Looking closely at the RegioPost case: two new papers on public procurement and labour standards under eu law

I have been working on the implications of the RegioPost Judgment for a while (I can't believe it will soon be a year since the conference we held at the University of Bristol Law School), and finally uploaded two new papers on SSRN where I discuss different aspects of the case and its implications for the enforcement of labour standards through public procurement regulated by the 2014 EU Public Procurement Package.

The first paper is concerned with the regulatory substitution implicit in the inclusion of social and employment-related considerations in public procurement. The second paper is concerned with the competition and State aid implications of the asymmetrical rules on minimum wage requirements that result from RegioPost, Rüffert and Bundesdruckerei. Below are some additional details on each of the papers. I hope that both papers manage to provide complementary views on the many issues that derive from the interaction between EU public procurement law, EU labour law and EU free movement law. Feedback most welcome!

Regulatory Substitution between Labour & Public Procurement Law: EU's Shifting Approach to Enforcing Labour Standards in Public Contracts

In this paper, I reflect about a recent regulatory trend concerning the enforcement of labour standards through contract compliance clauses and other requirements of public contracts tendered under European Union public procurement law. On the back of recent developments in the case law of the European Court of Justice regarding cross-border situations of procurement-based enforcement of labour standards, notably in the re-examination of the Rüffert case in both the Bundesdruckerei and RegioPost cases, I reflect on this phenomenon from the perspective of regulatory substitution. In setting out a basic framework to assess regulatory substitution, I hypothesise that most of the difficulties evidenced by the case law stem from the transfer of labour regulation goals to the public procurement sphere. I then aim to test this hypothesis by means of an analysis of labour policy-oriented mechanisms included in the 2014 revision of the EU public procurement rules. I then go on to critically assess the fitness for purpose of the procurement mechanisms from the perspective of contributing to the enforcement of labour standards. And I ultimately extract some general conclusions that can be of relevance in non-EU jurisdictions where similar trends of regulatory substitution between labour and public procurement law may be emerging.

Sanchez-Graells, Albert, Regulatory Substitution between Labour and Public Procurement Law: The EU's Shifting Approach to Enforcing Labour Standards in Public Contracts (April 25, 2017). Available at SSRN: https://ssrn.com/abstract=2958297.

Competition and State Aid Implications of ‘Public’ Minimum Wage Clauses in EU Public Procurement after the Regiopost Judgment

This chapter assesses the use of public procurement to enforce labour standards from a competition and State aid perspective, and concentrates on the establishment of contract compliance clauses under the rules of Article 26 of Directive 2004/18/EC and Article 70 of Directive 2014/24/EU and in relation with the Posted Workers Directive. In particular, it assesses the case law of the European Court of Justice in Rüffert, Bundesdruckerei and RegioPost from an economic perspective. This highlights the potential negative competitive implications that derive from the asymmetrical rules the case law creates for the cross-border and the inter-regional provision of services to the public sector. It also underlines the risk of (regional) economic protectionism that they create. The chapter then assesses these issues from the perspective the EU public procurement, competition and State aid rules. It concludes that, given the current ineffectiveness of the checks and balances theoretically oriented towards the prevention of these undesirable effects, contracting authorities and policy makers would be well advised to abandon their efforts of setting partial, incomplete and difficult to monitor minimum/living wage requirements for public contracts only.

Sanchez-Graells, Albert, Competition and State Aid Implications of ‘Public’ Minimum Wage Clauses in EU Public Procurement after the Regiopost Judgment (April 25, 2017). Prepared for future publication in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards—Pushing the Discussion after RegioPost (Bloomsbury-Hart). Available at SSRN: https://ssrn.com/abstract=2958296.

CJEU clarifies and minimises Rüffert, and expands scope for minimum wage requirements in public procurement (C-115/14)

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,
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).
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].

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.

CJEU continues reducing the scope of minimum wage laws when public contracts are subcontracted (C‑549/13)

In its Judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, the CJEU continued the development of its case law on the interaction between public procurement and labour law. In this area that was revolutionised by the Viking and Laval cases (although Viking was not about procurement), and then expanded in Rüffert and Luxembourg (idem), every decision of the CJEU is highly sensitive and likely to be received with as much praise as criticism [see, eg, Zimmer, 'Labour Market Politics through Jurisprudence' (2011) 7(1) German Policy Studies 211-234, or Bücker and Warneck, 'Viking-Laval-Rüffert: Consequences and policy perspectives' (2010) 11 European trade union institute report].
The Bundesdruckerei Judgment will surely be no exception, given that the CJEU has ruled that if a tenderer intends to carry out a public contract by having recourse exclusively to workers employed by a subcontractor established in a Member State other than that to which the contracting authority belongs, article 56 TFEU precludes the application of legislation of the contracting authority's Member State that requires the subcontractor to pay a minimum wage to its workers.
It specifically determines the incompatibility with EU law of the Law of the Land of North Rhine-Westphalia on compliance with collective agreements, social norms and fair competition in the award of public contracts of 10 January 2012 and, particularly, its paragraph 4(3), which foresaw that:
Public service contracts which are not covered by [rules on posted workers, or on the public transportation of passengers by road and rail] 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 EUR 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. The amount of the minimum hourly wage may be adapted in accordance with Paragraph 21, by means of a regulation adopted by the Ministry of Labour.
Hence, Bundesdruckerei is different from previous cases because it does not involve posted workers, but exclusively the recourse to a fully-owned subsidiary in a different Member State by the main contractor. Hence, the relevant situation is that in which ‘the subcontractor is established in another EU Member State and the employees of the subcontractor carry out the services covered by the contract exclusively in the subcontractor’s home country’ (para 26).
Issues of abuse of internal market rules aside [for a very interesting discussion, see Sayde, Abuse of EU Law and Regulation of the Internal Market (Oxford, Hart Publishing, 2014)], the legal question was relatively straightforward: does 'Article 56 TFEU preclude the application of legislation of the Member State to which that contracting authority belongs which requires that subcontractor to pay those workers a minimum wage fixed by that legislation'? (para 29).
The CJEU had no doubt about the incompatibility of the minimum wage requirement, even if it could be considered a 'contract compliance clause' under article 26 of  Directive 2004/18, which foresaw that
Contracting authorities may lay down special conditions relating to the performance of a contract, provided that these are compatible with Community law and are indicated in the contract notice or in the specifications. The conditions governing the performance of a contract may, in particular, concern social and environmental considerations (emphasis added).
The CJEU hence focussed on the compatibility with EU law of the minimum wage requirement. In very clear terms, the CJEU has ruled that
By imposing, in such a situation, a fixed minimum wage corresponding to that required in order to ensure reasonable remuneration for employees in the Member State of the contracting authority in the light of the cost of living in that Member State, 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, that 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 is bound to be a truly relevant case, as it can effectively deactivate all attempts by Member States to impose minimum wages being paid in public procurement settings, even under the revised rules for 'contract compliance clauses' in art 70 of Directive 2014/24. This provision has now substituted art 26 of dir 2004/18 and indicates that
Contracting authorities may lay down special conditions relating to the performance of a contract, provided that they are linked to the subject-matter of the contract within the meaning of Article 67(3) [ie linked to the specific process of production or a specific process in another stage of the life-cycle] and indicated in the call for competition or in the procurement documents. Those conditions may include economic, innovation-related, environmental, social or employment-related considerations (emphasis added).
There are two important changes to note in the Drafting of art 70 dir 2014/24 when compared to art 26 of dir 2004/18.
The first one is that art 70 dir 2014/24 attempts to swap the general criterion of compatibility with EU law with a requirement for the conditions to be linked to the subject-matter of the contract. Generally, this is simply laughable, as the general obligation to comply with EU law does not need to be written in a Directive, but derives generally from the supremacy of EU law and, in particular, of TFEU provisions (as art 56). However, in a more possibilistic reading, the requirement of link to object of the contract may be reinterpreted as establishing a tight proportionality test, in which case the change of drafting will not have any meaninguful legal consequences (either).
The second change is the explicit inclusion of employment-related considerations, as a specification of social issues. This change is also bound to be significantly ineffective, as the CJEU did not contend that employment-related considerations could be the object of contract compliance clauses.
Generally, I think that the case law of the CJEU is consistent and very clear in imposing restrictions to any deactivation of (labour) competitive advantages. And I think that it will be very difficult to avoid that approach under art 70 dir 2014/24, unless contracting authorities smarten up in the way they impose minimum wage conditions [for a general discussion on the likelihood of this, see Jaehrling, ‘The state as a “socially responsible customer”? Public procurement between market-making and market-embedding’ (2014) European Journal of Industrial Relations (forthc)]. More generally, this could put pressure on the development of a European minimum wage (see discussion here), but the analysis of the (undesirable) effects of such policy exceed our time and space.
However, as public procurement is concerned, the Judgment of the CJEU in Bundesdruckerei should be welcome, as it stresses that the main goal of public procurement rules are to ensure economic efficiency by a deepening of the internal market and a protection of undistorted competition (even by means of regulation). Some may like it (I do), and some may hate it (as Arrowsmith and, particularly, Kunzlik seem to do), but this is what it is.