C-279/00

2. Law No 196 regulates the activity of undertakings (service providers) which pro-

1 — Original language: German. 4. Failure to comply with the provisions of 2 — GURI No 154 of 4 July 1997, Supplement No 136/L. Article 2 of Law No 196 may lead to the

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application of a penalty in accordance with 7. The Commission claims that the Court Article 10, which refers back to Law should: No 1396 of 23 October I960. 3

(a) declare that, by requiring undertakings providing temporary labour which are 5. As the Commission considered the con- established in other Member States to: ditions described above to be incompatible with Articles 59 and 73b of the Treaty, it initiated the infringement procedure under Article 169 of the EC Treaty (now Article 226 EC) by letter to the Italian Government of 29 July 1998. The Italian Government replied by letter of 6 Novem- ber 1998, in which it sought to justify the — maintain their registered office or a Italian provisions at issue by reference to branch office on Italian territory; Articles 56 (now, after amendment, and Article 46 EC) and 66 (now Article 55 EC) of the EC Treaty on grounds of public policy, which, it argues, includes effective protection of employees' rights in respect of pay and social security contributions as against their actual employer, that is the undertaking providing temporary labour. — lodge a deposit of ITL 700 million as security with a credit institution having its registered office or a branch office on Italian territory,

(b) order the Commission to pay the costs. I I . Articles 59 and 73b of the EC Treaty read as follows:

9. In its rejoinder the Italian Government indicated that some of the provisions of Law No 196 which the Commission had criticised had been amended by Law No 388 of 23 December 2000 4 by adding 'Article 59 to both Article 2(2)(a) and Article 2(2)(c), in each case following the words 'registered office or branch office within the State's territory' or 'registered office or branch office on Italian territory', the phrase 'or in another Member State of the European Within the framework of the provisions set Union'. 5 In its view, the Commission's out below, restrictions on freedom to pro- complaints have therefore become to a vide services within the Community shall large extent redundant. In that respect, be progressively abolished during the tran- the Italian Government proposes that the sitional period in respect of nationals of Commission should discontinue the pro- Member States who are established in a ceedings, at least with regard to the first State of the Community other than that of complaint and the second part of the the person for whom the services are second complaint. intended.

10. The Commission did not accede to that proposal. No oral proceedings have taken The Council may, acting by a qualified place in this case. majority on a proposal from the Commis- sion, extend the provisions of this Chapter to nationals of a third country who provide 4 — GURI of 29 December 2000, serie generale No 302. services and who are established within the 5 — See Article 117(1) of the Law. Community.

The conditions required for carrying on the business mentioned in Paragraph 1 (place- ment of temporary labour) are the follow- ing: 1. The Commission

(a) First complaint: infringement of (a) Incorporation of the company, in Italy Article 59 of the EC Treaty in respect of or another Member State of the Euro- pean Union, as a company with share capital or as a co-operative under 6 — Emphasis added. Italian law or under that of another 7 — Emphasis added.

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(b) Second complaint: infringement of 13. It argues that the defence put forward Articles 59 and 73b of the EC Treaty with by the Italian authorities in the pre-liti- regard to the requirement to lodge a gation procedure on the basis of Articles 56 deposit (first part of the complaint) as a and 66 of the EC Treaty is misconceived. security with a credit institution having its Those derogating rules constituted by registered office or a branch office on the special provisions for foreigners, dictated national territory (second part of the com- by reasons relating to public order, public plaint) security and public health, are to be narrowly construed. According to the Court's consistent case-law, 10 recourse to the concept of 'public policy' presupposes a genuine and sufficiently serious risk affect- ing one of the fundamental interests of society. The fact that firms from other 14. The Commission's objection from the Member States engaging in the provision of point of view of Community law to the temporary labour are operating from the requirement to lodge a deposit of ITL 700 million as a security with a credit institu- tion having its registered office or a branch 8 — Case 279/80 Webb [1981] ECR 3305. office on Italian territory is directed, on the 9 — Case 205/84 Commission v Germany [1986] ECR 3755. one hand, to the unconditional nature of 10 —Case 30/77 Boucbereau [1977] ECR 1999, at the requirement as such and, on the other paragraph 35; Case C-350/96 Clean Car Service [1998] ECR I-2521, at paragraph 40; Case C-348/96 Calfa hand, to the place of the deposit, that is, a [1999] ECR I-11, at paragraph 21 and Case C-335/98 Commission v Belgium [2000] ECR I-1221. bank with a branch office in Italy.

(aa) First part of the complaint provider is established. Given the absolute and mandatory nature of the requirement to lodge a deposit as a security in accord- ance with Article 2(c) of Law No 196, there is no scope for such an examination. An undertaking providing services must there- 15. The requirement to lodge a deposit as a fore in certain cases provide a guarantee security constitutes a provision which twice over. The Italian provision must applies without distinction to all undertak- therefore be regarded as an impediment ings providing temporary labour. Basing for the purposes of Article 59 of the EC itself on the case-law of the Court 11 the Treaty. Moreover, the provision of a Commission argues that Article 59 of the deposit as a security, required, in other EC Treaty requires not only the elimination Member States, to cover debts arising there of all discrimination on grounds of in respect of wages or salaries and of social nationality against providers of services security contributions is comparable with who are established in another Member the provision required by Article 2(2) of State, but also the abolition of all restric- Law No 196, since those claims are of the tions which are liable to prohibit, impede same kind as those which arise with respect or render less advantageous their activities. to Italian social insurance bodies. In its submission, the requirement to lodge a deposit as a security is clearly such an obstacle. Accordingly, it must be con- sidered whether or not that requirement can be justified. As a matter of principle, it may be justified by overriding requirements (bb) Second part of the complaint relating to the public interest and also only in so far as that interest is not already safeguarded by provisions of national law in the Member State in which the service provider is established.12 17. Finally, as regards the requirement that credit institutions establish a branch office in Italy, with which deposits can validly be lodged as security for the purposes of Article 2(2)(c) of Law No 196, the Com- 16. According to the Commission, the mission contends that it infringes both the protection of workers is one of the over- principles of free movement of capital as riding requirements relating to the public provided by Article 73b of the EC Treaty interest already recognised by the Court. and also the freedom to provide services as Nevertheless, it must be examined whether provided by Article 59 of the EC Treaty. In that interest does not enjoy comparable support of that contention, it cites the protection under the provisions of national Court's judgment in Svensson.13 The prin- law in the State in which the service ciples applied there must apply a fortiori in the present case. Whereas in Svensson obtaining a loan in another Member State 11 — Case C-76/90 Säger [1991] ECR I-4221, at paragraph 12; was rendered more difficult, in the present Joined Cases C-369/96 and C-376/96 Arblade and Others [1999] ECR I-8453, at paragraph 33. 12 — Arblade and Others, cited in footnote 11, above, at paragraph 34. 13 — Case C-484/93 Svensson [1995] ECR I-3955.

(a) The first complaint

21. In view of the fact that the infringement of workers' rights is generally concerned with relatively small sums of money which 19. The main argument which the Italian have not been paid (remuneration and Government employs to justify the provi- social security contributions), a worker sion complained of is the need to have an bringing proceedings before the courts of another Member State faces costs which

14 — Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty (OJ 1988 L 178, p. 5). 15 — Footnote 8, above, at paragraph 18.

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are as high as or exceed the sums claimed. guarantees issued to secure the former The costs of proceedings in another claims are therefore not fully comparable. Member State are such that the worker, the weakest link in the chain of production, will in all possibility be dissuaded from bringing a claim, so that the possibility of legal action is stripped of all practical 24. Moreover, the Italian Government sub- effect. Since there has not yet been any mits, the amount of the deposit lodged as harmonisation in this area at Community security has been objectively limited, so level, it has up to now also been impossible that no breach of the principle of propor- to rely on a form of cooperation between tionality can be alleged. the Member States in order to guarantee the necessary controls and remedies.

27. According to information in the pos- the period allowed for replying to the session of the Italian Government, such a reasoned opinion. 16 It would have been financial guarantee is somewhat rare. In the for the Commission to discontinue the United Kingdom, Denmark, Finland and proceedings to the extent that the Italian Switzerland authorisation to carry on the Republic had satisfied its demands. business in question is not conditional on the provision of a guarantee. In other Member States which do require the lodg- ing of a deposit as security, for example, France, Germany, Spain and Portugal, the methods of calculating it are different, so 29. Although the Italian Republic has that only with difficulty can they be com- changed the legislative situation and pared with one another. For example, in thereby eliminated two important grounds France, the amount of the financial guar- of complaint, it cannot be assumed that it antee must be no less than one per cent of has accepted the Commission's argument. net turnover and must not fall below an Rather, in its rejoinder, it draws attention amount set by ministerial order. In Ger- to the fact that it still contends the appli- many the undertaking must provide a cation should be dismissed, principally of guarantee of DEM 4 000 per worker. In course with regard to the first part of the Spain a guarantee must be provided which second complaint. Therefore it must be represents 25 times the annual minimum considered to what extent the Commis- wage. Thus only with difficulty can both sion's complaints are justified. the financial guarantee and the claims thereby secured be compared.

which according to settled case-law, 17 32. Outstanding wages and salaries, on the constitutes a de facto negation of the one hand, and social security contributions freedom. Through the requirement of a on the other must be kept separate when permanent establishment in order to take considering the possibility of recovering up an economic activity in a Member State, them through action in the courts. With the Treaty provision establishing the prin- regard to outstanding wages and salaries ciple of freedom to provide services is the worker is the creditor, whereas the deprived of all effectiveness, a provision employer owes the duty to make social the very purpose of which is to abolish the security contributions to the social insur- restrictions on the freedom to provide ance institutions. The latter are without a services for those persons who are not doubt a stronger potential opponent in established in that State. 18 As the Court court proceedings. stated in its judgment in Case 205/84, if such a requirement is to be accepted it must be shown that it 'constitutes a condition which is indispensable for attaining the objective pursued'. 19

The Italian Government puts forward both worker protection with regard to the possible non-payment of the wage and salary entitlements of the workers supplied and the corresponding duty to make deductions vis-à-vis the social 34. It may be true that, in the abstract, it is insurance institutions. In this context the no more difficult to pursue a legal claim in Italian Government gives prominence to another Member State. As the Italian the greater difficulties in pursuing legal Government expressly makes clear, how- claims. ever, the reason for the provision at issue is not mistrust of the courts of other Member States, but the resources of the workers 17 — See Case 205/84 Commission v Germany, footnote 9,

European Parliament and of the Council of 16 December 20 — See, for e x a m p l e , Webb, footnote 8, a b o v e , at 1996 concerning the posting of workers in the framework paragraphs 18 and 19; Case C-272/94 Guiol ( 1996) of the provision of services (OJ 1997 L 18, p. 1); it deals ECR I-1905, at paragraph 16; Arblade, footnote 11, with matters of jurisdiction and provides that: 'judicial above, at paragraph 36 and Case C-288/89 Gouda [1991) proceedings may be instituted in the Member State in ECR I-4007, at paragraph 14, with further references. whose territory the worker is .

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ment rightly points out — generally not a an 'indispensable condition', 22 such that question of very large sums of money, there the freedom to provide services in this is a particular risk that the cost of bringing industry is negated. Therefore a test of a legal action will be disproportionately proportionality must be applied, to com- high. pare the means used with the aim to be achieved. The accessibility of the employer as a defendant is clearly made easier when the undertaking maintains an establishment in the State of employment. This is, how- ever, not the only possibility for satisfying claims for wages and salaries and the corresponding social insurance obligations. 35. Despite the internationalisation of the In this respect it is conceivable that secur- legal profession, it is also in general more ities can be provided, as indeed Law No 196 expensive to pursue a claim abroad in also demands. In this way assets are created Europe than a claim where there is no in the State of employment which are foreign element. A correspondence lawyer designed to secure the satisfaction of claims must be engaged (who will also charge and against which if necessary judgment fees), there are language barriers, which can be executed. The link between the can in certain circumstances only be over- claim and recourse to the securities pro- come by arranging for translations, with vides an adequate remedy. Should this not their attendant costs, research must in already be the case, 23 the worker could be certain cases be done about the legal system given a remedy in the place of his employ- in another Member State, etc. Even access ment, so that the employer has to bear the to trade union representation, referred to potential burdens of cross-border provision by the Commission, which exists in Bel- of services. It would also, for example, be gium and France is not straightforward for conceivable that the worker claiming his a worker resident in Italy who is claiming pay could make his claim to the authority payment of his wages. responsible for the registration of the undertaking. The details of how a claim could be made is a matter for the Member State.

41. The requirement to lodge a deposit of ITL 700 million as security is certainly in itself liable to be an obstacle to the freedom 2. The second complaint to provide services. Nevertheless the free- dom to provide services may according to settled case-law 26 be restricted by rules 'justified by overriding requirements relat- (a) The first part of the complaint ing to the public interest and applicable to all persons and undertakings operating in the territory of the State where the service is provided, in so far as that interest is not safeguarded by the rules to which the provider of such a service is subject in the 39. The first part of the second complaint Member State where he is established.' 27 relates to the requirement to lodge a guarantee amounting to ITL 700 million. As expressly pointed out by the Commis- sion, it is directed neither to the actual requirement to lodge a guarantee nor to the 42. That worker protection, as pleaded by amount of the required guarantee. It criti- the Italian Government, has been cises only the fact that according to the repeatedly recognised by the Court 28 as provision at issue it is not possible to take an overriding requirement relating to the into account comparable security, which an public interest has already been made clear undertaking supplying temporary labour above. 29 Nevertheless, it must further be may in a particular case have had to considered whether this interest is not provide in another Member State.

24 — In support of the view that the requirement to lodge a guarantee can he in conformity with Community law, see Case C-114/97 Commission v Spain [1998] ECR I-6717, at paragraph 47. 25 — Arblade, footnote 11, above, at paragraph 33, with further 40. The requirement to lodge a deposit as references. security applies equally to domestic and 26 — Ibid., at paragraph 34, with further references. 27 — Ibid., at paragraph 34. foreign service providers. In Community- 28 — See the case-law cited in footnote 20. law terms it is therefore only problematic if 29 — See above, point 31.

45. What is important, therefore, is that any guarantees lodged in other Member 44. In so far as the claims to be secured are States serve the purpose of securing wage those relating to matters of worker pro- and salary claims and the social charges tection, these are, on the one hand, claims falling due. If this should be the case, then for wages and salaries, and on the other, there is clearly a case of provisions intended social security contributions in their widest to safeguard the same interest. sense. 31 Whilst payments of wages and salaries are to be made to the workers 32 — See Directive 96/71/EC, footnote 21, above, Article 1(3)(c) of which applies the directive to undertakings which 'being a temporary employment undertaking or placement 30 — See Arblade, footnote 11, above, at paragraph 39, with agency, hire out a worker to a user undertaking established further references. or operating in the territory of a Member State, provided 31 — See Guiot, footnote 20, above, which concerned the there is an employment relationship between the tempor- payment of employer contributions in respect of loyalty ary employment undertaking or placement agency and the and bad-weather stamps. worker during the period of posting.'

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46. The Italian Government has also raised into account. To the extent that Law the argument that the methods of calcu- No 196 precludes this it is incompatible lation of and the detailed rules governing with the freedom to provide services within the guarantees demanded in other Member the meaning of Article 59 of the EC Treaty. States differ so fundamentally from those in Italy that they are not comparable. This is a question requiring the examination of cir- cumstances which differ in the legal sys- tems of the various Member States.

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51. Article 67 of the EC Treaty originally this respect to serve as an aid to inter- provided for a programme according to pretation. which all restrictions on the movements of capital were to be progressively abol- ished. 34 The abolition of the restrictions was to be effected by means of directives adopted on the basis of Article 69 of the EC Treaty. 35 Council Directive 88/361 of 24 June 1988 for the implementation of 53. At the time, therefore, when the law at Article 67 of the Treaty 36 is one such issue in this case, Law No 196, was directive. enacted, the liberalisation of capital move- ments had already taken place. According to the Nomenclature for capital movements contained in Annex I to Directive 88/361, which classifies the capital movements covered by that directive, 'sureties, other guarantees and rights of pledge' granted by non-residents to residents and vice versa are covered under its heading number IX. 52. As a result of the Maastricht Treaty, Deposits lodged as a security under new provisions on capital and payments Article 2(2)(c) of Law No 196 must there- were introduced with effect from 1 January fore be regarded as 'liberalised capital 1994, which led to the repeal of the original movements', so that it must be established Articles 67 to 73 of the EC Treaty. It can be whether the requirement that the credit assumed that initially movements of capital institutions at which the deposit may be were liberalised at the level of secondary lodged must have an establishment within law by means of Directive 88/361. The the Member State entails an unlawful content of that provision was substantially restriction on capital movements. The incorporated into Articles 73b to 73g of the requirement of establishment in any event EC Treaty which, following renumbering has a restrictive effect, since it prevents a according to the Treaty of Amsterdam, provider of temporary labour from lodging became Articles 56 EC to 60 EC. Thus in a deposit as security with a bank estab- the meantime the liberalisation of capital lished in another Member State, in order to movements has been effected at the level of obtain the necessary licence for operating private law. Directive 88/361 continues in on Italian territory.

56. What matters here is that a security be 59. Reliance on worker protection is there- furnished and that a judicial remedy be fore not an appropriate justification for the available for any workers whose rights may requirement that credit institutions with have been infringed to pursue their claims. which effective security may be lodged The location of the bank where the security must have an establishment on Italian has been lodged is, however, not decisive territory. for that purpose, since a worker will not pursue his claim directly against the bank. Rather he must have the possibility of obtaining a binding determination of his entitlement before any recourse can be had to the security. The problems for any 60. Finally, reference should be made once workers who may have suffered damage again to the judgment in Svensson. The lie therefore at a different level. Only at an Commission rightly argues that the prin- advanced stage of the proceedings, should ciples elaborated in that judgment fall to be it come to enforcement of their rights, does applied 'a fortiori' in the present case. On recourse to the guarantees play any role. the one hand, the judgment in Svensson was given still on the basis of Article 67, whereas now the liberalisation of capital movements under the Treaty is to be presumed. On the other hand, the appli- cants in that case were able, in principle, to 57. Since the lodging of a deposit as take advantage of the services provided by security must be proven to the competent banks established in other Member States. authorities, it may be that they too must They 'only' could not benefit from the provide assistance to the workers in the interest rate subsidy at issue in the case. In event that it proves necessary to execute the present case the restriction is signifi- judgment against the security. Such a cantly more far-reaching. Under procedure would in any event be an Article 2(2)(c) of Law No 196 the possi- effective solution for the purposes of bility of taking advantage of the service worker protection, without restricting, in provided by banks established in other this absolute form, on the one hand, the Member States is wholly excluded. As a

(1) By requiring undertakings providing temporary labour which are established in other Member States to

— maintain their registered office or a branch office on Italian territory, and

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— lodge a deposit amounting to ITL 700 million as security with a credit institution having its registered office or a branch office on Italian territory,

the Italian Republic has failed to comply with its obligations under Article 59 of the EC Treaty (now, after amendment, Article 49 EC) and Article 73b of the EC Treaty (now Article 56 EC).