, and in the different ways national enforcement actors have attempted to overcome these obstacles, highlighting the challenges faced by national systems to adapt effectively to the changing institutional environment within the EU.

Regulatory and enforcement gaps in the EU labour market

There is a debate on the interaction of institutions and their regulatory capacity with regard to the issue of EU labour mobility and violations of labour rights. The academic discussion revolves around the political processes behind the power dynamics of EU labour mobility (see Dølvik and Visser, 2009), while also analysing EU Member States’ capacity to regulate national labour markets in the light of EU labour mobility politics. A number of studies have identified differences across countries and sectors over how the presence of mobile EU workers puts pressure on certain regulatory institutions, such as collective bargaining and collective action (Krings, 2009; Bengtsson, 2013; Arnholtz and Hansen, 2013). In particular, EU cross-border labour recruitment has been identified as a strategy for circumventing regulatory institutions previously embedded in an individual country’s regulatory framework (Wagner and Lillie, 2014), with ‘low-cost labour’ exerting downward pressure on wages (Cremers, 2011). There is evidence that employers are violating the labour rights of mobile workers in various EU Member States, leveraging existing gaps in national and sectoral labour market regulations (Arnholtz and Hansen, 2013; Krings, 2009; Bernaciak, 2015; Wagner, 2015b; Berntsen and Lillie, 2016; Cremers et al., 2007).

A number of authors argue that weak national-level capacities to oversee and sanction companies and enforce regulations are enabling companies to violate the labour rights of mobile EU workers (Thörnqvist and Bernhardsson, 2015). Others argue that the EU regulatory framework covering labour mobility creates a space in which social and political controls are selectively not enforced, thereby giving capital a freer hand in designing the social relations of production (Lillie, 2010). Focusing on the causes of labour rights violations, these studies have been less concerned with the mechanisms available to enforce existing labour rights. In the following we will first outline European labour market dynamics in the context of the German and Dutch construction industry and then draw on our empirical research to discuss the enforcement gaps and the efforts being made to overcome these obstacles in both national contexts. Our aim is to shed light on the interrelationship between existing enforcement mechanisms and how they can serve to boost existing regulatory gaps.

European labour market integration and outsourcing in the construction sector

The transnational mobility of construction workers is a product of both the industry’s subcontracted nature and the current EU east-west and south-north labour supply system. The construction industry’s structure is characterized by subcontracting, short-term contracts and contingent labour. Subcontracting is used to access specialized knowledge, increase flexibility, manage risk and reduce labour costs. In Germany and the Netherlands, large companies (in terms of turnover) act as main contractors or building service providers while small and medium-sized companies assume the role of the subcontractors and provide the majority of workers (Bosch and Zühlke-Robinet, 2003; Fellini et al., 2007). Transnational employment agencies and construction subcontractors compete on cost against domestic subcontractors, bringing low-cost migrant workers to sites in countries with higher labour costs and paying them lower wages and benefits than those demanded by domestically hired workers. The majority of mobile EU construction workers are thus employed via subcontractors or employment agencies active at the lower levels of the contracting chains.

This means that supply chains can be opaque, as companies higher up the chain have only limited control over what happens in lower-level subcontracts (Wagner, 2015a). Companies tend to pass business risks down the supply chain, generating fierce intra-company competition between lower-level contractors which in turn puts pressure on working conditions. Contractors often come from different countries or have subsidiary branches in several EU countries, and recruit workers from countries with less extensive welfare entitlements. This means there are usually many nationalities working together under very different terms of employment (Berntsen and Lillie, 2016). The Europeanization of the construction labour market has thus added complexity and uncertainty to employment arrangements (Cremers, 2011).

Compared to Germany, a higher proportion of mobile EU workers are employed via employment agencies in the Netherlands, meaning that while their on-site work is managed by a (sub)contractor, their formal employment relationship is with the firm recruiting them. In Germany the construction sector resorts mainly to posted workers due to sector-specific restrictions on temporary agency work. Mobile EU workers in host country-based employment, such as agency work, are regulated under EU frameworks for labour mobility, those in posted employment are regulated as dependent employees of service providers, while self-employed workers come under EU freedom of establishment regulations. Even though often performing similar tasks, these three sets of mobile workers enjoy different labour rights. EU workers in host country-based employment are subject to the whole range of host country employment regulations, whereas posted workers come under the law of the sending state, apart from certain minimum conditions listed in the Posted Workers’ Directive (Directive 96/71/EC) which, inter alia, allow partial enforcement of legally extended collective agreements. Self-employed workers fall outside the scope of collective agreements and wage-setting institutions, as they set their own fees. In general, we will be using the term ‘mobile EU worker’ to refer to all three different types of cross-border workers, only referring to specific categories when needed.

Depending on the regulations governing specific national contexts, different channels of EU labour mobility are used. For example, in Germany 188,000 postings were registered in 1996, a figure dropping to 98,214 in 2014 (HDI, 2015) ¹ . The drop can be explained by the increase in self-employed construction workers, many of whom come from eastern Europe. Germany imposed transition periods for the 2004 and 2007 EU accession countries, temporarily restricting the free movement of workers (and services) in the construction, cleaning and interior decorating sectors. During these periods self-employment was the channel used by mobile EU workers to access the German labour market. Between 2004 and 2012 the number of registered craft tiling companies in Germany increased from about 12,000 to 68,000, of which 18,500 had a registered eastern European owner (IG BAU and ZDB, 2013). Similarly in the Netherlands, the number of self-employed Polish workers increased from 190 to 7000 between 2002 and 2008 (Regioplan, 2012: 12), a period when access restrictions were still in place. In 2007, when the transitional measures for Poland were lifted in the Netherlands, the number of mobile EU workers, particularly from Poland, increased significantly. Most of the workers from Central and Eastern Europe are now employed via temporary employment agencies in the Netherlands (coming under the free movement of workers). In Germany the influx of EU citizens from Romania and Bulgaria, as well as from Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Slovenia and from southern EU countries increased fivefold between 2004 and 2012, rising from 35,131 to 180,733 (SVR, 2013: 57–58).

The increased numbers of EU mobile workers in the German and Dutch construction sector and their differential access to labour rights under the EU mobility frameworks, pose difficulties for the relevant institutional actors when enforcing migrant labour rights.

German and Dutch labour enforcement mechanisms

In Germany the central agency responsible for enforcing labour market standards is the FKS (Finanzkontrolle Schwarzarbeit), the customs agency in charge of fighting undeclared work. FKS officers wear police uniform and have the power to force entry, search persons and premises, confiscate and retain evidence, and arrest people without warrant. Enforcing labour standards for posted workers also falls under the FKS remit.

Enforcement in the Netherlands is more fragmented. The former labour inspectorate, the Social Affairs and Employment Inspectorate (Inspectie Sociale Zaken en Werkgelegenheid), is responsible for enforcing the Dutch statutory minimum wage and holiday allowance, and controls working hours. Enforcement of collective agreements is, however, the task of the social partners. In the construction sector, the social partners established an independent compliance institute, the TBB (Technisch Bureau Bouwnijverheid), to enforce compliance with the sectoral collective agreement. A similar independent compliance office, the SNCU (Stichting naleving CAO voor uitzendkrachten) is empowered to enforce collectively bargained wages for the agency sector. The SZW Inspectorate works on the basis of tip-offs, and has the authority to request firms to open their books during compliance checks, an enforcement instrument that Dutch unions lack.

Data collection

The research underlying this article was carried out in 2011–2013. The major share of the empirical data was gathered through qualitative semi-structured interviews with 67 mobile EU workers employed in the German and Dutch construction industry. In addition, we held 16 group conversations with mobile EU workers. The majority of the workers interviewed originated from Poland, Romania and Portugal. We contacted the workers mainly via home visits, and used snowball techniques to broaden our sample. The interviews were conducted in the native languages of the workers with the assistance of interpreters. The workers were questioned on various subjects related to their work experiences in Germany and the Netherlands, with a specific focus on their employment conditions and their knowledge of rights and institutions, as well as their access to representation channels (mainly trade unions). Each interview lasted between one and two hours, and – wherever possible – was recorded and transcribed.

We also conducted 50 expert interviews with union representatives, works councillors, managers and labour inspectors at national and EU level. However, only a few employers were willing to participate in the research. The ones we interviewed operated mostly higher up in the contracting chains, only employing mobile EU workers indirectly via subcontractor or agency arrangements. In addition, reports from governments, unions and employer associations were studied to broaden the scope of the empirical analysis in both countries. Though our empirical study is not intended to be representative of enforcement practices in the construction sector at large, the findings corroborate other studies pointing to gaps in workers’ access to labour rights (Bernaciak, 2015; Berntsen and Lillie, 2016; Wagner, 2015a).

Lack of cooperation between enforcement agencies in different EU Member States

Cooperation between enforcement agencies in EU Member States remains underdeveloped in such areas as 1) the cross-border payment of social security contributions, 2) the manipulation of untaxed allowances, 3) the detection of letter-box companies, and 4) the cross-border payment of fines.

First, one of the difficulties with cross-border postings is to check whether social security contributions are actually paid in the sending country. Before posting a worker from one Member State to another, the posting company has to fill out and submit a so-called A1 form proving that the worker is registered in the sending country’s social security system and that the employer has paid social security contributions in line with the worker’s wages – including wages earned in the sending country. However, the circumvention practice observed by trade unions is for companies to issue two contracts, one referring to the host country context and the other to that of the sending country. While the host country contract specifies that country’s minimum wage with the obligation to pay social security contributions on that amount, the contract in the sending country specifies that country’s minimum wage and the related social security contributions on that amount which is considerably smaller. Social security contributions are therefore only calculated and paid in accordance with the minimum wage level of the sending country, instead of on a higher wage level in the host country.

Secondly, cross-border enforcement becomes complex when employers manipulate the rules on untaxed allowances in the sending country in order to reduce the wage levels on which social contributions are calculated in the sending country (Interview with trade unionists, 2012). Posting companies may often deduct a lump-sum amount for costs related to the posting. Each Member State has different allowances. Deducting this amount from the ‘minimum pay’ reduces the sum on which social contributions need to be paid. In the Netherlands such deductions cannot legally be made from the minimum wage, and an employer is supposed to pay them on top of the minimum wage. However, since such deductions are made in the sending state and only impact social security payments (not the wage tax in the Netherlands), this practice escapes the attention of Dutch enforcement agents. Unless further investigation takes place – something that rarely happens – it is unlikely that enforcement agents in the sending country would notice this manipulation.

Thirdly, the establishment of letter-box posting companies and the control of their practices is another area where cross-border administrative cooperation is insufficient. One well-known example is the case of Atlanco Rimec, ² a transnational labour supplier with subsidiaries throughout Europe and known for its cost-saving strategy of exploiting lax social security regimes, as explained by a posted worker:

Well, most temporary employment agencies in the Netherlands are actually located abroad. They have branches here, but they are registered abroad [In other words: they ‘post’ workers from convenient locations]. This way their wage costs are a lot lower. They simply make money like that. I can even tell you the name of one company which is an exceptional scumbag when it comes to stealing from its workers and the Netherlands as a country: (…) Rimec. Atlanco Rimec. (Interview with Polish posted worker, April 2012)

Fourthly, fines are no deterrent, especially as they are rarely enforced across borders. For example, according to Jorens and colleagues (2012: 122), only 15 per cent of Dutch administrative fines of foreign-based companies are eventually paid. There are, however, several initiatives aimed at improving enforcement cooperation across EU Member States, as we discuss in the next section.

Enforcement challenges within the national labour market context

Labour enforcement agencies are in certain cases not adequately equipped to check for company violations of national labour market regulations involving mobile EU workers in transnational workspaces and to enforce their compliance. In particular, adequate and effective instruments to counter certain abusive practices are often lacking. The most pertinent ones found in our empirical research involve 1) the manipulation of payslips, and excessive pay deductions; and 2) bogus self-employment.

First, one of companies’ many cost-saving strategies is the deliberate manipulation of hours. Workers may work 200 to 240 hours a month, though the employer only records 160 hours on the payslip, thereby reducing the real hourly wage (Interview with trade union official, 2012). This practice disregards the statutory maximum monthly work period, while at the same time undermining the minimum hourly wage. Moreover, workers receive no overtime, night-time or weekend bonuses.

These practices are very difficult to detect as payslips and company accounts list the legally allowed maximum number of hours worked. Even when labour enforcement agencies check bank statements to see whether the sum on a payslip is actually transferred to the worker’s bank account, there are other practices used by companies to reduce the actual pay received. For instance, trade unions know that companies sometimes transfer to an account a sum in accordance with minimum wage standards, but then force workers to collect part of their salary in cash and return that sum to the employer. Another common practice used in both sending and host countries to reduce the minimum wage is to charge workers excessive amounts for tools, working clothes, travel arrangements or accommodation.

Secondly, in both countries, companies may use bogus self-employment arrangements to avoid having to pay the social security contributions required for regular employees.

Legally sound posting, in the Dutch construction industry, does not happen much, as it is much easier to employ bogus self-employed people. They are cheaper, and have no or hardly any legal rights. Moreover, you can send them home anytime you want when there is no more work. You can let them work a huge number of hours, because you’re not bound by the working times specified in the collective agreement. This is so easy, and if it doesn’t work out with one worker, you get another one, as easy as that. (Interview with trade union official, January 2011)

Representation gap between host country trade unions and mobile EU labour

Most of the workers interviewed in both countries indicated that they experience very little effective representation in the countries where they work. Most feel quite isolated from existing representational structures, and are often unaware of how to access them. This is confirmed by our interviews with trade unions in both countries, who notice that very few mobile EU construction workers join the German or Dutch trade union, mainly due to the temporary nature of their jobs in Germany or the Netherlands and because they fear employer retaliation in the form of losing their jobs. In rare cases, these migrants may organize or join a trade union to fight for changes in their employment conditions, but, even then, they often lack the support of their colleagues, as mentioned by a Polish construction worker working in the Netherlands:

Colleagues are saying ‘Why do we do it, if we are unhappy here we could go back to Poland’. (Interview with Polish posted worker, June 2012)

Discussion and conclusion

In the Dutch and German construction industry, non-compliance with national industrial relations norms on account of complexity in national and international labour market regulation is boosted by the elementary deficiencies existing in the enforcement of labour rights for mobile EU workers. While the EU labour market promotes the removal of barriers to the free functioning of markets, national and international institutions have not been effectively redesigned to promote and facilitate the enforcement of the rights of mobile EU citizens. Enforcement difficulties come about as a result of systematic regulatory avoidance (Lillie et al., 2014; Berntsen and Lillie, 2015) and are recreated and persist due to a complex and non-functioning multi-level enforcement system. While enforcement institutions exist at national level, they seem to be – in the words of Busemeyer and Trampusch (2013) – ‘exhausted’: they still exist but are no longer effective. This article contributes to the debate on the regulatory dimension of mobile EU labour, focusing specifically on the difficulties encountered in enforcing labour rights across borders within specific national institutional contexts and collective channels of representation. Similar to insights from the debate on regulatory gaps and EU labour mobility, the article highlights the enforcement difficulties at multiple levels within the EU labour market, discussing examples of enforcement deficiencies, as well as efforts to resolve these depending on the particular situation and case.

At an international level cooperation between the respective labour enforcement agencies in EU Member States is underdeveloped. On the basis of our empirical research, we identified four areas where cooperation is underdeveloped and thereby facilitates abusive practices difficult to detect and counteract. While the Enforcement Directive represents an effort to close these respective gaps, only time will tell whether this will materialize in everyday practice. One positive aspect is the time limit set for responding to administrative requests from other EU Member States. However, the Enforcement Directive will not alter the structural problems existing in terms of current mobility channels, their respective regulatory gaps and the resulting enforcement gaps. EU-level projects between enforcement agencies and social partners have been established with the aim of improving collaboration and the enforcement of workers’ rights. While these represent attempts to close the gaps, they are unable to solve the extent of the enforcement deficits.

Looking at the specific instruments available to national-level enforcement agencies, the empirical data show that they have only limited capability to combat manipulative dealings undermining wage levels and promoting bogus self-employment. In both the countries studied, chain liability schemes are an effective way of enforcing labour rights throughout the subcontracting chain. In certain cases loopholes exist, and variations across sectors and in the specific items that can be enforced throughout the subcontracting chain are important factors in determining a country’s ability to enforce the labour rights of mobile EU workers.

In both countries, mobile EU workers have little effective collective representation. The collective redress option available to Dutch trade unions in representing workers’ demands in Dutch courts is not available to German trade unions. Even though collective redress is an option, Dutch trade unions tend more to initiate legal proceedings in their capacity as an enforcement party of the collective agreement rather than on behalf of their members. This is because few mobile EU construction workers actually belong to a union (Berntsen and Lillie, 2016).

The article shows that the various rights regimes, and the fragmentation of enforcement structures and responsibilities often makes it impossible effectively to enforce rights. The legal and enforcement context with its site, company, regional, national or transnational aspects leads to a complex and often ambiguous legal regime. Cross-border enforcement is defined by multiple layers of rules referring to different national rules as well as EU rules, which render the clarification of responsibilities and the effective enforcement of various enforcement actors very difficult (Wagner, 2015b). In general, employment rights are difficult to enforce in this context. Moreover, there is no straightforward solution to the structural enforcement problems. A multi-level approach is required to resolve effectively the enforcement dilemmas at hand.