Menelaos Markakis

DPhil Candidate, University of Oxford; Researcher, Erasmus University of Rotterdam.

The AGET Iraklis case, despite its legal and political importance, has not received adequate attention from scholars or the public. Overshadowed by events like the UK referendum on EU membership and significant court rulings on data retention and trade agreements, the Grand Chamber judgment in this case, delivered on December 21, 2016, highlights the complex interplay between fundamental economic freedoms and collective labor rights.

Background to the case

AGET Iraklis, a cement production company with three plants in Greece, decided to restructure its operations and shut down one plant. Greek Law No 1387/1983 mandates ministerial authorization for collective redundancies, granting the Minister of Labor the power to refuse authorization based on factors like labor market conditions, the company’s situation, and national economic interests. AGET Iraklis’s request for authorization to proceed with collective redundancies was denied.

The company challenged the law, arguing its incompatibility with Council Directive 98/59/EC on collective redundancies and Articles 49 (freedom of establishment) and 63 (free movement of capital) of the TFEU. The Greek Council of State referred the question of the law’s validity to the Court of Justice of the European Union (CJEU), asking whether it infringed on these rules and if any justification, such as an economic crisis and high unemployment, could permit it.

The compatibility of the impugned national law with Council Directive 98/59/EC

The CJEU stated that Directive 98/59 does not inherently prevent a national system that gives a public authority the power to block collective redundancies based on a reasoned decision after reviewing relevant documents and considering predetermined criteria. The Directive primarily outlines procedures for such dismissals and allows member states to implement more worker-friendly regulations. However, the Court noted this could change if, due to specific rules or implementation by the public authority, the national system renders Articles 2 to 4 of Directive 98/59 ineffective. This would occur if national legislation requiring prior consent for collective redundancies from a public authority effectively prevents employers from carrying them out, for instance, due to the criteria used for decision-making.

The Court emphasized that Council Directive 98/59/EC operates under the assumption that collective redundancies remain a possibility, even if consultations fail to reach an agreement. However, AGET Iraklis claimed that Greek authorities consistently opposed proposed collective redundancies. The CJEU tasked the referring court with determining whether the Directive was rendered ineffective due to the three assessment criteria and their application by the public authority.

Freedom of establishment and Article 16 of the Charter

The CJEU then analyzed the national law’s compatibility with Article 49 TFEU (freedom of establishment). The Court recognized that such national measures significantly impact economic operators’ freedoms, making market entry less attractive and hindering the ability of companies from other member states to adjust or cease operations in that market, including workforce reductions. This, the Court argued, could significantly hinder the freedom of establishment in Greece, especially considering AGET Iraklis’s foreign investment. As the national law potentially restricted a fundamental economic freedom, Article 16 of the Charter (freedom to conduct a business) also came into play.

The CJEU conceded that overriding public interest requirements, like worker protection or employment promotion, could justify such restrictions. Notably, the Court delved into the social policy goals of the EU Treaties, discussing Articles 3(3) TEU, 151 TFEU, 147 TFEU, and 9 TFEU. It acknowledged the broad discretion given to member states in selecting measures to achieve social policy objectives.

However, the CJEU stated that a national system requiring notification of planned collective redundancies to a national authority for review and potential opposition based on worker and employment protection does not necessarily violate Article 49 TFEU or Article 16 of the Charter. The freedom to conduct a business is not absolute and needs to be viewed within its social context. The Court drew parallels between the language of Article 16 of the Charter and provisions in Title IV (Solidarity) of the Charter, emphasizing that public authorities can intervene in various ways to regulate economic activity in the public interest. The Court briefly addressed and dismissed the Alemo-Herron case, where it had ruled against the UK’s application of the Directive on acquired rights of workers. It held that a system not designed to completely prevent collective redundancies, but rather to regulate them, doesn’t infringe upon the essence of the freedom to conduct a business.

The Court also highlighted Article 52(1) of the EU Charter, which permits limitations only if they are necessary and address objectives of general interest acknowledged by the Union or protect the rights and freedoms of others. This includes the right to protection against unjustified dismissal as stated in Article 30 of the Charter, in accordance with EU and national laws. Consequently, a regulatory national system must balance worker and employment protection interests, particularly regarding unjustified dismissal and the impact of collective redundancies, with the freedom of establishment and the right of economic operators to conduct business as enshrined in Articles 49 TFEU and 16 of the Charter.

The CJEU argued that such a system, particularly in the absence of EU laws preventing such redundancies beyond the scope of information and consultation covered by Directive 98/59, could offer a higher level of worker and employment protection. By setting substantive rules for companies making such economic and commercial decisions, it becomes a tool for enhancing worker protection. The Court considered such a system appropriate for achieving the public interest objectives. Given the flexibility afforded to member states in pursuing social policies, they could deem such a system necessary for enhanced worker and employment protection. The CJEU did not find any less restrictive measures that could achieve these objectives as effectively as establishing such a framework. Thus, the Court concluded that, in principle, such a system satisfies the proportionality principle and aligns with Articles 49 TFEU and 16 ECFR.

However, concerning the specific characteristics of the national measure in question, the CJEU found the criteria used by the national authority to assess planned redundancies (namely, ’labor market conditions’ and ’the situation of the undertaking’) to be overly broad and imprecise. The lack of clarity regarding the circumstances under which these powers could be used creates uncertainty for employers, leaving them unaware of the specific objective situations where the law might be applied. These numerous, undefined, and unpredictable scenarios grant the authority wide-ranging and difficult-to-review discretion.

Such imprecise criteria, not based on objective, verifiable conditions, exceed what is necessary to achieve the stated goals and fail to meet the proportionality principle’s requirements. Additionally, the legislation doesn’t provide national courts with sufficiently clear criteria to review how the administrative authority exercises its discretion. Consequently, the Court declared the system incompatible with the requirements of Articles 49 TFEU and 16 ECFR due to its specific rules.

The Court dismissed the argument that the measure could be justified by serious social reasons, like an economic crisis and high unemployment. Regarding Council Directive 98/59/EC, member states are not allowed to render its provisions ineffective, as the directive lacks a safeguard clause permitting derogation from its harmonizing provisions during such situations. The EU Treaties and relevant case law also don’t provide for exceptions in such circumstances. Therefore, the specific context of the Greek crisis did not impact the Court’s finding of incompatibility between the national law and Articles 49 TFEU and 16 ECFR.

Analysis

This commentary expands on the previous post about the AG opinion. The focus here is on aspects not covered in the previous analysis.

The Greek Government and the Quadriga (formerly the Troika) awaited this judgment with significant interest, as it coincided with the second review of the ongoing financial assistance program, which focused on labor market reforms. The Greek Government faced pressure to limit or modify the Minister of Labor’s authority over mass layoffs. What implications does the preliminary ruling in AGET Iraklis have in this context?

The CJEU concluded that the national law might not necessarily conflict with Council Directive 98/59/EC. The referring court has the option to uphold the law by determining that the criteria outlined in it and applied by the Minister of Labor do not undermine the Directive’s effectiveness. This hinges on whether the Greek authorities systematically opposed collective redundancies, as AGET Iraklis argued. Whether the Greek Council of State will find the law compatible with the Directive remains to be seen. However, this point might become irrelevant due to reasons explained below.

Concerning the law’s compatibility with Articles 49 TFEU and 16 ECFR, the situation is more complex for Greece. The CJEU essentially instructed the Greek authorities to develop a new system with clearer criteria for national authorities, based on objective and judicially reviewable conditions. However, the Court refrained from providing specific guidance on this new system, likely to respect the broad discretion generally afforded to national authorities in this sensitive area. AG Wahl, in his opinion, had suggested an alternative: “An alternative might have consisted in listing the types of dismissals considered to be unjustified, as in the case of the list which appears in paragraph 3 of the section of the Appendix to the Social Charter relating to Article 24 thereof”. This could indeed be a viable option.

However, it is crucial to acknowledge that this new law will be developed by the Greek authorities in collaboration with the European Commission, the ECB, the IMF, and the ESM. Therefore, the broad discretion typically enjoyed by Greece might be indirectly limited. This observation is not meant as criticism of the Court’s reasoning, but rather a dose of realism. Without clear guidance from the CJEU on the new system’s structure, the Greek authorities may face pressure from lenders to prioritize labor market “flexibility.” This pressure stems from the Troika’s significant influence, as the release of further loan installments depends on the successful completion of program reviews.

Therefore, there are two perspectives on the AGET Iraklis judgment. The Greek Government might emphasize in its negotiations with the Troika that the national law is not inherently incompatible with EU law, and that complete annulment is unnecessary. Instead, adjustments to align the provisions with the EU acquis would suffice. Conversely, the Troika might argue that EU law does not mandate such a protective regime for workers, suggesting its potential abolition. Considering the unequal bargaining power between a financially vulnerable state and its lenders, Greece might be pressured to relax collective redundancy requirements. This pressure is amplified by the fact that the second program review’s success is tied to debt relief for Greece and its participation in the ECB’s quantitative easing program.

This judgment does not represent a Viking/Laval moment for the CJEU, as it carefully considered the opposing arguments and delivered a balanced judgment. It is not the Court’s responsibility to mediate an agreement between Greece and its creditors, as its role is to interpret and rule on EU law. The responsibility now lies with the referring court and the negotiating parties to find a solution that unlocks essential funding for the Greek economy while safeguarding workers’ interests.

Barnard & Peers: chapter 9, chapter 20

Photo: AGET Heracles cement factory

Photo credit: Greekreporter.com