Unemployment benefits in the EU: Is Slovenia fighting the good fight or just trying to get away with a free lunch?

Lately, the Slovenian legislator has been taking bold but somewhat ill-considered steps in the field of social law. Even if bound by the ILO Convention No. 158, the Slovenian Parliament introduced a new cause of dismissal by which an employer can one-sidedly –  without an existing business or other genuine reason – terminate a contract of employment if the worker fulfils old-age retirement criteria. The Slovenian Constitutional Court has suspended the use of the said amendment until it reaches a substantive decision in the case put forward by the trade unions. Additionally, the Slovenian government is considering to propose an (anti-)social cap on high wages, relieving high earners from contributory obligations beyond a certain amount of personal income from employment, thus reshaping the well-established notion of vertical solidarity within social insurance groups. Finally, at the time of writing this blog post, the amendment to the Slovenian Market Regulation Act (Zakon o urejanju trga dela) has reached the final stages of the legislative procedure. The proposed amendment, which is the focus of this blog post, aims at substantially increasing the maximum amount of unemployment benefits (by almost €1,000) for Slovenian frontier workers at the sole expense of the Member State of last employment. This post will analyse the compatibility of these proposed amendments with EU law.

1. The coordination of unemployment benefits under EU law

It is old news that EU rules on the coordination of unemployment benefits represent a battlefield between the EU’s East and West (Pennings) and that Regulation (EC) No 883/2004 (‘the EU Regulation’) is in need of revision, even after its 2009 Implementing Regulation. The EU Regulation’s rules on unemployment benefits, for example, allow for dubious shifts of competences, impose disproportionate financial burdens on some Member States whilst preserving a complex system of cost reimbursement. The rules also do not necessarily allow all unemployed persons to register primarily with the employment services in what is for them the most favourable job-seeking environment (see, for example, De Cortazar and others). Chapter 6 of the Regulation on unemployment benefits stipulates special provisions concerning the aggregation of periods, calculation of benefits, residence rules, export of benefits, and, importantly, provisions concerning unemployed persons who (permanently, habitually) reside and work in different Member States. Provisions that depart from the Regulation’s general principles applicable to most other kinds of benefits reflect the sensitive nature of unemployment benefits, caught in between job-seeking opportunities and obligations of the unemployed person, and labour market oriented interests of different Member States.

Article 65 of the Regulation differentiates between different categories of unemployed persons:

• a partially or intermittently unemployed person who works in one but resides in another Member State falls under the competence of the Member State of employment, since it is best she seeks full employment in the Member State where she already pursues her employment;
• a wholly unemployed person, who has previously worked in one Member State but resided in another during the period of employment, may choose the Member State in which she primarily registers as an unemployed person, thus indirectly choosing the competent Member State;
• a frontier worker, i.e. a worker who works in one Member State and resides in another to which she returns at least once a week, falls under the competence of the Member State of residence in cases of full unemployment, even if her business ties with the Member State of last employment remain stronger. Unlike a unemployed mobile worker (not returning to the Member State of residence at least once a week), she cannot choose the competent Member State. In Miethe, the CJEU had previously held that atypical or false frontier workers – i.e. frontier workers with stronger ties to the Member State of last employment than to the Member State of residence – could primarily apply for unemployment benefits in the state of last employment. This special rule was later reversed by the CJEU’s decision in Jeltes and others and no longer applies.

2. Wholly unemployed frontier workers

If, for example, a Slovenian-resident frontier worker becomes fully unemployed in Austria (Member State of last employment), Slovenia will be the competent Member State. The now unemployed person will have to register with the Slovenian employment services and, if fulfilling the conditions, obtain (rather low) unemployment benefits under the Slovenian legislation, even if she had been paying (much higher) contributions in Austria. However, according to Article 65 of the EU Regulation, Austria shall reimburse to the institution of the place of residence the full amount of the benefits provided by the latter institution in the duration of either 3 or 5 months, depending on the duration of completed periods of employment in Austria as the Member State of last employment.

The current EU rules on fully unemployed frontier workers are, of course, in the greatest interest of wealthier Member States. Frontier workers commonly originate from less wealthy Member States of the European peripheries and work in wealthier Member States at the European centres (here I follow the general centre-periphery dichotomy by Kukovec). Member States of last employment (i.e. the wealthier Member States) thus pay lower unemployment benefits for frontier workers via the cost reimbursement mechanism than under their own national regulations. Even more so, the current competence rules and the associated reimbursement mechanism give a strong incentive to wealthier Member States of last employment to consider every mobile worker as a frontier worker, and thus shifting the competence to the low-income Member State of residence even if the worker does not return there on a weekly basis. Lower social standards in the EU peripheries seem to be directly in favour of the EU centres.

The Slovenian legislator is now considering to fight back or – what is maybe more likely – is seizing the opportunity to get away with what can only be described as “reverse” social dumping.

3. The Slovenian legislative amendment

The Slovenian Trade Union of Migrant Workers (the Trade Union), in referring explicitly to the EU rules on free movement, social security coordination and some of the case-law of the CJEU, recently proposed an amendment to the Market Regulation Act. The amendment, as put forward in the third reading of the legislative procedure before the Slovenian Parliament, will increase the maximum amount of unemployment benefits for frontier workers from €892.50 to €1,785. The proposal uses an EU law definition of a frontier worker and refers to frontier workers employed in the EU, the EEA and the Swiss Confederation, mirroring the territorial scope of application of the EU Regulation. The higher amount should, according to the proposal, be paid out either in the duration of 3 or 5 months, depending on the duration of the period, in which the costs are borne by the Member State of last employment. Under current Slovenian law, all unemployed persons, regardless of previous wage, receive unemployment benefits not higher than €892.50. The Trade Union’s proposal would therefore only increase the limit of unemployment benefits that frontier worker could receive.

The Trade Union claims that frontier workers are being stripped of their acquired social rights back in Slovenia. From this perspective, the proposal displays a strong proprietary understanding of unemployment benefits, which should be treated as one’s private property after conditions for their obtainment are fulfilled. According to the Trade Union, frontier workers pay higher (rates of) contributions in their Member State of employment (the Trade Union refers to Austria as an example here), whilst being entitled only to much less favourable unemployment benefits under Slovenian law. The Trade Union argues that this de facto limits the EU free movement rights of mobile persons who should be treated equally under different domestic legislations. Importantly, the Trade Union highlights that Slovenia would incur no additional costs due to the proposed amendments since the costs of higher unemployment benefits – a sort of a frontier workers’ supplement (see, for example, Pennings) – would be borne entirely by the Member State of last employment.

In its proposal, the Trade Union pointed out the well-known shortcomings of current EU legislation, which allows wealthier Member States of last employment, who were recipients of higher amounts of social security benefits, to benefit from competence rules. Changes to the EU Regulation, which would establish the exclusive competence of the Member State of last employment, have already been proposed many years ago (see De Cortazar and others or Pennings). However, can a Member State like Slovenia, whose frontier workers mostly become unemployed in high-income Member States, like Austria or Italy, change its domestic legislation so as to mitigate the negative effects of the EU Regulation (to its advantage) without breaching EU law?

4. The compatibility of the Slovenian proposal with the EU Regulation

First, Article 65(5)(a) of the EU Regulation is clear: the unemployed person shall receive benefits in accordance with the legislation of the Member State of residence as if she had been subject to that legislation during her last activity as an employed or self-employed person. Thus, according to the Regulation, the frontier worker must be subject to Slovenian legislation, as if she had been employed there. If she became unemployed in Slovenia, she would not be eligible to receive unemployment benefits higher than €892.50. Arguably, the proposed Slovenian amendment therefore breaches the EU Regulation.

According to the Trade Union’s proposal, frontier workers employed in low-income Member States will also benefit from the new rule since it would apply equally to all frontier workers, regardless of whether they were previously employed in a high-income or lower-income Member State. In practice, however, they will only benefit from the amended rule if they obtained a high wage in a low-income Member State. In that case, Slovenia will have to cover the difference from €892.50 to €1,785.  According to Article 65(6) of the EU Regulation and Article 70 of the 2009 Implementing Regulation, the Member State of last employment only reimburses the costs of unemployment benefits up to the amounts paid under its domestic legislation. However, we can assume that the number of Slovenian-resident frontier workers employed in higher-income Member States greatly outweighs those employed in lower-income Member States, like Croatia or Hungary (which, as a rule, pay lower unemployment benefits than Slovenia).

Second, it is true that the EU rules on social security coordination, which unify parts of formal domestic social security legislation, should not affect the substance of such legislation (the personal and material scope of coverage, the duration and amount of benefits, etc.). However, domestic legislators or other competent institutions cannot establish rules that are contrary to the fundamental principles and rules set out under EU law.

Since the Member State of last employment covers the incurred costs of unemployment benefits, the Slovenian legislator could have set an even higher maximum amount of unemployment benefits. According to Article 65(6) of the EU Regulation and Article 70 of the 2009 Implementing Regulation, that would make sense, if the legislator was counting on reimbursements from Member States paying the highest unemployment benefits under domestic legislation, like Denmark or Sweden. From this perspective, the proposed increase of benefits to €1,785 seems to mirror the Austrian limitation of a maximum basic unemployment benefit of €56.46 per day or €1,750.26 per month as to ensure that Slovenian-resident frontier workers, who are mostly employed in Austria (more than 20,000 in 2016), get the most out of the proposed amendment with no additional costs for Slovenia. In cases of Slovenian-resident frontier workers employed in Italy, which is their second most popular Member State of employment, the Slovenian employment services will have to cover the difference between the maximum Italian amount of €1,335.40 and €1,785. That, however, is not a concern for the Trade Union, dealing almost exclusively with Slovenian residents employed in Austria.

The aim of the EU social security coordination rules (on equal treatment) is clear: periods, income or facts, like unemployment, that occurred in another Member State should be considered in the competent Member State as to prevent the loss or reduction of benefits. However, they should be considered under the rules of the competent MS, as if they occurred in its territory or, more precisely, under its legislation. Any introduction of special, more favourable rules at the expense of other Member States could represent a potentially unlawful bypass to EU rules on social security coordination.

 5. Concluding remarks

Setting aside the question of unequal treatment between frontier workers and domestic workers as a result of the amendments, it is evident why the Slovenian legislator, including a large part of the opposition, seems to be going along for what might become a very bumpy ride. First, Slovenian-resident frontier workers (who are commonly also Slovenian citizens) are considered an important part of the electorate and are traditionally dissatisfied with their rights and obligations under domestic social and tax law. Second, and most importantly – apart from running the risk of breaching EU law – why would the national legislator not agree to an increase of unemployment benefits at the expense of other (richer) Member States, like Austria for example. However, it should not be forgotten that Austria, not long ago, became famous for indexing exported family benefits according to the standard of living in other Member States. It did so under the cloak of neutrality by exporting positively indexed benefits to richer Member States whilst benefitting from the far more common negative indexation in cases of Member States like Slovenia.

Crucially, these Slovenian amendments might seem like a good solution as long as changes to the competence rules under the EU Regulation, due to the aforementioned battlefield between the East and West, cannot be agreed upon. However, the Trade Union and/or the Slovenian Parliament are going into the lion’s den. They might not be aware of it or, what is more likely, are only pursuing their partial interest whilst taking their chances with potentially breaching EU law. However, if they come out alive, one thing will once again be certain: the EU Regulation on social security coordination is in serious need of amendment.