Public Procurement Analysis

RegioPost judgment: CJEU upholds minimum wage clause

Ø Case C-115/14 RegioPost v Stadt Landau, Judgment of 17 November 2015

My last post looked at Advocate-General Mengozzi’s opinion in Case C-115/14 RegioPostv Stadt Landau (now available in English), which took a markedly different approach from Rüffert

to the question of whether contracting authorities may insist on the payment of a minimum wage to workers on public contracts. The CJEU has now published its judgment in RegioPost, which holds that:

i) Directive 2004/18 does not preclude legislation that requires tenderers and their subcontractors to undertake, by means of a written declaration, to pay staff performing the services a predetermined minimum wage; and

ii) A tenderer or subcontractor who refuses to provide an undertaking to pay a minimum wage required under legislation may be excluded from a procurement procedure.

For those not acquainted with Rüffert or the more recent Bundesdruckerei case, these findings might seem unsurprising. If a minimum wage is set out in legislation, surely public authorities are able to require their contractors to comply with the law? The judgment in RegioPost goes most of the way towards confirming this is the case, while leaving open some possibility for the review of minimum wage requirements against the Treaty principles of free movement and non-discrimination. The law at issue in RegioPost did not set a universal minimum wage, but applied only to public sector contracts. This much it shared with the collective agreement in dispute in Rüffert and the legislation in Bundesdruckerei. However unlike in those cases, none of the bidders for the contract was either based outside of Germany or proposing to use a workforce based elsewhere (see facts in my post below).

In considering the admissibility of the preliminary reference in RegioPost, both the Court and Advocate General found that the absence of cross-border bids did not remove the contract from the scope of EU law (paras 27-38 of opinion; paras 44-52 of judgment). The Court considered that because Article 26 of Directive 2004/18/EC allows contract performance conditions to be included in procurement procedures provided that they are compatible with Community law, review against both Article 56 of the Treaty and Directive 96/71/EC on the Posting of Workers (PWD) was appropriate. On this point, the Court differed from the Advocate General who did not consider the PWD applicable to the case (paras 51-60 of opinion). Without stating that the PWD applied based upon the facts, the Court cited a reference to the PWD in the recitals of Directive 2004/18/EC and proceeded to analyse whether the minimum wage requirement was compatible with it (paras 66-77). This may perhaps be due to the referring court’s framing of its question in terms of the interpretation of Article 56 ‘in conjunction with’ the PWD – presumably because it was concerned with the Rüffert jurisprudence. In so doing, the Court opened the door for future cases which explicitly involve a cross-border element to follow its approach in RegioPost.

The Court held that it was possible to justify a measure restricting free movement based upon the objective of protecting workers, even where the measure in question applied only to public sector contracts. It distinguished Rüffert on the basis that that case concerned conditions of employment set out in a collective agreement which had not been declared universally applicable, as required by Article 3 of the Posted Workers Directive. Article 3 refers to conditions of employment laid down by ‘law, regulation or administrative provision’ as well as collective agreements or arbitration awards which have been declared universally applicable. The interpretation of the term ‘administrative provision’ may be significant in any future challenges to living wage policies, which may for example be adopted as part of organisational standing orders or other non-legislative instruments.

Interestingly, the Court did not seek to distinguish Bundesdruckereion the basis that that case involved cross-border delivery of services, leaving open the question of whether minimum wage provisions can be enforced where bidders propose to use a workforce based in another Member State. It also did not engage in proportionality review of the German legislation, as the questions referred only asked if it was ‘precluded’ by the relevant EU law provisions. Once the Court had determined that enforcement of such legislation was possible in public contracts under the auspices of Article 26 of Directive 2004/18/EC, it turned to the question of whether a bidder could be excluded for its failure to provide a declaration that it would comply with the minimum wage. It found that given the importance ascribed to complying with mandatory conditions in tenders, including those adopted under Article 26, exclusion of a bidder was both permissible and proportionate. The fact that bidders were given an opportunity to clarify the reason for not submitting the declaration was considered relevant in this regard (para 87).

The Court notes (at para 83) that the minimum wage requirement was ‘formulated in a particularly transparent manner in the contract notice and intended to emphasise, from the outset, the importance of compliance with a mandatory rule…’ Without reading too much into this statement, it may be taken to endorse an explicit and up-front approach to the inclusion of minimum wage requirements, as opposed to one which only becomes clear to tenderers at the contract award stage, for example. This suggests a different approach to that which some contracting authorities have adopted in light of Rüffert and Bundesdruckerei, namely a ‘soft’ approach to wage issues. Given the importance of transparency as a general principle of EU law, it seems preferable for such requirements to be published and to ensure that tenderers are able to take these into account in preparing their bids. However the ongoing uncertainty regarding non-legislative living wages means that this may continue to form the subject of negotiated agreements with contractors, rather than an explicit requirement in tenders.

What does this mean in terms of competition and the likelihood of costs being passed on to contracting authorities? What about the provisions on abnormally low tenders – could a tender be deemed abnormally low if it did not comply with a living wage requirement? The 2014 directives make clear that contracting authorities may take social considerations into account in various ways when awarding contracts, including through award criteria (following from the Court’s judgment in Case C-368/10 Dutch Coffee). However the ability to exclude a tenderer or subcontractor based on non-compliance with social obligations is limited to those which are i) applicable and ii) set out in EU law, national law, collective agreements or the international conventions listed in Annex X of Directive 2014/24/EU (under Articles 18.2, 56.1 and 57.4(a) of that Directive). Article 70, which replaces Article 26, is still phrased in more general terms to allow contracting authorities to lay down special conditions for the performance of contracts, including social and employment-related considerations. This must be read in light of recital 98 of the Directive:

“… requirements concerning the basic working conditions regulated in Directive 96/71/EC, such as minimum rates of pay, should remain at the level set by national legislation or by collective agreements applied in accordance with Union law in the context of that Directive.”

Given the Court’s approach in RegioPost, a question arises as to whether the reference to basic working conditions ‘regulated’ by the PWD means any minimum wage requirement, or is only relevant when the PWD actually applies. If the former, then the recital suggests that it is only national legislation or (universally applicable) collective agreements which can form the basis for minimum wage requirements in contract performance clauses, rather than administrative provisions or arbitral awards. This may, however, be an excessively literal reading of the recital.

I hope to develop these ideas into a longer article in due course.


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