AG Opinion favours minimum pay in public contracts: why the CJEU should not follow (C-115/14)

In his Opinion in RegioPost, C-115/14, EU:C:2015:566 (not yet available in English), Advocate General Mengozzi has submitted that the relevant EU public procurement rules (still Directive 2004/18; Art 26 on conditions for performance of contracts), did not oppose the imposition of requirements to pay minimum hourly rates to workers executing specific public contracts if those requirements stem from domestic (regional) legislation that would be engaged as a result of the posted workers Directive

The AG makes significant efforts to distinguish the RegioPost case from previous Judgments of the CJEU in Rüffert (C-346/06, EU:C:2008:189) and Bundesdruckerei (C-549/13, EU:C:2014:2235, see my comments here), and his Opinion creates leeway for the inclusion of minimum wage requirements in the execution of certain types of services contracts (something discussed by Dr Richard Craven in a work-in-progress paper presented at the UACES conference earlier this week). Moreover, the analysis in the AG's Opinion is relevant for the interpretation and enforcement of the new EU public procurement rules (Directive 2014/24; Art 70 on Conditions for performance of contracts). Thus, his RegioPost Opinion deserves some analysis.

In the case at hand, according to Rhineland-Palatinate's regional legislation (ie at Länder-level, as opposed to Federal-level which did not at the relevant time regulate minimum wage), public contracts could not be awarded to tenderers that did not commit to pay a gross minimum hourly wage of €8,70 to the workers involved in the execution of the contract. Remarkably, such commitment had to be made in their own name and on behalf of any existing or potential subcontractors. 

RegioPost was interested in a contract for the provision of postal services, but considered the minimum-wage requirement contrary to EU law and submitted its offer without the necessary declaration committing to pay such minimum hourly wage. Its offer was excluded from the process and each of the lots in which the contract was divided was awarded to a competing tenderer. RegioPost appealed the exclusion/award decision.

The arguments put forward by RegioPost, which the Commission shared, stressed that the incompatibility of the minimum hourly wage requirement with EU law derived both from the fact that this was a special requirement for public contracts not applicable to the execution of private contracts (Rüffert), and that the imposition of such a requirement needed to be assessed in accordance with the posted workers Directive because the provision of postal services would (at least for interested tenderers not based in Germany) require hiring or posting workers (differently from the situation in Bundesdruckerei, where the disappointed tenderer intended to execute the services contract remotely). There is a third, very technical issue, but the CJEU would not need to engage in its assessment if it followed the approach suggested here, so I will not discuss it in any detail.

A 'subjective' legal assessment?
In his Opinion, AG Mengozzi rejects both arguments. Starting with the analytical framework, he rejects that the analysis needs to include the provisions in the posted workers Directive. In his view, in Bundesdruckerei, the CJEU limited the analysis to compatibility with Art 56 TFEU because the circumstances of the case would not have engaged the posted workers Directive. In that regard, AG Mengozzi stresses that RegioPost (being an undertaking based in Germany and that had not indicated its intention to subcontract the execution beyond German territory) would not have executed the contract in a way that engaged the posted workers Directive. Thus, the AG concludes that the posted workers Directive is not relevant and, consequently, the analysis needs to be limited to compatibility with Art 56 TFEU as in Bundesdruckerei (paras 45-60).

In my view, this is a very problematic analytical option. If RegioPost had been an undertaking not based in Germany or that intended to subcontract the execution of the contract to a non-German based company in all or in part, the analysis would have been different. Therefore, the legal analysis depends in this case from the fact that the situation that gives rise to RegioPost's challenge is strictly internal. However, in its analysis of the admissibility of the request for a preliminary ruling, the AG had gone to painstakingly long efforts to set aside this argument in order to justify the competence of the CJEU to rule on this issue (paras 27-44). 

Remarkably, the AG had stressed how 'it cannot be excluded in any way that, following its publication in the Official Journal of the European Union, this tender has been of interest for a number of companies established in Member States other than Germany, but these companies have not finally participated in the award procedure for reasons that could be related to the requirements [concerning the minimum hourly wage at stake]' (para 37, own translation from Spanish). In my view, this should suffice for the CJEU to adopt a view that does not depend on the specific tenderer that challenges the requirement, but on the objective compatibility of the requirement with EU law, particularly in protection of the interests of those potentially excluded cross-border tenderers.

A competence-based legal assessment?
In similar terms, AG Mengozzi rejects the argument that the imposition of the minimum hourly wage only to the execution of public contracts, but not to private contracts, determines its incompatibility with EU law a-la-Rüffert. The AG considers that the inclusion of Art 26 in Directive 2004/18 (and now Art 70 in Dir 2014/24) has overruled Rüffert by allowing for the imposition of special conditions for the execution of public contracts. In his view, this suffices to overcome the Rüffert line of case law and moves the analysis to a pure competence-based issue. In the AG's view, given that German Lander have competence to legislate on minimum wages solely for public contracts (but not general minimum wages), upholding the difference between special conditions for public contracts and those generally applicable to private contracts (as well) would result in the nullification of the Lander's legislative competence (paras 61-89).

This is a very complex and counter-intuitive approach to the issue. Particularly because the AG stresses that 'it is true that Member States with a federal structure, such as the Federal Republic of Germany, cannot claim the internal division of powers between the authorities of regional or local authorities and federal authorities in order to avoid compliance with the obligations imposed on them by EU law. In order to ensure compliance with these obligations, these different authorities are obliged to coordinate the exercise of their respective powers' para 83, own translation from Spanish and reference omitted). And, however, his Opinion goes on to protect the effectiveness of the internal split of competences in a way that, in my opinion, simply goes against those findings.

Moreover, the AG traces a parallelism between social and environmental considerations in public procurement and indicates that the possibility of including environmental considerations that apply solely to public contracts (and not to private contracts) further justifies such a deviation from the Rüffert approach to issues of implicit discrimination. However, the AG is mixing different issues because, as recently argued in a persuasive manner, the inclusion of environmental considerations is assessed in an inverted manner by means of the requirement for those considerations to be linked to the subject-matter of the contact [see the analysis by Dr Rike Krämer in a work-in-progress paper also presented at UACES earlier this week]. Thus, the analytical framework is different, not least because the EU has a significant volume of environment-related competences, whereas its ability to regulate in social matters is extremely limited, if not practically non-existent.

What should the CJEU do?
In my opinion, the CJEU should reject AG Mengozzi's RegioPost Opinion on both aspects. Starting with the second argument, the CJEU should reject the competence-based analysis because it would allow Member States to restrict the effectiveness of EU internal market rules on the basis of their internal split of competences, which has not been accepted by the CJEU in the past. By stressing the important point in Bundesdruckerei that 
imposing ... a fixed minimum wage corresponding to that required in order to ensure reasonable remuneration for employees in the Member State [or region] of the contracting authority in the light of the cost of living in that Member State [or region], but which bears no relation to the cost of living in the Member State in which the services relating to the public contract at issue are performed and for that reason prevents subcontractors established in that Member State from deriving a competitive advantage from the differences between the respective rates of pay ... national legislation goes beyond what is necessary to ensure that the objective of employee protection is attained (C-549/13, at para 34, emphasis added).
This would simply imply using the principle of undistorted competition as a moderating factor aimed at controlling potential excessed resulting from the pursuit of secondary considerations in public procurement and, in particular, using undistorted competition as a limit to the pursuit of social policies that can break-up the internal market and prevent cross-border participation in public tenders [as discussed in full detail in A Sanchez-Graells, 'Truly Competitive Public Procurement as a Europe 2020 Lever: What Role for the Principle of Competition in Moderating Horizontal Policies?' (2016) 22(2) European Public Law forthcoming].

Moreover, on the first aspect, the CJEU should expand its analysis under Bundesdruckerei and include the assessment of the situation where the execution of the contract would necessarily require a non-German based contractor to either post workers or subcontract to a German-based undertaking. In those cases, compliance with the posted workers Directive would be the applicable standard in terms of social protection. Therefore, that would be the analysis to be carried out in order to assess whether the imposition of the minimum hourly wage solely to workers involved in the execution of public works is acceptable. The answer would most likely be that it is not (Rüffert), regardless of the wording of Art 26 of Dir 2004/18 and Art 70 of Dir 2014/24, because both of them require that any such special conditions for the execution of public contracts comply with general EU law.

In short, the CJEU should not follow AG Mengozzi's Opinion on any of these two issues. It should stress the current limits on the inclusion of social considerations in public procurement and define clear boundaries. Granted, this is an area where Member States may want to achieve more leeway (see eg the UK's latest approach to internships, as discussed by Dr Pedro Telles here), but this would require further harmonisation of social legislation on an EU-basis to avoid a new fractioning of the internal market. In the absence of such harmonisation, public procurement remains the wrong regulatory tool to address those issues.