The principle of freedom of establishment in the context of labour law

In a request for a preliminary ruling by the High Court of Eastern Denmark to the European Court of Justice, the interpretation of Article 49 TFEU1 on the freedom of establishment was considered, specifically as to whether legislation governing the labour market, which applies generally and without distinction, can be regarded as a restriction of the freedom of establishment.

The request for a preliminary ruling was made in criminal proceedings by the Public Prosecutor, Denmark against a Danish limited liability company, VAS Shipping ApS. In accordance with Danish law, a third-country national must have a work permit to take up employment in Denmark, including employment on a Danish vessel. The proceedings instituted against VAS Shipping related to infringements on labour requirements, where individuals were employed on board the vessel who did not hold a Danish work permit, and were not exempt from the requirement to hold a permit. VAS Shipping was therefore in breach of the conditions laid down for a work permit and was liable to a fine of approximately EUR 201,407.

In ordering VAS Shipping to pay the fine, the District Court, Denmark held that Danish legislation, in so far as it lays down an obligation to hold a work permit in certain circumstances, unless otherwise exempt, which obligation is applicable without discrimination on grounds of nationality, constitutes a restriction on the freedom of establishment enriched in Article 49 TFEU. However, the District Court found that the restriction was justified by overriding reasons in public interest, linked to the stability of Danish labour market and that it did not go beyond what was necessary in order to attain the objective pursued. According to that court, in view of the difference in salary levels between third-country nationals who are crew members of a vessel and Danish workers, the requirement of a work permit is an effective and appropriate means of avoiding disturbances on the national labour market.

VAS Shipping appealed against the judgment of the District Court to the High Court of Eastern Denmark. The referring court notes that the court has already ruled on the criteria in assessing the proportionality of the restrictions imposed on an employer as regards his or her choice of workers. It was not clear however whether the assessment can be applied to the circumstance of whether Danish legislation which, in certain circumstances, required employers from other Member States to employ workers who have a Danish work permit, complies with EU law, and more particularly with the freedom of establishment enriched in Article 49 TFEU.

The High Court of Eastern Denmark decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling: does Article 49 TFEU preclude legislation of a Member State which requires a thirdcountry crew member on a vessel flagged in a Member State and owned by a shipowner who is a national of another EU Member State to have a work permit, unless the vessel enters the port of a Member State on at most 25 occasions calculated continuously over the previous year?

It was noted that, freedom of establishment, which Article 49 TFEU grants to nationals of Member States and which includes the right for them to take up and pursue activities as selfemployed persons and to set up and manage undertakings, under the conditions laid down for its nationals by the law of the Member State where such establishment is effected, entails that companies or firms formed in accordance with the law of a Member State, have the right to exercise their activity in the Member State concerned.

The Court further analysed that the concept of ‘restriction’ within the meaning of Article 49 TFEU covers, in particular, measures which, even though they are applicable without discrimination on grounds of nationality, are liable to impede the exercise of freedom of establishment or render it less attractive.

Actual exercise of freedom of establishment entails, in particular, that an entity, agency or branch set up by a legal person established in another Member State must be able, where relevant, and if the activity which it proposes to carry out in the host Member State so required, to take on workers in that Member State.

Article 79(5) TFEU provides that Member States retain the right to determine volumes of admission of third-country nationals coming from third countries to their territory to seek work, whether employed or selfemployed.

The requirement that thirdcountry nationals hold a work permit for the purpose of employment in a Member State is a measure intended to regulate the conditions of access to work and to residence of third-country nationals on the national territory. Such an obligation enables the Member State to monitor the volumes of third-country nationals entering their territory with a view to seeking employment.

Based on the above considerations, the Court determined that legislation of a Member State applicable without distinction to all vessels flying the flag of that State, which lays down an obligation for all third-country nationals employed as crew members of such vessels to have a work permit, cannot be classified as a ‘restriction’ on the freedom of establishment within the meaning of Article 49 TFEU. The answer to the question which was referred, is that Article 49 TFEU must be interpreted as not to preclude legislation of a first Member State to provide that crew members who are third country nationals must hold a work permit in that first Member State.

1 The Treaty of the Functioning of the European Union.