Right to provide services across the EU takes precedence over arguments over workers’ rights, court rules

Out-Law News | 29 Sep 2014 | 11:03 am | 3 min. read

The Court of Justice of the EU (CJEU) has ruled that a regional authority in Germany cannot require a sub-contractor based in another EU member state to pay its staff at least the minimum wage that applies in its area of Germany.

The ruling concerned a case in which the city of Dortmund, in the federal German state of North Rhine-Westphalia (NRW), issued an EU-wide tender in May 2013 for a public contract relating to the digitisation of documents and the conversion of data for the city’s urban planning service.

German banknote and specialist printing company, Bundesdruckerei has challenged Dortmund's requirement that bidders for the €300,000 contract should have to agree to require any sub-contractors also to comply with the minimum hourly wage of €8.62 as provided for under NRW law, in addition to complying with the rate for their own staff.

The CJEU said Article 56 of the Treaty on the Functioning of the EU “precludes the application of legislation of the member state to which that contracting authority belongs which requires that sub-contractor to pay those workers a minimum wage fixed by that legislation”.

The CJEU said: “In this regard, it is apparent from the court’s case-law that the imposition, under national legislation, of a minimum wage on sub-contractors of a tenderer which are established in a member state other than that to which the contracting authority belongs, and in which minimum rates of pay are lower, constitutes an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host member state.”

According to the CJEU, such a national measure “may in principle be justified by the objective of protecting employees” under NRW laws, to ensure employees are “paid a reasonable wage in order to avoid both ‘social dumping’ and the penalisation of competing undertakings which grant a reasonable wage to their employees”.

However, the CJEU said such a national measure, in so far as it applies solely to public contracts, “is not appropriate for achieving that objective if there is no information to suggest that employees working in the private sector are not in need of the same wage protection as those working in the context of public contracts”.

Employment law expert Stuart Neilson of Pinsent Masons, the law firm behind Out-Law.com, said the case highlights "the conflict that the CJEU has had to consider between the desire to provide protection to workers, and avoid what is colloquially known as social dumping, and the freedom under EU law to provide services across the whole EU”.

Neilson said: “The decision supports the view that the right to provide services across the whole EU takes precedence over arguments over workers’ rights. The CJEU’s view was that the Polish sub-contractor should not be fettered by the need to apply a local German minimum wage level and should be free to agree its own rates of pay. Accordingly it was against EU law to exclude the Polish sub-contractor on the grounds of not complying with the local minimum wage.”

"The impact of this decision is that it will be unlawful to seek to impose local employment terms on contractors where work will not actually be carried out in that member state,” Neilson said. ". However, where the work is to be carried out in the member state by workers from another member state, “then it is permissible, indeed mandatory, for the workers to be subject to certain minimum standards of the host member state relating to minimum wages, working time, holidays, protection of pregnant women and discrimination,” he said.

Neilson said: “It is not permissible to insist upon employers going beyond those standards, for example in the UK by insisting on rates of pay agreed with a particular trades union." Local ‘protectionism’ regarding pay and terms and conditions “can be a fraught issue, but other than observing the local minimum requirements, EU law is squarely against the idea of member states, employers or trades unions discriminating against employers from other member states on the basis that they are ‘undercutting’ more generous terms,” Neilson said.In a letter to the Dortmund authority, Bundesdruckerei had explained that, if it were awarded the contract, the services under that contract would be performed exclusively in another EU member state, by a sub-contractor based in Poland.

Bundesdruckerei said its sub-contractor would be unable to comply with the minimum wage undertaking because such a minimum wage was not provided for by collective agreements or under Polish law and payment of such a minimum wage was also not usual in Poland “in the light of the general standard of living there”.

Dortmund refused a request by Bundesdruckerei to confirm that the minimum wage requirement would not apply in this case. Bundesdruckerei then challenged the city’s position in a case filed with the public procurement board (PPB) of the Arnsberg regional government. The company asked the PPB to force Dortmund to amend the tender documents so that the minimum wage condition would be waived for sub-contractors established in another EU state and whose employees are engaged, for the performance of the public contract, exclusively in that state.

The PPB will now determine the outcome of the case on the basis of the CJEU's judgment.