A Right to Reside for the Unemployed Self-Employed: The Case Gusa (C-442/16)
Introduction
Economic activity has been the Holy Grail of free movement of persons since the start of the European integration project. In case of unemployment, through article 7(3)(b) of Directive 2004/38 mobile EU citizens keep their status as ‘worker’ if they have worked for more than a year in their host Member State and thereby earn a continued right to reside and access to social benefits. However, does this provision also apply to mobile Union citizens who have been self-employed? In contrast to the Irish Department of Social Welfare, the Court of Justice of the European Union answered this question positively in the Gusa-case of 20 December 2017: EU law also protects the self-employed when they cease work due to circumstances beyond their control. Although this outcome is perhaps not so spectacular in terms of legal reasoning, it might help strengthen the rights of a significant number of self-employed EU citizens in the run-up to the ‘Great Divorce’ following the Brexit-vote. The case was also spiced up in advance by a controversial interpretation of the right to permanent residence by the Advocate-General.
The Case
The case concerns Mr Gusa, who moved from his native Romania to Ireland in October 2007. During his first year in Ireland, he was supported by his children who also lived in Ireland. A year later, in October 2008, Mr Gusa started working as a self-employed plasterer. Through his occupation, he managed to make ends meet and pay taxes and social contributions for a considerable period of time. Disaster struck four years later however, when another economic downturn led to a lack of customers and he had to cease work. Left without an income and his son and daughter-in-law having left to Canada, he registered as a jobseeker and applied for a jobseeker’s allowance in November 2014.
The Irish authorities refused Mr Gusa’s application. According to them, Mr Gusa no longer had a right to reside in Ireland because he had ceased his activities as a ‘self-employed’ person and could therefore not rely on the same protection awarded to regularly ‘employed’ persons on the basis of Article 7(3)(b) of Directive 2004/38 (‘Citizens Directive’). According to the Irish authorities, the right to retain worker status after having worked for more than one year – granting the right to reside and equal treatment – was reserved exclusively for Union citizens working under an employment contract. In its judgment, the Irish court of first instance (‘High Court’) failed to see the significance of the provision, simply stating that self-employed applicants ‘have never been employed by anyone or anybody in the State’. The Irish Court of Appeal doubted this interpretation of the Citizens Directive and referred the matter to the Court of Justice.
Can the Self-Employed also Retain their Status after one year of work?
The legal question that needs to be resolved stems from somewhat awkward law-making. Before the adoption of the Citizens Directive in 2004, the right to remain in the host Member State after having performed economic activity there was regulated in different legal instruments for employed and self-employed persons (Regulation 1251/70 and Directive 75/34 respectively). As part of the attempt to remedy the piecemeal approach and create a single legislative act, Article 7(3) of the Citizens Directive now addresses both workers and self-employed persons when granting the right to retain their status in various circumstances. This includes the situation ‘when he/she is in duly recorded involuntary unemployment after having been employed for more than one year and has registered as a job-seeker with the relevant employment office.’ The question therefore arises whether the phrase ‘after having been employed’ only refers to those persons in an ‘employment relationship’ and therefore to those persons – to follow the case law of the Court in Lawrie-Blum – who perform services ‘for and under the direction of another person’ and not to those who carry on business on their own behalf (paras. 26-29). Hence the Court’s assessment boils down to the question whether the Directive makes a distinction in the treatment of employed and self-employed Union citizens when granting a right to remain after a year of economic activity under article 7(3)(b).
The Court is first quick to provide a broad interpretation of ‘involuntary unemployment’. According to the Court, this should not be limited to an outright dismissal of an employee, but also refers to a situation in which the occupational activity – whether employed or self-employed – has ceased ‘due to an absence of work for reasons beyond the control of the person concerned, such as an economic recession’ (para. 31).
The Court continues with a literal interpretation of the relevant provisions and compares various language versions of the Citizens Directive (paras. 32-34). As this turns out not to be conclusive, the Court engages in a systematic and teleological interpretation of the question. Here the Court argues that the general scheme of Article 7 makes clear that the Directive distinguishes the situation of economically active citizens – whether employed or self-employed – from that of economically inactive citizens and students. The structure of Article 7(3) is meant to grant both ‘workers and self-employed persons’ the right to retain their status in the four listed situations (paras. 35-38).
The Court continues with the argument that a different interpretation would run counter to the Directive’s objective to remedy the ‘piecemeal approach’ that characterized the earlier legislation (paras. 40-41). Furthermore, this would introduce an unjustified difference in the treatment between employed and self-employed persons. According to the Court, given the objective of article 7(3) to safeguard the right of residence of persons who have ceased their occupational activity because of an absence of work due to circumstances beyond their control, there is no justification to offer less protection to the self-employed as they find themselves in a similar vulnerable position if they lose their work (paras. 42-44).
The Court concludes that self-employed EU citizens who stop working because of an absence of work owing to reasons beyond their control retain – just like regularly employed EU citizens – their status after a year of economic activity. The Court does emphasise however, that their unemployment should be duly recorded (para. 45).
Claiming Retained Worker Status or Permanent Residence?
The judgment was not only anticipated for its decision on the protection of the self-employed mobile Union citizen. In the run-up to the judgment, Advocate-General Wathelet caused some consternation in his opinion with his preliminary observations on the right of permanent residence. After all, at the moment of applying for the Jobseekers Allowance, Mr Gusa had already lived in Ireland for five years. In principle this could grant him a right of permanent residence on the basis of article 16 (1) of the Citizens Directive.
However, according to the referring court and Mr Gusa himself (or his representation), he has never claimed that he had sufficient resources or was entitled to permanent residence. The referring judgment explicitly mentions the fact that Mr Gusa was informed by the authorities that he could apply for a permanent residence certificate, but did not do so. In his written observation and when asked during the hearing, Mr Gusa confirmed that he does not claim to have fulfilled the conditions of lawful residence during his first period of residence when he was supported by his children (between October 2007 and October 2008),because he considered the support he received as limited and insufficient for claiming lawful residence under 7(1)(b) of the Citizens Directive.
The Advocate-General (AG) claims to be ‘surprised’ by the position of both the referring Court and Mr Gusa himself ruling out the possibility that he has acquired a right of permanent residence. According to the AG, the amount of support Mr Gusa received is not relevant for an assessment for permanent residence status (para. 33). Given the simple fact that Mr Gusa was not a ‘burden on the social assistance system of the host Member State’, his resources must be presumed to have been sufficient and cannot be retrospectively regarded as having been insufficient (paras. 34).
Why are these observations so sensitive? Following the Ziolkowski and Szeja case, it has been understood that periods of residence that do not satisfy the residence conditions – i.e. employment or economic self-sufficiency – cannot be regarded as ‘legal’ periods of residence in the buildup of permanent residence status under EU law (paras. 45-46). Certain Member States have therefore adopted rules and thresholds to retrospectively verify compliance with the residence conditions and ask applicants of a permanent residence document to provide evidence of their income, financial resources, health care insurance, etc, over the past five years (see for example the Dutch and UK application forms on the governmental websites and an earlier blog post by Gareth Davies in the Brexit context). When following the line of argumentation of the AG, however, any residence period during which Union citizens do not rely on the welfare system should qualify for the buildup of permanent residence. This would completely undermine the administrative practices of these Member States, and it would create a legal situation that some Member States are particularly concerned about, namely that mere ‘survival’ in a host Member State for five years – including situations such as a life below the guaranteed social subsistence level, a life on the streets, in irregular work, in criminal activity, etc – would be sufficient to acquire permanent residence status and access to the host welfare system.
The Court of Justice did not accept the invitation of the AG to provide clarity on the issue of permanent residence and simply followed the referring court by observing that Mr Gusa never claimed to have acquired a permanent residence right (para. 21). This decision not to claim permanent residence could be seen as legal failure by Mr Gusa’s lawyers, but could very well be seen as a (smart) strategic choice. If Mr Gusa’s claim had been successful and he had duly complied with the requirements of the Jobcentre, he would have acquired his permanent residence in October 2013 anyway.
The significance of the judgment becomes clearer when considering it in the context of Brexit and the (re)distribution of social rights to British nationals in the EU and Union citizens in the UK that will take place at the moment of the ‘Great Divorce’. In the likely scenario of ‘freezing’ the currently applicable rights at a certain ‘specified date’, the judgment might very well protect a significant number of self-employed EU citizens who have worked for more than a year at that date but have ceased their economic activity. For the same reason it is a pity, although understandable, that the Court avoided questions around permanent residence. Given the negotiation parties’ desire to establish legal certainty, consistency and transparency for the roughly 5 million affected citizens and the prospect of an unprecedented bureaucratic operation, the Court missed an opportunity to clarify what kind of residence actually qualifies as ‘legal’ residence for the purpose of acquiring permanent residence under Article 16 of the Citizens Directive: is this any period of non-reliance on the social assistance system (as AG Wathelet appears to suggest) or only periods in which applicants can demonstrate compliance with certain minimum thresholds for ‘work’ or ‘sufficient resources’ (as Member States seem to prefer)? On the other hand though, there might be an argument in stating that this is precisely a matter that should be decided politically and not by the judiciary, which is arguably ill-equipped to decide on matters of social redistribution, especially in the fact of Brexit.
Which Mobile EU Citizens Deserve Social Rights?
After a series of judgments in which the Court decided in favour of Member States’ interest to protect their social assistance systems (Dano, Alimanovic, Garcia-Nieto, Commission vs. UK), the judgment could be interpreted as supporting the side of EU citizens in need again. In line with its previous cases, however, the Court again skips any reference to Union citizenship as a ‘fundamental status’ and emphasises the importance of economic activity. The Court is even surprisingly explicit in addressing the normative underpinnings of its decision why certain Union citizens ‘deserve’ access to social benefits and protection against a loss of residence and others do not. In a paragraph that could be seen as wrapping up its recent line of case law, it claims that it would be ‘particularly unjustified’ if a Union citizen who has worked for one year in the host Member State and who has contributed to its social security and tax system by paying taxes, rates and other charges on his income, was treated in the same way as a first-time job seeker in that Member State ‘who has never carried on an economic activity in that State and has never contributed to that system’ (para. 44). Hence it may be concluded that EU free movement law especially protects mobile Union citizens who ‘earn’ their social rights by paying their way into their host welfare system.