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Waging war: Bundesdruckerei GmbH v Stadt Dortmund (Case C-549/13)

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10/10/2014

Background

In EU public procurement law, under Article 26 of Directive 2004/18 (the Public Sector Directive), contracting authorities can lay down special conditions relating to the performance of a contract, provided that such conditions are compatible with EU law and are indicated in the contract notice or in the specifications.

A Law of the ‘Land’ of North Rhine-Westphalia (Germany) provides that certain public service contracts may be awarded only to undertakings which, at the time of the submission of the tender, have agreed to pay their staff a minimum hourly wage of €8.62 for the performance of the service (the Requirement). This is intended to ensure that employees are paid a reasonable wage in order to avoid both ‘social dumping’ (that is, where foreign service providers attempt to undercut local service providers on the basis that their labour standards/costs are lower) and the penalisation of competing undertakings which grant a reasonable wage to their employees.

Stadt Dortmund (The City of Dortmund), in applying the above Requirement to a tender for a public contract (the value of which was approximately €300,000) relating to the digitalisation of documents and the conversion of data for its urban-planning service, required that a successful tenderer guarantee a minimum wage of €8.62 even for workers employed by a sub-contractor established in another Member State and who carried out any works exclusively in that State. The Requirement was included in a standard form that was to be signed by the contractor.

Bundesdruckerei GmbH, one of the tenderers, made Stadt Dortmund aware that if it were awarded the contract, it would be performed exclusively via a sub-contractor located in Poland and that the sub-contractor would be unable to provide an undertaking to comply with the minimum wage. With this in mind, Bundesdruckerei GmbH requested that Stadt Dortmund confirm that the Requirement did not apply to its proposed sub-contractor, but Stadt Dortmund denied the request.

Bundesdruckerei GmbH subsequently brought an action before the German Public Procurement Board (the GPPB). The GPPB also had doubts as to the compatibility of the legislation at issue (as applied by Stadt Dortmund) with European Union law and more specifically, with the freedom to provide services and as such referred the question to the European Court of Justice (the ECJ).

So, in the context of a public procurement procedure, can national law require that sub-contractors based in another Member State pay a minimum wage to their staff?

Judgment

In their Judgment on 18 September 2014, the ECJ stated that:

  1. It is only possible to impose special conditions in accordance with Article 26 of Directive 2004/18, where those requirements are compatible with EU law. It was therefore necessary to consider whether the Requirement was compatible with Article 56 of the Treaty of the Functioning of the European Union (TFEU).
  2. Imposing an obligation (under national legislation) to pay sub-contractors of a tenderer a minimum wage, when they are established in another Member State in which minimum rates of pay are lower, constitutes an economic burden that may in turn prohibit, impede or render less attractive the provision of their services in the host Member State.
  3. In view of point 2, the Requirement is capable of constituting a restriction within the meaning of Article 56 of the TFEU (“restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended”).
  4. Although the Requirement may be justified in theory, on the basis of attempting to protect employees, in so far as it applies solely to public contracts, such legislation is not appropriate for achieving that end 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.
  5. The Requirement appears disproportionate given that a fixed minimum wage which is required to ensure reasonable remuneration for employees in the Member State of the contracting authority, relative to 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 are to be performed, prevents sub-contractors established in that second Member State from deriving a competitive advantage from the differences between the respective rates of pay.
  6. Further, the Requirement cannot be justified by reference to the objective of attempting to achieve stability of social security systems; the application of that measure to the Polish employees is not necessary to avoid a risk of seriously undermining the balance of the German social security system. If the Polish employees were not to receive a reasonable wage and subsequently had no option but to fall back on social security, they would look to Polish social assistance not German.

Conclusion

  1. The Requirement goes beyond what is necessary to ensure that the objective of employee protection is attained.
  2. Where a tenderer intends to carry out a public contract by having recourse exclusively to workers employed by a sub-contractor established in a Member State (other than that to which the contracting authority belongs), the freedom to provide services precludes the Member State to which the contracting authority belongs from requiring the subcontractor to pay a minimum wage to workers.

Comment

This judgment will come as a relief to tenderers and public authorities alike, as it clarifies that whilst it is permissible to set a minimum wage requirement for contractors in the same Member State as the public authority, such a requirement cannot be made to apply cross-border, since the social security and cost of living in another Member State may be very different. The freedom to provide services will always take precedence.