The EU is still facing a difficult market situation, even though the economic rebound in Europe is proceeding. There is a long way to go to achieve the Commission’s European 2020 Agenda to get 75 percent of the working-age population (20-64 years old) into employment.
In 2016, some of the main issues regarding employment law that the EU had to deal with were:
• the Brexit referendum,
• the General Data Protection Regulation,
• EU-US Privacy Shield and
• the different development of the labor market situation in the Member States.
Among other things, these topics will continue to require the EU’s attention in 2017. The EU Commission Work Programme for 2017 contains 21 key initiatives, including a Youth Initiative, an Action Plan on the implementation of the Circular Economy and a new Multi-annual financial framework in order to boost jobs, growth and investment. With special regard to employment and labor law its major initiative in 2017 will be a proposal for a “European Pillar of Social Rights built on social fairness”. Then the Commission also intends to push ahead with the proposed changes to the Posting of Workers Directive, which is at the center of controversial discussions between Western governments and those in CEE, review the EWC Directive and the Working Time Directive.
Therefore, it is time to illuminate some of these topics and their effect on the EU’s de-velopment for 2017.
Economic Situation/Labor Market Developments in the EU
Overall, the EU economy continues to report positive growth. The trend is towards leav-ing the economic crisis behind, although there are clear differences in some respects within the EU – due to the heterogeneous situation in terms of foreign trade and politics. The EU achieved a general plus of +0.4 percent in the second quarter of 2016. Overall, the European Commission expects slight economic growth (+1.8 percent) for 2016 and forecasts growth of +1.9 percent for 2017.
This development is also reflected on the labor market. Except for Romania (-1.1 percent), Latvia (-0.5 percent) and Luxembourg (-0.4 percent), all European Member States report an increasing number of gainfully employed individuals in the second quarter of 2016. Consequently, the rate of gainfully employed individuals was 67 percent for 15 to 64-year-old individuals and thus one percentage point above the figure of the same quarter in the previous year. This trend is expected to continue. On the reference date of the second quarter of 2016, the EU was still four percentage points away from the rate of gainfully employed individuals (20-64 years old) of 75 percent targeted in Agenda 2020. Nevertheless, the unemployment rate in the EU was still at 8.6 percent in August 2016. This means in absolute figures that about 21 million men and women were unemployed at this time. In this respect, Greece reports the highest unemployment rate (23.2 percent) in July 2016, whereas the Czech Republic has the lowest unemployment rate (3.9 percent). As a rule, one can say that there is a north-south divide with regard to unemployment. These observations can also be applied to the unemployment rate of young people (15-25 years old), it being a positive develop-ment that the overall unemployment is declining.
Development in Specific European Countries
The German real economy has grown considerably in the first half of 2016, +0.7 percent in the first quarter and +0.4 percent in the second quarter. It is anticipated that 2.62 million individuals (some 6,5 percent) will be unemployed in 2017 on average, ac-cording to the published forecast of the German Institute for Employment Research (IAB). This would be around 70,000 fewer than in 2016. In its forecast, the IAB expects the real gross domestic product to grow by +1.8 percent in 2016 and by +1.3 percent in 2017. This development is to be understood as positive, primarily in view of the conse-quences of the Brexit decision, the (un-)stability of the European banking sector and the problems with the financial market and the economy in some newly industrialized coun-tries. This development is reflected by the increase of the statutory minimum wage. Two years after the introduction of the Minimum Wage Act in Germany, the government follows the recommendation of the Minimum Wage Commission and will increase the minimum wage from EUR 8.50 to EUR 8.84 per hour, effective as of January 2017.
Spain, one of the losers of the economic crisis, continues its positive growth, the growth of its gross domestic product in the second quarter of 2016 continuing to be +0.8 percent. Spain’s growth thus continues to be above the European average. The rate of the gainfully employed individuals having improved by +2.3 percent in the second quarter of 2016 compared to the same quarter of the previous year, Spain ranks among the top ten in the EU. This shows that the comprehensive reforms in Spain are crowned with success. Despite this positive development, the unemployment rate in Au-gust 2016 is still at 19.5 percent and thus the second highest unemployment rate, direct-ly behind that of Greece. Compared to the previous year, however, this is a decline of -2.1 percent.
In Hungary, the economy also made a positive development in the second quarter of 2016. It increased by +1.0 percent compared to the first quarter of 2016. Since its rate of gainfully employed individuals has increased by +3.3 percent compared to the same quarter of the previous year, Hungary is at the forefront of the EU in this regard be-cause, on average, the rate of gainfully employed individuals within the EU improved only by +1.6 percent compared to the same quarter of the previous year. This means that the general rate of gainfully employed individuals in Hungary is 66.4 percent. This means that 4,303,000 people were gainfully employed in Hungary in the second quarter of 2016.
UK Decision on “Brexit”
On 23 June 2016, 51.9 percent of the British people voted in favor of the withdrawal of the United Kingdom from the EU. In this referendum, England and Wales voted for “leave” and Scotland, Greater London and Northern Ireland voted for “stay.” This result does not constitute a formal step towards withdrawal proceedings, according to Arti-cle 50 of the Treaty on European Union (TEU), since it can be legally challenged in court. On 3 November 2016, the High Court in London ruled that only parliament – not the prime minister – can authorize the signing of Artivle 50 TEU. The government has announced that it is going to appeal the judgment. Nevertheless it requires the UK to notify the EU of its withdrawal and this also means that Article 50 TEU is probably triggered before end of March 2017 and the UK would be out of the EU by March 2019. During this two-year period, the EU can negotiate and conclude an agreement with the UK. If this is not done, the treaties will cease to apply by March 2019. This said, there is a wide range of possible outcomes, each having its own effects on the labor market in the EU as well as in the UK.
The options are:
• “Nexit” option – The UK never leaves the EU
• “Norway” option (also called “soft Brexit”) – European Economic Area (EEA) membership including the four freedoms (single/internal market, free movement of people), EU employment law, but no vote on new EU laws
• “Switzerland” option – EFTA member but not EEA member; bespoke agreement with partial participation in the single market
• “Canada” CETA option – bespoke agreement with the EU outside the single market; no pre-entry visa requirement, ILO core labor standards
• Reverting to WTO rules for future trade arrangements, including the imposition of tariffs
• “Hard Brexit” – no agreement with the EU
Now it is up to the Negotiating Committee to find a solution. However, after Brexit Day, new EU laws will – due to the “Great Repeal Act” – no longer apply and the UK Parliament will be free to change existing legislation and make new legislation with no regard to – for example – European employment legislation. With regard to employment rights, Prime Minister, Theresa May said “And let me be absolutely clear: existing workers’ legal rights will continue to be guaranteed in law – and the will be guaranteed as long as I am Prime Minister.”
The impact on the companies and their employees will depend on the agreement that is reached. Employees who would like to work beyond the border would possibly have to apply for a visa in the UK, or British employees would have to apply for a “blue card” to work in the EU. However, it is not likely that there will be profound changes regarding employment and labor law, since large parts of employment law are subject to national legislation. HOWEVER, there could be legal challenges regarding the Acquired Rights Directive (TUPE) and the Working Time Directive. Other areas of law that could be reviewed – and would probably not improve workers’ rights – are temp agency workers, holiday pay calculation and working time.
Two other big challenges will be the EWC Directive and in connection to that the legal basis for the SE (Societas Europaea) and the transfer of employee data. If no agreement regarding these topics can be reached, the SE would not have any legal basis in the UK and British employees would no longer be able to be involved in a European works council (EWC). If that is the case, EWCs cannot be legally based in the UK.
Without being a member of the EU, Great Britain will no longer come under the scope of application of EU data privacy protection law – especially the new General Data Pro-tection Regulation and the Data Protection Directive. Great Britain would have to pro-vide evidence of a “reasonable (level of) data protection.”
In fact, the “Brexit” is coming, and in the course of 2017 the EU will have to cope with many challenges in order to stabilize the economic system, to negotiate an agreement that will not encourage other countries to leave the EU and to deal with the expected high number of multinational companies (especially financial institutes) that will relocate their registered offices to continental Europe. Experts predict that many banks are preparing to relocate out of the UK in the first months of 2017 amid growing fears over the impending Brexit negotiations.
EU-U.S. Privacy Shield
After the ECJ struck down the safe harbor principle in October 2015, companies needed to ensure that transatlantic data transfer was based on a valid legal basis. The EU and the U.S. government worked hard to find a replacement. In February 2016, the U.S. De-partment of Commerce and the EU Commission announced the – so called – EU-U.S. Privacy Shield. This framework is supposed to comply with EU data protection re-quirements and is deemed to fulfill the requirements for an “adequate level of protec-tion” of personal data. Material features of this framework are stronger obligations with regard to EU citizens’ personal data, more transparency obligations and stricter stand-ards for U.S. government agency access and a new appeal and compliant resolution mechanism for EU citizens, including a U.S. ombudsman and a Privacy Shield Panel. Despite the fact that the Article 29 Data Protection Working Party had some concerns about the framework, on 12 July 2016 the EU Commission deemed the EU-U.S. Privacy Shield framework adequate to enable data transfer between the EU and the U.S. This framework now constitutes another legal basis, in addition to other proper instruments (Binding Corporate Rules, EU Standard Contractual Clauses and Consent). Transatlantic data transfer will continue to be of importance in 2017 since the EU Standard Contractual Clauses are on trial by national data protection authorities, and the consent of each employee can be revoked any time. In order to facilitate the implementation of the Privacy Shield some data protection authorities issued the first guidance (North Rhine-Westphalia Data Protection Authority in Germany being among one of the first). But as critics predicted, the European General Court is now called to rule on the EU-U.S. Privacy Shield, since privacy rights organizations in Ireland and France have filed the first legal challenges against the new framework asking for annulment and arguing that it does not provide an adequate level of protection as is required under EU data privacy laws. They claim that the restrictions on U.S. surveillance activities are inadequate and the U.S. ombudsman would not be an effective institution to deal with the citizens’ complaints. If the Court does not declare those actions inadmissible, the court proceedings are likely to take at least one year and after that an appeal to the ECJ would still be possible. A spokesperson of the European Commission said that they were aware of those challenges. However, they are convinced that the EU-U.S. Privacy Shield will live up to the high standards set by the ECJ when the safe harbor principle was struck down. Nevertheless, many multinational companies which rely on the transatlantic data transfer – including Microsoft, Google and Adobe – have already signed up to the EU-U.S. Privacy Shield.
General Data Privacy Regulation (GDPR)
After long and intense negotiations among the European Commission, European Coun-cil and the European Parliament, the data protection package – consisting of the General Data Protection Regulation and Data Protection Directive – was formally adopted by the European Parliament on 14 April 2016. The GDPR entered into force 20 days after its publication and will be directly applicable in all Member States from 25 May 2018. The EU Member States have to transpose the Data Protection Directive into national law by 6 May 2018. This package repeals the current legal framework (Directive 95/46/EC) and is supposed to adapt to changes resulting from globalization and technological advance. True to its nature as a regulation, the GDPR creates coherent rules for the entire EU. The Member States have no way to deviate from the rules on data protection. The regulation is applicable to any company – not just those based in the EU. Infringements of the provisions set out in the regulation will be penalized with administrative fines up to EUR 20 million or 4 percent of the total worldwide turnover.
In 2017 multinational companies should use the time to build new structures and review all processes regarding data protection in order to meet the requirements of the GDPR. The Article 29 Working Party said that it would release an initial guidance on enforce-ment, privacy officer and data portability provisions before the end of 2016.
European Pillar of Social Rights
In 2015 President of the European Commission, Jean-Claude Juncker said that the EU had to step up the work for a fair and truly pan-European labor market. As part of these efforts the EU should develop a European Pillar of Social Rights. The idea for this framework is based on the far-reaching consequences of the economic crisis, an ageing society and the changes in the world of work. This initiative focusses on three main chapters:
• Equal opportunities and access to the labor market
Skills development, life-long learning and active support for employment, gender equality and work-life balance
• Fair working conditions
Setting an adequate and reliable balance of rights and obligations between workers and employers, as well as between flexibility and security elements
• Adequate and sustainable social protection and access to high quality essential services
Childcare, healthcare, long-term care, minimum income, pensions
The EU Commission started a consultation process with the national authorities, social partners, citizens and civil society in 2016 in order to finalize a draft for the conference in January 2017 where the results of the public consultation will be brought together. The outcome of this process – the reference framework – should then be used to move towards a deeper and fairer Economic and Monetary Union.
Authored by Gerlind Wisskirchen
Compliments of CMS – a member of the EACCNY