The coordination of social security in Europe – impact of economic crisis
and high levels of unemployment
seminar 2 October 2013
All Hallows College, Dublin
- Findings of the trESS analytic (Think Tank) study 2012 Presentation by
Professor Dr. Maximilian Fuchs
I. Preliminary remarks
Before I turn your attention to the trESS analytical study 2012 on the coordination of
unemployment benefits I would like to make some preliminary remarks. We all know that the
coordination of social security laid down in Reg. no. 3 adopted in 1958 was considered as an
indispensable annex to the provisions on freedom of movement of workers. As a
consequence, the foundational provision, Art. 51, was placed at the end of the chapter on
freedom of movement of workers. And you know that this fundamental freedom of workers
was not that much easy to enshrine into the treaty on the EEC. A brief reading of the
respective passage in the Spaak report shows the diffidence of member states vis-à-vis
unrestricted freedom of movement for migrant workers.
The lack of readiness to open the national labour markets to foreigners dominates also – and
this is small wonder – the unemployment chapter in Reg. no. 3. The protectionist behaviour
with its tendency to give preference to the own national labour market is reflected in the shape
of some of the most important provisions of the unemployment chapter. The export of the
unemployment benefit could take place only if both member states involved had authorised
the change of residence. The chapter of unemployment did not apply in France as far as
frontier workers and seasonal workers were concerned (Annex C). Important exceptions
operated in favour of Luxembourg. Some of these traces of protectionism have vanished, but
some have survived and have an impact upon the mentality which reigns in member states
even today.
This said, I shall now devote my time to the most central aspects and in their wake to the
reform proposals of the analytical study 2012 on coordination of unemployment benefits. This
means following the central lines of thought in this document I shall set the focus of my
presentation on two central areas of coordination of unemployment benefits. The first one is
the determination of the competent state for administering and awarding benefits. The second
pillar to be treated is the provision and its principles on the export of benefits. At the end I
will add some remarks on some other problem areas which are mentioned in the study, but
regarded as necessary for further research.
II. The competent state
Dealing with the competent state within the unemployment chapter is more than dealing with
only one and specific rule of the complex body of conflict of laws. It is rather a cluster of
problems which we may comprise under the heading of competent state. Let us begin with a
short outline of the status quo, the current scheme which governs the search for the competent
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state. Nowhere has the CJEU better given guidance for this search than in the judgment
Adanez-Vega. Although it is about a judgment under the Reg. 1408/71, the guiding formula is
the same under Reg. 883/2004. The Court teaches us that it is necessary to determine, first of
all, which is the applicable legislation under the general rules governing connecting factors in
Title II of Reg. 883/2004. Next it is necessary to decide whether the special rules governing
connecting factors in that regulation provide for the application of any other legislation.
Following this rule the Court draws on Art. 13 Reg. 1408/71, now Art. 11 Reg. 883/2004.
This provision asks us firstly, as long as the circumstances of the case do not lead us to Art.
12 to 16, to examine the instances under Art. 11 para. 3 lit. a) to d). That means that the
legislation of that Member State is in the first line applicable in which the person has pursued
an activity as an employed or self-employed person. If none of the instances under lit. a) to d)
occur, pursuant to para. 3 lit. e) the legislation of the Member State of residence is applicable.
However, it must be determined whether Art. 71 Reg. 1408/71, now Art. 65 Reg. 883/2004,
which contains special rules on determining the applicable legislation in relation to
unemployment benefits, alters the foregoing considerations.
The real problems which give rise for controversies and difficulties in determining the
competent state is the provision of Art. 65. Compared to the preceding provision of Art. 71
Reg. 1408/71 Art. 65 has continued, in principle, the former scheme for frontier workers and
workers other than frontier workers. The third type of cross-border workers, the often called
atypical frontier worker, an invention by the CJEU, is due to the Jeltes judgment, no longer
alive. The preservation of the old scheme in the new Art. 65 should not tempt us to judge the
new additions in Art. 65 as marginal.
Of course, the state of residence is the competent state for the award of an unemployment
benefit to the frontier worker in the sense of Art. 1 lit. f) and for the person, other than a
frontier worker. But, nota bene, the new law gives the frontier worker in terms of availability
access to the employment services of the member state of her/his last activity as a
supplementary step. As I shall show later on, this is an element which can be used together
with other elements and indications to think about a different competence rule.
As far as the person, other than a frontier worker, is concerned, availability is obligatory
either with the state of residence upon her/his return to this state or with the state of last
activity if he/she does not return.
A second element which we had made use of for proposing a new competence rule are the
new reimbursement provisions in Art. 65 para. 6 and 7. Although the institution of the state of
residence has to award the benefits at its own expense, the new law obliges the member state
of last activity to share in the financial burden occurred by the provision of unemployment
benefits. Provision is made for reimbursement of the amount of three months payments,
extended up to five months on the conditions laid down in para. 7 of Art. 65.
The third legislative element and one on which we can draw to propagate an alternative
competence rule is contained in Art. 65 a. Although this provision states the member state of
residence as the state competent for the payment of unemployment benefits to
unemployed/self-employed frontier workers it demands help from the member state of the last
self-employment if the law of the member state he/she was last subject to if the member state
of residence does not provide any protection against unemployment for self-employed
workers.
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Challenges
Against this background we have dedicated a long section of our study to the challenges
which arise from the existing scheme concerning the determination of the competent state. I
will briefly mention four of the challenges.
A first and nasty problem emerges when a specific case demands the distinction between
whole or partial unemployment due to para. 1 of Art. 65. Although the CJEU in the case De
Laat has given some guidance and further guidance has been given by the decision U3, for the
employment services involved there is still no uniformity in the application of this provision.
The biggest problem, however, is the definition of residence, the momentous criterion to
single out the competent state. Certainly the CJEU, in particular in the case Di Paolo,
delivered some elements which could help to determine where the claimant has her/his
residence. But nevertheless, in practice, decision-making is subject to uncertainty and timeconsuming.
Another challenge we may identify is due to the fact that the application of Art. 65 and the
rule of the state of residence as the competent state is contingent upon the continuity of the
circumstances which call upon the state of residence. This is no longer the case when the
unemployed person changes his place of residence and returns to the state of last activity.
According to the judgment by the CJEU in the case Huijbrechts the state of last activity
becomes the competent state. We have listed some more constellations of residence which
lead to switches in the applicable legislation.
And finally the fourth challenge I would like to pick up is given by the new reimbursement
system. We have made a long list of problems in our report which have emerged in the wake
of the introduction of a reimbursement model in Art. 65. Reimbursement aims at creating a
fairer share of the financial burden which is placed on the state of residence. But in pursuing
this aim distortions may arise to the detriment of the state of last activity. For example this
state has to reimburse the person concerned even if she would not have been entitled to
benefits under its legislation. Or the amounts reimbursed may not be proportional to the
periods completed in the member state of last activity. Finally, from the administrative point
of view, we have to complain about a complicated and burdensome procedure. Delays of
reimbursement are common and frequent. We think that in particular this objection weighs
most heavily against the reimbursement approach. We recognise that decision U4 was a good
step towards a more uniform interpretation of the reimbursement scheme. However, some
member states have declared that they may not follow this decision.
Reform proposal
Weighing all the pros and cons our group has decided in favour of the exclusive competence
of the state of last (self-)employment to provide unemployment benefits.
This proposal is not a new one. As you know the Commission made an identical proposal in
1998. To make the state of last employment responsible for paying unemployment benefits
for all persons who resided in a member state other than the competent state during their last
employment was based on the following grounds:
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–
The present state of rule under Art. 71 Reg. 1408/71 places the unemployed person under
a different social security scheme than that of the state of residence not only for
unemployment benefits, but also for family, sickness, maternity and invalidity benefits.
The Commission wanted to guarantee continuity in the social security status of the
insured person.
–
Furthermore, the Commission underlined that the application of the state of last
employment rules let to a fairer sharing in the burden between the member states
concerned. The state of residence has to bear the cost of unemployment benefits but has
recently not received contributions to its insurance, whereas the state of last employment
received these contributions not only for unemployment insurance, but for all the other
risks brought under insurance.
–
A third argument in favour of the new competence rule was seen by the Commission in
its capacity to make a significant contribution to simplification of the coordination task,
since all the distinctions needed to be made under the present scheme would disappear.
–
Finally reference is made to collective agreements or redundancy schemes for workers
who lose their job which very often are structured according to the unemployment
insurance applicable in the state where the workers lose their job. Rights under such
schemes are endangered when the social security scheme changes to the state of
residence.
We, i.e. the group entrusted with the analytical study, could have ended our deliberations on
competence questions by a mere referral to the proposal made by the Commission. Of course,
the arguments put forward by the Commission were convincing and, as a consequence, they
were part of our deliberations. But we tried to enlarge the horizon and the spectrum of
argumentations. Firstly, we asked for the consequences of the proposals vis-à-vis the actors
involved which required an analysis of the different interests at stake, the interests of the
unemployed persons, the state of last employment and the interests of the state of residence.
And secondly we made an attempt to offer a – what we would call in Germany doctrinal –
basis of reasoning in favour of the rule of competence of the state of last employment.
The first and most important question is whether this obligation could be considered against
the interests of the unemployed person affected. In our opinion, it cannot. The person worked
in this member state of (self-)employment. And this shows her or his willingness to be part of
this member state’s labour market. The geographical distance, evidently, did not play a
decisive role for her or him. Presumably this will consequently not be a hindrance to her or
him to look for a job in this state. And we could create a provision similar to that in Art. 65
para. 2 but reverse consequences, pursuant to which a wholly unemployed person may make
himself/herself available to the employment services of the member state in which he/she
resides. And the present export rule in Art. 64 would apply. Nothing speaks against it that the
search for a new job primarily starts in this state. After four weeks he/she can continue her/his
search abroad, which, obviously, includes her/his state of residence. As a result, we assume
that this is a coherent scheme which does not violate the interests of the uninsured person
compared to the existing scheme.
As far as the interests of the states of residence and last activity are concerned, I can repeat
what the Commission has said. The catchword is fair distribution of the financial burden. Our
proposal accommodates the interests of the state of last activity (payment of benefits due to
contributions received) and the interests of the state of residence (it enjoys freedom from
payment without contributions).
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Most arguments mentioned before may also be valid for unemployed persons other than
frontier workers. A part of this group is already under current law obliged to make themselves
available to the employment services in the member state the legislation of which they were
last subject to. This is the case when they do not return to their member state of residence
(Art. 65(2) last sentence). As far as the remainder this group is concerned, in view of the bond
which was established through his/her (self-)employment with the state of this activity they
may reasonably be expected to remain under the control of this member state’s insurance
body. Since such persons usually have an abode in this country, they can perform their
availability without any difficulties. And after four weeks search in this state, they can make
use of the arrangements which Art. 64 provides for. This scheme is not that much different
from what is presently provided for in Art. 65(5)(b).
This said we have emphasised that our proposal in part preserves the interests involved in the
way they are protected under the existing scheme, in part leads to a better protection of these
interests. And we have added another aspect. Compared to its predecessor in Art. 71 Reg.
1408/71 Art. 65 has paved the way, though not entirely, for what we could call a double track
system of availability and assistance by employment services. The modifications in Art. 65
show that the new law tends to support availability in both member states. The regulation is in
favour of a certain degree of flexibility which the person affected can make use of. The same
is true for the model proposed here, but it realises this flexibility in a different way than the
present model, which entrusts the frontier/non-frontier workers to the state of residence. The
future model would build on the state of the last (self-)employment as far as the delivery of
the unemployment benefits is concerned. At the same time it does not neglect the problem of
assistance/availability. On the contrary, it opens up the possibility for flexibility in the search
process, which the unemployed can make use of.
Secondly, and this brings us to what I have called before a doctrinal approach to support our
proposal. A thorough study of the different provisions in the unemployment chapter and a
thorough study of the case law of the CJEU tells us that there are both open and also hidden
roads which lead in the last instance to the state of the last (self-)employment. Since my stay
last year to Edinburgh, I often cling to Adam Smith and so I could say, there is an invisible
hand behind the provisions in question pointing at the state of last (self-)employment. Of
course, the provision par excellence which builds upon the state of last (self-)employment is
Art. 11. And this provision probably governs 90 per cent of the practical cases. But beside this
article the dominance of the state of the last employment is reflected under different angles in
other provisions. And in this context we may refer to what the CJEU has stated about Art.
61(2) and Art. 64 (more exactly to the previous provisions respectively): “As regards the
entitlement to unemployment benefits of workers seeking employment in a member state
other than that in which they last worked or paid contributions, the Council considered it
necessary that such entitlement should be subject to conditions designed to encourage such
persons to seek work in the member state in which they were last employed, to make that state
bear the burden of providing the unemployment benefits, and, finally, to ensure that those
benefits are granted only to those actually seeking employment. In attaching such conditions
to Art. 67(3) and Art. 69(1) of Reg. no. 1408/71, the Council made proper use of its
discretion.”
Furthermore, the reform proposal in principle preserves the aims which are inherent in the
present version of Art. 65, i.e. the idea for the best search conditions. With its mix of
compulsory and optional elements regarding availability, it serves the purpose to offer a basis
for a successful re-entry into one of the labour markets. At the same time, it resolves
ambiguity of the current regulation as regards the definition of the competent state (especially
the problem of habitual residence). In this context, reference has to be made to the consistent
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CJEU case law, which holds that Art. 71 Reg. 1408/71 (now Art. 65) does not affect the
principle that the competent state is the state where the person was last employed (Cochet).
To justify this statement the CJEU builds upon the wording of Art. 71 para. 1 lit. e) of Reg.
1408/71 (now Art. 65(5)(a)), pursuant to which the member state in whose territory a frontier
worker resides is responsible for paying those benefits as though it were the state where he
was last employed. The CJEU qualifies this provision as a “legal fiction (which) suspends the
obligations of state where the unemployed person was last employed for so long as he
continues to reside in another member state, but does not have the effect of extinguishing
them”.
The competence rule advocated here obviates this legal conundrum without destroying the
substance and the aims of the present law in Art. 65. The state of last (self-)employment never
loses its competence, but it may share its assistance/availability requirements with the state of
residence as described above. We believe that our analysis has shown that the reform proposal
is not a break with, but smoothly fits into the existing architecture of chapter 6 and its value
system. This is also true with a look at the recently introduced Art. 65 a, which deals with
self-employed frontier workers. This provision, too, expresses its confidence in the state of
the last self-employment and builds on the double-track system of availability/assistance.
For a summary of the advantages of our reform proposal I refer to what is written in the trESS
Study 2012:
Our proposal would render Articles 65 and 65a redundant and all the problems linked to these
provisions would disappear. We can identify favourable consequences both for the employment
services involved and the unemployed persons affected. As far as the former are concerned they are
no longer confronted with the difficult application of Article 65, in particular the interpretation of the
terms frontier worker, person other than frontier worker and the atypical frontier worker and the
wholly or partially unemployed persons as well. Disputes in this area between the employment
services and the unemployed persons can be avoided. Although preliminary rulings before the CJEU
are only the tip of the iceberg, the numerous judgements of the CJEU testify to the many
controversies in the application of the norm in question. And, we should not forget the disputes
between the employment services of different Member States which would no longer arise. In
addition, the administrative workload was recently increased by the introduction of reimbursement
mechanisms in Article 65, which in the future would become superfluous. The realisation of our
proposal would lead to an enormous amount of reduction of the administrative workload and, as a
consequence, to quicker decision-making. Its contribution to cost-effectiveness in handling the
awarding of unemployment benefits is out of question.
With respect to the unemployed persons, they have clear guidance about what the competent
institution is. Moreover, they do not lose the existing possibility to address to employment services
of the competent State and of the State of residence as well. Perhaps they lose the possibility to
cherry-picking, but this possibility is not worth protecting.
We do not see any significant disadvantage of our proposal, neither for the employment services nor
for the unemployed persons. On the contrary, we believe to have shown that our proposal is based
on sound risk allocation and a sound distribution of costs from which all parties involved would
benefit. We of course understand that more control may be needed to avoid fraud and abuse, but
this requirement (control) can be considered, as a matter of fact, as a horizontal issue.
III. Export of unemployment benefits
Let us now have a look at the scheme which is laid down in Art. 64 concerning the export of
benefits to another European country. When I spoke at the beginning about the resistance or
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reluctance of member states to grant freedom of movement to workers, I mainly had in mind
the export rule in Art. 35 Reg. 3, now in Art. 64. They mirror more than other coordination
provisions the lack of trust that member states have in regard of the availability of the
unemployed and the assistance accorded to her or him in another than her or his “home”
country. Member states feared that the employment services abroad would not be at all
motivated to find a job for workers for whom they were not financially responsible. These
fears explain also why in the past there was no readiness to extend the time period for seeking
a job abroad.
Art. 63 makes us aware of these facts and underlines that Art. 7 with its guarantee for the
export of benefits, shall apply only with the limits of Art. 64. These limits, these restrictions
mean, to say it in a nutshell: You unemployed stay in the competent member state and seek
work there for at least four weeks. After this lapse of time you can decide to continue your
search for a job abroad. But finish your search within three months. If you continue your
search beyond this time limit, you will lose your eligibility for the benefits. Nevertheless, this
very rigid scheme contains some elements of flexibility. The competent employment service
institutions may authorise derogation from the four-week time limit and may extend the three
months requirement up to six months for the job search abroad.
But exactly these elements of flexibility are the reason for why there is so much uncertainty in
the application of Art. 64 among member states. In our report we have described the
panorama of differences and difficulties in handling the discretion which Art. 64 offers. There
are member states in which the extension of the export period is never prolonged and others
like the Czech Republic which issues the PD 2 for six months directly from the beginning of
the export period without requiring the job seeker to make a further request. The criteria
member states use in deciding the extension of the export period are extremely different.
Shortcomings and difficulties characterise also the decision-making process. The exchange of
information between the institutions involved very often does not run smoothly, leading not
rarely to considerable delays in the award of the benefits. Needless to say this is an entirely
inacceptable situation, both in regard of the interests of the unemployed persons and also the
interests of the institutions affected. And it is above all against the spirit of the freedom of
movement rules which coordination of social security is to serve.
It is evident that even the case law of the CJEU which dates back to the 1970s could not make
a decisive contribution to a more uniform application and administration of the export rules.
In the case Coccioli the CJEU asked the competent services and institutions of the member
states to take into consideration, with a view to deciding upon any extension of the period, all
factors which they regard as relevant and which are inherent both in the individual situation of
the workers concerned and in the exercise of effective control. In the Testa case the CJEU
added with reference to the Coccioli case that in exercising the discretionary power the
competent services and institutions must take account of the principle of proportionality
which is a general principle of community law. They have to operate this principle both in
respect of the extension of the three-months period and in cases, in which the period in
question has been exceeded. These instructions, unfortunately, did not lead to a uniform
practice across Europe.
These are the reasons why our group saw the necessity to offer remedies by a change of the
current export scheme and its administrative management. We have proposed three
alternatives, firstly a mild intervention into the structure of Art. 64, secondly a middle-range
intervention and finally, a bold change of the export restrictions.
First alternative: With this variant we leave the system, in principle, as it is. But we wanted
to strengthen the procedural position of the unemployed person. The idea was to guarantee a
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transparent decision-making by the competent employment services. Drawing on what is laid
down in Art. 20 para. 2 in the health care chapter we argue in favour of an additional
provision in Art. 64 persuant to which the extension up to six months shall be accorded if the
person concerned is seen fit for a job search abroad of this length, taking into account among
others his or her professional qualification for the employment in the foreign country. As an
alternative, or in addition, the specification of the criteria could be carried out in a Decision of
the administrative commission, thus providing for a wider set of criteria such as labour market
conditions, family aspects, the length of the period of unemployment in the competent state
etc.
Second alternative: The second alternative contains the idea of the extension of the search
period abroad up to six months without discretion. This proposal respectively the statement of
the reasons was my brainchild which I had been toying with for a long time. The idea is not
new, on the contrary, it was propagated several times by the Commission and in legal
literature. But every time the request was turned down. So a mere repetition of the idea
seemed to be too little to meet with approval. We remembered an important judgment by the
CJEU, the judgment in the case Antonissen, which is a European labour law case and
therefore treated in every textbook of European labour law. In this judgment it was about the
question of how long a stay should be for a job seeker abroad who claims the right to stay on
Art. (now) 45 TFEU. The CJEU saw a period of six months fit to guarantee the effectiveness
of the principle of free movement. We thought that this line of thought offered a reasonable
yardstick to be applied also within Art. 64. But we wanted to anticipate possible objections by
member states, and, as a consequence, proposed a provision against abuse of this right to be
inserted in Art. 64, giving the competent institution the power to shorten the period of six
months up to three months if there is evidence that the unemployed person is not expected to
seriously and successfully carry out her/his search for a job abroad. We thought this
amendment of Art. 64 to be a balanced solution in order to improve the freedom of choice of
the unemployed person without neglecting the interests of the employment services.
Third alternative: The third alternative was the most far-reaching, insofar as it opts for a
unrestricted export of unemployment benefits. It is in principle the inclusion of
unemployment benefits into the export guarantee contained in Art. 7. Unemployment benefits
would be awarded as long as the national law provides for. Here again I refer to what I said at
the beginning today reminding you of the so-to-say historical mortgage, that is the mistrust by
member states of the effectiveness of the job search abroad, and I think this mortgage plays an
even greater role when such a proposal is made. In stating the reasons for this proposal we
refer to the judgments of the CJEU in the cases De Cuyper and Petersen in which residence
clauses of national law were no hindrance to claim unemployment benefits. I must admit that
I was a little bit lukewarm in supporting this proposal and in particular this reasoning. My
point was and is: If the job search abroad within the maximum period of six months under the
present law is not successful, most member states are probably not inclined to extend the
search time. A counter-argument could be the reference to the new provision of Art. 65 a para.
3 which permits the extension up to the end of the period of entitlement to benefits.
IV. Addenda
Those of you who have read the analytical study will have seen that at the end of the study we
have mentioned two other topics of unemployment coordination for which we have not made
proposals for reform, but which seemed to be worth remembering for possible further
research.
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One of these topics was the principle of aggregation, laid down in Art. 61. I must admit that I
do not know the practical problems which arrived in the past in the application of this
principle. But one of the coordinators of our study was well informed about the fact that the
interpretation of Art. 61 is the source of much controversy and member states do not have a
common position on this. We have discussed in our group the judgment of the CJEU in the
case Warderdam-Steggerda. As you know, the court was of the opinion that the aggregation
by the competent institution of periods of employment completed in another member state is
not subject to the condition that such periods should be regarded as periods of insurance for
the same branch of social security by the legislation under which they were completed.
But this was only one point in our discussion. The more general problem posed was the
question whether Art. 61 with its distinction between insurance and employment periods
could be replaced by a strict application of Art. 6. It has to be remembered that Art. 61 para. 1
first sentence is nearly identical with Art. 6. Therefore Art. 61 para. 1 first sentence could be
deleted. In regard of Art. 61 para. 1 second sentence two questions should be asked. The first
question is whether this provision is a wanted restriction or a wanted extension of Art. 6. The
second question is whether it is already implicitly included in Art. 6.
The second question to be raised for further analysis is whether we need perhaps a definition
of unemployment benefits. So far Art. 1 does not contain such a definition. In the past the
court of justice in different judgments underlined as a main feature of unemployment benefits
the replacement of lost income. One of the aspects of the need or the search for a definition of
unemployment benefits which is mentioned in our study is the difficult distinction between
unemployment benefits and preretirement benefits.
V. Final remark
Let me conclude with a reference to new developments in the area of unemployment benefits
which have nothing to do with our analytical study of last year. Next week there will be a
conference in Brussels convened by the commissioner and organised by the German
foundation Bertelsmann. The subject of this conference reads: “Automatic stabilizers for the
euro-zone: Pros and cons of a European unemployment benefits scheme.” I was invited to this
conference and asked to speak about “assessing the impact of a European Monetary Union
benefits scheme” on diverse national benefits schemes: Do we need common eligibility rules?
I am still in a brainstorming phase in the preparation of my paper. But I would be glad to hear
from you what you have in mind about such a project.
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