In its much awaited Judgment of 17 November 2015 in RegioPost, C-115/14, EU:C:2015:760, the Court of Justice of the European Union (CJEU) has allowed for the imposition of minimum wage requirements as special performance conditions in public procurement covered by the EU rules.
Interestingly, the CJEU achieves this result despite deviating from the proposal of AG Mengozzi, who also advocated for more scope for minimum wage clauses, but on very different legal grounds (discussed here). It is also worth stressing that the case is decided on the basis of Art 26 of Directive 20014/18, but the reasoning is equally applicable to the new rules under Art 70 of Directive 2014/24.
The RegioPost Judgment is particularly significant for its deviation from the restrictive approach to the use of minimum wage requirements in public procurement that was established by Rüffert, C-346/06, EU:C:2008:189 and Bundesdruckerei, C-549/13, EU:C:2014:2235. Thus, it is worth analysing the reasoning of the CJEU in detail, particularly to determine to what extent RegioPost restricts the effects of the previous line of cases in this area.
It is worth reminding that,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. This minimum wage requirement was challenged on the basis of several grounds (see here for further background).
In specific legal terms, the main question addressed to the CJEU was to determine 'whether Article 26 of Directive 2004/18 must be interpreted as precluding legislation of a regional entity of a Member State ... which requires tenderers and their subcontractors to undertake, by means of a written declaration to be enclosed with their tender, to pay staff who are called upon to perform the services covered by the public contract in question a minimum wage laid down in that legislation' (C-115/14, para 53).
In order to answer this question, the CJEU engages in a step-by-step approach were, after confirming that the minimum wage requirement creates a special performance condition covered by Art 26 Dir 2004/18 (and now Art 70 Dir 2014/24) and that it is not discriminatory, it determines to what extent such requirement can be assessed under the requirements of EU primary law.
In that regard, the CJEU is clear in subjecting minimum wage requirements to EU primary law on the basis that the procurement Directive does not lay down exhaustive rules in respect of special conditions relating to the performance of contracts and, therefore, this is not a field that has been exhaustively harmonised at EU level and minimum wage requirements must not only be assessed in the light of the provisions of the Directive, but also in the light of the primary law of the European Union (C-115/14, paras 57-59).
The CJEU then engages in such assessment of compatibility of minimum wage requirements with primary EU law, but does so by reference to Directive 96/71 on the posting of workers (PWD), which had been rejected by AG Mengozzi (here). This is interesting in itself because, in my view, EU primary law does not cover a Directive such as the PWD. However, the analysis that the CJEU carries out does not seem to attach particular relevance to the actual primary or secondary law nature of the PWD [for critical discussion of similar issues, see P Syrpis, 'The relationship between primary and secondary law in the EU' (2015) 52(2) Common Market Law Review 461-487].
It is also interesting because of the route that leads the CJEU to resort to the analysis of the situation under the PWD as a benchmark for the legality of the minimum wage requirement. As the CJEU explains,
This is also remarkable because the CJEU resorts to the recital of the procurement Directive in order to engage the PWD, rather than directly identifying the applicability of the PWD to the case [cf Casa Fleischhandel v BALM, C-215/88, EU:C:1989:331, para 31].
60 ... in accordance with recital 34 to Directive 2004/18, in examining whether the national measure ... is compatible with EU law, it is necessary to determine whether, in cross-border situations in which workers from one Member State provide services in another Member State for the purpose of performing a public contract, the minimum conditions laid down in Directive 96/71 are observed in the host member State in respect of posted workers (C-115/14, para 60, emphasis added).
Once the analysis is framed in terms of the PWD, the CJEU basis its arguments on compliance with Art 3(1) PWD, according to which 'Member States shall ensure that, whatever the law applicable to the employment relationship ... undertakings ... guarantee workers posted to their territory the terms and conditions of employment covering the following matters which, in the Member State where the work is carried out, are laid down: by law, regulation or administrative provision, ... (c) the minimum rates of pay'. The CJEU considers that the requirement at issue in RegioPost meets all these conditions. It further clarifies that it is compatible with EU law more generally despite applying only to public contracts and not to private contracts. It does so by stressing that:
62 ... contrary to the Law of the Land Niedersachsen on the award of public contracts at issue in the case that gave rise to the judgment in Rüffert (C-346/06, EU:C:2008:189), a provision such as [Rhineland-Palatinate's regional legislation] itself lays down the minimum rate of pay...
63 That categorisation cannot be called in question on the basis that the national measure in question applies to public contracts and not to private contracts, since the condition as to universal application defined in the first subparagraph of Article 3(8) of Directive 96/71 applies only to the collective agreements or arbitration awards referred to in the second indent of the first subparagraph of Article 3(1) of that directive.
64 Moreover, since the national measure at issue in the main proceedings falls within the scope of Article 26 of Directive 2004/18, which permits, subject to certain conditions, the imposition of a minimum wage in public contracts, that measure cannot be required to extend beyond that specific field by applying generally to all contracts, including private contracts.
65 The limitation of the scope of the national measure to public contracts is the simple consequence of the fact that there are rules of EU law specific to that field, in this case, those laid down in Directive 2004/18.
66 It follows that Article 26 of Directive 2004/18, read in conjunction with Directive 96/71, permits the host Member State to lay down, in the context of the award of a public contract, a mandatory rule for minimum protection referred to in point (c) of the first subparagraph of Article 3(1) of that directive ... which requires undertakings established in other Member States to comply with an obligation in respect of a minimum rate of pay for the benefit of their workers posted to the territory of the host Member State in order to perform that public contract. Such a rule is part of the level of protection which must be guaranteed to those workers (see, to that effect, judgment in Laval un Partneri, C-341/05, EU:C:2007:809, paragraphs 74, 80 and 81).
67 That interpretation of Article 26 of Directive 2004/18 is confirmed, furthermore, by a reading of that provision in the light of Article 56 TFEU, since that directive seeks in particular to bring about the freedom to provide services, which is one of the fundamental freedoms guaranteed by the Treaty (see, by analogy, judgment in Rüffert, C-346/06, EU:C:2008:189, paragraph 36) (C-115/14, paras 62-67, emphasis added).
This is remarkable because, at this stage, the CJEU fills in the requirement for the special performance conditions to be compatible with EU law under Art 26 Dir 2004/18 (Art 70 Dir 2014/24) with reference to the PWD only. It then goes on to assess the need to such measures to also comply with Art 56 TFEU in the following terms:
69 ... according to the case-law of the Court, the imposition, under national legislation, of a minimum wage on tenderers and their subcontractors, if any, established in a Member State other than that of the contracting authority 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. Consequently, a measure such as that at issue in the main proceedings is capable of constituting a restriction within the meaning of Article 56 TFEU (see to that effect, inter alia, judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, paragraph 30).
70 Such a national measure may, in principle, be justified by the objective of protecting workers (see, to that effect, judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, paragraph 31).
71 However, as the referring court has observed, the question arises whether it follows from ... Rüffert ... that such a justification cannot be accepted on the grounds that the minimum wage ... applies to public contracts only, and not to private contracts.
72 That question calls for a negative answer.
73 It is clear from ... Rüffert ... that although the Court concluded, in the context of the examination of the national measure at issue in the case that gave rise to that judgment in the light of Article 56 TFEU, that that measure could not be justified by the objective of the protection of workers, it based that conclusion on certain characteristics specific to that measure, which clearly distinguish that measure from the national measure at issue in the main proceedings.
74 Thus, ... in Rüffert ... the Court based its conclusion on the finding that what was at issue in the case that gave rise to that judgment was a collective agreement applying solely to the construction sector, which did not cover private contracts and had not been declared universally applicable. Furthermore, the Court observed that the rate of pay set by that collective agreement exceeded the minimum rate of pay applicable to that sector ...
75 The minimum rate of pay imposed by the measure at issue in the main proceedings is laid down in a legislative provision, which, as a mandatory rule for minimum protection, in principle applies generally to the award of any public contract in the Land of Rhineland-Palatinate, irrespective of the sector concerned (C-115/14, paras 69-75, emphasis added).
This effort to distinguish Rüffert is remarkable and the CJEU has fundamentally back-tracked from its restrictive line of case law when it comes to the use of public procurement for social policy purposes. The way it distinguished Rüffert from RegioPost is coated in very technical terms under the PWD, but the key point in my view is that the CJEU is willing to sacrifice important non-discrimination issues and a major excuse for shadow economic protectionism at the altar of a politically-charged move to facilitate the politicised use of public procurement.
Indeed, by minimising the non-discrimination requirements of Rüffert, the CJEU has opened the door to very significant distortions of competition between undertakings engaged in the performance of public contracts and those that provide goods and services in private markets, as well as distortions in employee protection for those hired by undertakings to perform public contracts and those hired to perform private contracts. This is likely to create further litigation in the employment and non-discrimination law arenas where undertakings engage in both private and public contract activity with a single workforce.
The RegioPost judgment is likely to trigger very significant attention in the coming days and weeks. Together with colleagues at the University of Bristol Law School who hold very different views to mine, we will be putting together an event to discuss the implications of RegioPost. stay tuned for more discussion on this important area of EU economic law.