In a recent ruling delivered by the Court of Justice of the European Union (CJEU), it was established that the right to provide services across the EU takes precedence over minimum workers’ wages.

The ruling concerned a case in which a German government authority issued an EU-wide call for tenders for a public contract relating to the digitisation of documents and the conversion of data for the city’s urban planning service. The tendering procedure was subject to a special condition that required prospective contractors to pay a minimum wage to all employees involved in performing the contract, regardless of by whom and where those employees were actually employed. This requirement was based on German law that stipulated “Public service contracts … may be awarded only to undertakings which, at the time of the submission of the tender, have agreed in writing, by means of a declaration made to the contracting authority, to pay their staff …, for the performance of the service, a minimum hourly wage of at least €8.62. The under­takings shall, in their declarations, state the nature of the commitment adopted by their undertaking in the context of the collective agreement and the minimum hourly wage which will be paid to the staff engaged for the performance of the services.”

One of the tenderers, Bundesdruckerei, a German printing company, planned to perform the services through a wholly-owned subsidiary located in Poland.

The tenderer challenged the tender’s requirement that bidders should have to agree to require any sub-contractors to also comply with the minimum hourly wage as provided under the German law. It maintained that the minimum wage requirement should not be applicable if the services were performed in another EU member state where the minimum wage happened to be lower than in Germany.

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.

The German government authority, however, refused a request by Bundesdruckerei to confirm that the minimum wage requirement would not apply in this case. Bundesdruckerei then brought a case before the public procurement board asking for a change in 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.

It is likely that contracting authorities may no longer require tenderers for public contracts to pay a specific minimum wage

The CJEU ruled that the Germany government authority could not require a sub-contractor based in another EU member state to pay its staff at least the minimum wage that applies in Germany. The court based its decision on the principle of freedom to provide services enshrined in Article 56 of the Treaty on the Functioning of the European Union and to that extent declared the German requirement in breach of EU law. It considered that the special condition applied a German requirement for an enhanced minimum wage upon another member state, where the wage standard was lower.

Article 56 of the TFEU prohibits any restrictions on the freedom to provide services within the EU when a business established in one member state provides services to a person or organisation in another member state and, thus, seeks to prohibit barriers to cross-border trade.

Although the German state claimed that the special condition was justified and the court acknowledged that measures aiming to ensure reasonable wages have a legitimate interest, the CJEU nonetheless considered the German requirement a disproportionate one. The court ruled that the tender condition constituted an across-the-board requirement which, consequently, did not take into account the cost of living of the member state in which the services were intended to be rendered.

In the light of this ruling it appears unlikely that minimum wage clauses in public procurement settings would be considered justifiable. Although the decision of the CJEU applies between the parties to those proceedings, it is likely that, as a result of this ruling, contracting authorities may no longer require tenderers for public contracts to pay a specific minimum wage, where the work is to be performed in another member state.

Notably, the ruling clarifies that there is a possibility for the exploitation of wage levels difference existing in the EU member states in order to gain a competitive advantage.

jgrech@demarcoassociates.com

Josette Grech is advisor on EU law at Guido de Marco & Associates.

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