The Labour Court: Housing allowance for employees without residence in Denmark did not violate EU law
In a judgment of May 6, 2026, the Danish Labor Court ruled on whether the provision regarding housing allowance for employees who were not residing in Denmark at the start of their employment or posting, in section 28 of the Collective Agreement for the Construction and Civil Engineering Sectors, was invalid as violating EU law because it affected foreign companies more severely than Danish companies. The Labor Court found that the provision did not violate Articles 18, 45 or 56 of the Treaty on the Functioning of the European Union (TFEU), and that the sympathy strike initiated by the Danish Trade Union Confederation (FH) against a Lithuanian construction company was therefore lawful.
Indirect discrimination against foreign companies
The case concerned a Lithuanian construction company that refused to join to the Collective Agreement for the Construction and Civil Engineering Sectors. The company argued that section 28 of the collective agreement, which provided for a housing allowance of DKK 25 per working hour for employees who were not residing in Denmark at the start of their employment or posting, was violating EU law.
Among other things, the company argued that, in practice, the provision affected foreign companies more severely than Danish companies because foreign companies are more likely to employ workers who do not reside in Denmark. In the company’s view, the provision therefore constituted indirect discrimination in violation of Article 18 of the TFEU.
The company also argued that the housing allowance constituted a restriction under Articles 45 and 56 TFEU on the free movement of workers and services, as it imposed a financial burden on foreign companies and thereby placed them at a competitive disadvantage compared to Danish companies. The company further argued that the provision was disproportionate, and that its objective could be achieved by less restrictive means. Finally, the company requested that the Labor Court refer the questions to the Court of Justice of the European Union for a preliminary ruling.
No direct or indirect discrimination
The Labor Court first noted that, under section 28, the right to a housing allowance does not depend on whether the employee is a Danish or foreign national, nor does it depend on whether the employer is a Danish or foreign company.
The Court further found that it had not been proven that, in practice, the housing allowance affected foreign companies more severely than Danish companies. The Court therefore held that there was no direct or indirect discrimination on grounds of nationality.
Restriction on the free movement of workers and services
The Labor Court then went on to assess whether the provision regarding the housing allowance could constitute a restriction on the free movement of workers and services that could not be justified by overriding reasons in the public interest or upheld as proportionate.
The Labor Court found that, to the extent the housing allowance constituted a restriction, weight had to be given to the fact that the provision had been introduced by agreement between the social partners for the purpose, among other things, of protecting foreign Labor, ensuring equal conditions for Danish and foreign companies, and preventing social dumping.
The Court also attached weight to the fact that the allowance was to be paid only to employees whose hourly wage did not exceed the minimum pay rate plus the housing allowance, and that, according to the statistical data presented, these employees belonged to the lowest-paid segment of the construction and civil engineering industry.
Overall, the Labor Court therefore found that the provision did not violate Articles 18, 45 or 56 of the TFEU. The Labor Court further noted that there was no such doubt as to the interpretation of Articles 18, 45 or 56 of the TFEU as to warrant a referring questions for a preliminary ruling to the Court of Justice of the European Union. The Danish Trade Union Confederation was therefore acquitted, and the sympathy strike was deemed lawful.
Littler comments
Littler | Denmark advises employers, including foreign employers, on understanding Danish collective agreements and represents employers in handling cases involving trade unions.
It is particularly important for employers operating under the construction industry collective agreements to understand the provisions concerning wage formation and the various wage components included in pay. It should be emphasized that the housing allowance does not have to be paid to employees in cases where the agreed hourly wage exceeds the value of the collective agreement minimum wage plus the housing allowance. It is also important to note that the housing allowance is only payable for a limited period and subject to certain conditions.
In general, a collective agreement of provision may be invalid as contrary to EU law if it constitutes indirect discrimination against foreign companies. Indirect discrimination exists if a seemingly neutral provision in practice affects foreign companies more severely than Danish companies.
The Labour Court has ruled that employers’ obligation under Section 28 of the Construction and Civil Engineering Collective Agreement to pay a housing allowance to employees who were not resident in Denmark at the start of their employment or posting did not constitute indirect discrimination against foreign companies, as it was not proven that the housing allowance in practice affected foreign companies more severely than Danish companies.
Furthermore, the judgment illustrates that social partners have broad scope to introduce restrictions on the free movement of workers and services through collective agreements, and that the Labour Court attaches significant weight to the protection of foreign labour, ensuring equal competitive conditions, and preventing social dumping when assessing collective agreement initiatives on the Danish labour market.
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Disclaimer: The above is not, and cannot replace, legal advice.
Reference to the Judgment of the Danish Labor Court of May 6, 2026: case no. 2025-114
