The aim of this paper is to discuss and illustrate the challenges that the operations of ‘letter-box companies’ in the EU internal market place to labour and employment standards and to trade union activities. Based on a legal geographic analysis of the multi-faceted labour law regime of the EU internal market, the paper examines the conceptual aspects of the clash between the cross-border operations of ‘letter-box companies and the territorial application of labour rules, i.e. the labour law’s ‘principle of territoriality’, and it discusses the impact on trade union activities. 

Generally speaking, the term ‘letter-box company’ refers to a company not retaining any real (or only a loose) connection with the country of incorporation. From a labour law perspective, the definition refers to those companies that have the cross-border provision of workforce as their ‘core business’. In both cases, the term identifies a scenario in which a company only has a letterbox in the country of establishment and mainly operates by posting workforce for temporary service provision to countries other than the one of establishment. These operations are legitimately undertaken under the scope of EU internal market law and are based on a combined use of the economic freedoms of establishment and providing services. Their economic rationale lies in the exploitation of cross-border labour costs differentials, which characterise the socio-economic geography of the EU internal market. 

This scenario concerns socio-economic dynamics that affect the industrial relations contexts of both the country of establishment and the country of destination. On the one side, the cross-border provision of workforce operated by a ‘letter-box company’ to a company established in the country of destination, places this latter subject in a better comparative advantage with other companies recruiting local workforce. In its turn, the local workforce would be disadvantaged in relation with the workforce of the country in which the ‘letter-box company’ is established. This scenario entails social dumping as the primary factor of competition and envisions downwards collective bargaining as the ensuing consequence. On the other side, the improvement of working and employment conditions in the country of establishment of the ‘letter-box company’ would be affected by the competitiveness that the labour costs differential ensures for the national economy by attracting foreign investments. Ultimately, the declared objective of the EU to achieve a ‘social market economy’ (Art 3 TEU) would be undermined. 

Against this background, the trade union subject finds itself in the position of elaborating new strategies for transnational workers representation, collective bargaining and collective action that capture and respond to the complexity of the cross-border socio-economic dynamics generated by the ‘letter-box companies’ operations. In order not to abandon the role of leading socio-economic actor and bearer of workers’ collective interest in society, it is thus vital for the trade union subject to develop cross-border strategies responding to the cross-border socio-economic challenges that arise within the EU internal market. By combining elements of labour law, EU internal market law and industrial relations research, this paper discusses these challenges and explores new scenarios for transnational trade unionism in Europe.