1. Freedom of Establishment
KOC UNIVERSITY
EU SUBSTANTIVE LAW
Dr. Jorrit Rijpma Europa Institute

2. Internal Market Art. 26(2) TFEU
The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.

3. Article 49 TFEU
Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.
Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.

4. Treaty Provisions (Substantive)
Art. 49 TFEU: Freedom of establishment
Art. 52(1) TFEU: Derogations
Art. 54 TFEU: Legal persons
Art. 55 TFEU: Prohibition of discrimination on grounds of nationality as regards participation in the capital of companies or firms

5. Treaty Provisions (Legal basis)
Art. 50 TFEU
Art. 51(2) TFEU: for exemptions
Art. 52(2) TFEU: for derogations
Art. 53 TFEU: diploma’s and professional rules
Secondary legislation not decisive for direct effect Art. 49 TFEU: Reyners, Klopp, Vlassopoulo, Viking (horizontal)

6. Secondary legislation
Much replaced by 2004/38/EC
Diploma’s and professional rules: Directive 2005/36/EC
Other specific measures, e.g.:
Directive 98/5/EC (lawyers under home title)
Directive 2006/123/EC (Services directive)

7. “Establishment” Permanent economic activity:
To participate, on a stable and continuous basis, in the economic life of another Member State (Gebhard, Viking)
Fixed establishment in another MS for an indefinite period (Factortame II)
Outside a relationship of subordination (Jany)

8. “Establishment”
the temporary nature of the activities in question has to be determined in the light, not only of the duration of the provision of the service, but also of its regularity, periodicity or continuity. The fact that the provision of services is temporary does not mean that the provider of services within the meaning of the Treaty may not equip himself with some form of infrastructure in the host Member State (including an office, chambers or consulting rooms) in so far as such infrastructure is necessary for the purposes of performing the services in question. (Gebhard)

9. “Establishment” Natural persons: self-employment
Legal persons: companies and firms within the meaning of art TFEU (to be treated as natural persons)

10. Art. 49 TFEU covers: Primary establishment - Natural persons (Reyners)
- Companies (e.g. merging with a company in another MS)
Note limits: Daily Mail, Cartesio

11. Art. 49 TFEU covers: Secondary establishment
Setting up agencies, branches or subsidiaries
- Natural persons (Klopp)
- Companies (Centros, Viking)
Note:
1) Actual establishment in host state
2) Pursuit of genuine economic activity

12. Art. 49 TFEU does not cover:
Activities which form a direct and specific connection with the exercise of official authority
Does not include e.g. attorneys-at-law, nor entire professions generally
2) Purely internal situations (“in the territory of another MS”)
However: any cross border element may bring situation under freedom of establishment (Kraus)

13. Art. 52: derogations Public policy, public security and public health
Closed category
Strict interpretation
No purely economic grounds
Proportionality

14. Jany
Although Community law does not impose on Member States a uniform scale of values as regards the assessment of conduct which may be considered to be contrary to public policy, conduct may not be considered to be of a sufficiently serious nature to justify restrictions on entry to, or residence within, the territory of a Member State of a national of another Member State where the former Member State does not adopt, with respect to the same conduct on the part of its own nationals, repressive measures or other genuine and effective measures intended to combat such conduct (Adoui and Cornuaille, cited above, paragraph 8).

15. Justifications Gebhard:
National measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the treaties have to fulfil four conditions in order not to breach Art. 49 TFEU:
Be applied in a non-discriminatory measure
Justified by imperative requirements in the general interest
Suitable for securing attainment of the objective pursued
Not go beyond what is necessary

16. Examples of justifications
Chalmers identifies 4 categories of justifications:
1) Market externalities
e.g. road safety, environment, guaranteening quality of skilled work
2) Civil liberties
e.g. human dignity, freedom of expression
3) Socio-cultural practices
e.g. balance between sports clubs, prevention social dumping, preserving education system, promotion mobility disabled
4) Preservation of public order
e.g. administration of justice, coherence taxation scheme, effectiveness fiscal supervision, preventing social security fraud, preventing gambling

17. Restrictions National Measures Indirect Discrimination Non – Direct
Breach of
Arts 49/54/55
and/or
Dir. 2004/38
Express derogations +
FR +
Proportionality
Art. 49/54/55
Does the measure
create an obstacle
or restriction
to free movement?
Yes,
e.g. Gebhard, Viking
No =>
No breach
Public Interest
Requirements +
Restrictions

18. Vlassopoulou
Note: Case predates adoption of secondary legislation on mutual recognition diploma’s (Directive 2005/36/EC)
Mrs. Vlassopoulo, Greek lawyer with a doctorate from a German university not admitted as a Rechtsanwaltin

19. Vlassopoulou
[Art. 49 TFEU] must be interpreted as requiring the national authorities of a Member State to which an application for admission to the profession of lawyer is made by a Community subject who is already admitted to practise as a lawyer in his country of origin and who practises as a legal adviser in the first-mentioned Member State to examine to what extent the knowledge and qualifications attested by the diploma obtained by the person concerned in his country of origin correspond to those required by the rules of the host State; if those diplomas correspond only partially, the national authorities in question are entitled to require the person concerned to prove that he has acquired the knowledge and qualifications which are lacking.

21. Viking
Estonian crew wages are lower than Finnish crew wages. The Rosella was running at a loss as a result of direct competition from Estonian vessels operating on the same route with lower wage costs. As an alternative to selling the vessel, Viking sought in October 2003 to reflag it by registering it in either Estonia or Norway, in order to be able to enter into a new collective agreement with a trade union established in one of those States

22. Viking
(…) in the event of reflagging the crew should continue to be employed on the conditions laid down by Finnish law and the applicable collective agreement, would render reflagging pointless, since the whole purpose of such reflagging was to enable Viking to reduce its wage costs. (…)

23. Viking
the national court is essentially asking whether Article 43 EC must be interpreted as meaning that collective action initiated by a trade union or a group of trade unions against an undertaking in order to induce that undertaking to enter into a collective agreement, the terms of which are liable to deter it from exercising freedom of establishment, falls outside the scope of that article

24. Viking
Although the right to take collective action, including the right to strike, must therefore be recognised as a fundamental right which forms an integral part of the general principles of Community law the observance of which the Court ensures, the exercise of that right may none the less be subject to certain restrictions.

25. Viking
the fundamental nature of the right to take collective action is not such as to render Article 43 EC (Art. 49 TFEU) inapplicable to the collective action at issue in the main proceedings

26. Viking
provisions of the Treaty concerning freedom of establishment are directed mainly to ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, they also prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals or of a company incorporated under its legislation which also comes within the definition contained in Article 48 EC.

27. Viking
Since the Community has thus not only an economic but also a social purpose, the rights under the provisions of the Treaty on the free movement of goods, persons, services and capital must be balanced against the objectives pursued by social policy, which include, as is clear from the first paragraph of Article 136 EC, inter alia, improved living and working conditions, so as to make possible their harmonisation while improvement is being maintained, proper social protection and dialogue between management and labour.

28. Viking
(…) Article 43 EC [Art. 49 TFEU] is to be interpreted to the effect that collective action such as that at issue in the main proceedings, which seeks to induce an undertaking whose registered office is in a given Member State to enter into a collective work agreement with a trade union established in that State and to apply the terms set out in that agreement to the employees of a subsidiary of that undertaking established in another Member State, constitutes a restriction within the meaning of that article. That restriction may, in principle, be justified by an overriding reason of public interest, such as the protection of workers, provided that it is established that the restriction is suitable for ensuring the attainment of the legitimate objective pursued and does not go beyond what is necessary to achieve that objective.

29. Article 54 TFEU
Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Union shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States. “Companies or firms” means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit making.

30. Legal persons Real seat v. Incorporation Theory
Transfer, without change in applicable law (Daily Mail, Cartesio)
2) Reincorporation (Viking)