One of the fundamental principles of the EU is the free movement of workers and of services within the Union. For employers, Belgium is in many cases not an attractive location to employ locally recruited staff due to the complex and restrictive labor legislation on the one hand and the high social security costs on the other hand.
There is a significant cost difference between the employment of a local staff member under Belgian social security, as compared to an employee from the majority of other EU member state, where employment cost may be significantly lower due to the fact that the local employment law and social security systems are designed around different base principles.
One of the solutions in order not to incur the high Belgian labor cost, is simply moving the economic activity to another EU member state. If no such movement is possible, companies with international business activities will often prefer to make use of foreign workers, who are assigned to Belgium for a limited period of time.
At the European level, a directive exists, which allows for the temporary assignment of employees to another EU member state under continuation of the social security regime of the home country of the employee. Since social security includes a number of long term benefits (for example pensions), and also is closely related to the day to day welfare of people (for example medical care and family allowances), most employees prefer to continue to work under the social security regime with which they are familiar rather than under a foreign social security system.
The most obvious approach to reduce the loss of employment that results from either delocalization of the activities or the assignment to Belgium of foreign workers, would be for the Belgian government to initiate measures that gradually reduce the cost of employment in Belgium.
This approach has in the past not been adopted. Instead of trying to work towards an alignment of the Belgian social security system to come closer to other EU systems, Belgium has throughout the years been implementing all kinds of direct or indirect measures to try to block or at least strongly discourage the assignment of foreign staff to Belgium. Inventive people have also developed the concept of “social dumping” in order to create a perception with the general public that all assignments under foreign social security are bad or even illegal.
In 2013, Belgium has issued new restrictive legislation against the use of international assignments of staff to Belgium. Social inspection services were given more authority to act in case they have a suspicion that the assignment was not initiated in the correct way. In such cases, they were allowed to simply disregarded decisions, that were made by competent authorities in other EU countries and could impose international double social security contributions and penalties.
Although in theory, the measures were mainly aimed at the construction and transportation sectors, the legal measures have such a broad scope and can be used in any possible employment situation in all sectors of activity. This has been an important source of uncertainty and risk for international companies with activities in Belgium.
From the start, international legal experts have pointed out that the Belgian legislation was not in line with the European rules. Quite inevitably, a serious warning was given to Belgium in September of 2014. It was somewhat strange to note that the European Commission was challenged by a number of Belgian politicians and was even accused by them of disrupting the Belgian efforts against the so-called “social dumping”.
In March of 2015, the European Commission has now taken the inevitable action to force Belgium to comply with European rules and has initiated a case with the European Court of Justice.
At the European level, clear rules exist. Employers, who employ staff in another member state need to be employed under the minimum social rules of the guest location. This includes rules relating to minimum wages, working time and rules for safety and health on the work location. Posted workers, however, have the basic right to remain under their home country social security system.
A certificate of coverage (form A1) is issued to confirm that the employee complies with the social security obligations in the home country. It is possible that Belgian officials would believe that the A1 form was not issued in the right way by the competent foreign authorities. Under the current legislation, they could disregard the form and collect Belgian social security contributions from the employer. This unilateral approach of Belgium is not in line with European legislation and with the agreements, that were made at the European level.
In addition, Belgium creates a significant problem with the employer, who as a result of the Belgian actions, would be submitted to international double social security, and who could easily be pushed into severe financial difficulties.
According to the European rules, a member state cannot act unilaterally and has to contact the other member state to address the case. One can, however, expect that many foreign social security authorities will take the position that the A1 document was issued in a correct way. It will therefore be very hard for Belgium to change the situation by starting bilateral negotiations.
This brings us back to square one. If a European member state wants to save certain sectors and in general protect local employment, it may be worthwhile to study the various European social security systems, both at the level of cost and when considering the benefits and to develop a system that is in line with those other member states, who are the biggest competitors.