Leiden Law Blog

CJEU (finally) takes stance against social dumping

Posted on by Daniel William Carter in Public Law
CJEU (finally) takes stance against social dumping Hyde Flippo

The phenomenon of using cheap migrant labour to undercut national workers (social dumping), has long been a controversial topic surrounding European integration. Fears over social dumping have been particularly prominent since the accession of the Eastern ex-soviet states whose labour costs are dramatically lower than the traditional western and northern Member States. However, over the years the Court of Justice of the European Union (CJEU) has been criticized for placing the Union’s economic interests over the social interests of Member States, which made the case of Regiopost (C-115/14) all the more anticipated.

The case concerned a Polish company that submitted a bid for a postal services contract in Landau, Germany. The contracting authority required all bidders to declare that they would pay at least the minimum rates of pay regulated for by the Land in question, which in this case was €8,70 per hour (at the time of the facts of the case Germany still did not have a federal minimum wage). After Regiopost refused to makes this declaration, Landau duly rejected its bid, resulting in Regiopost making a claim that the minimum rates of pay was contrary to EU public procurement law.

However, in its judgment the CJEU held that Article 26 of Directive 2004/18/EC (which finds its successor in Article 70 of the new Directive 2014/24/EU), read in conjunction with Article 3 of the Posted Workers Directive and Article 56 TFEU, allows Member States to reject tender bids for public contracts from contractors who do not undertake to pay workers locally regulated or collectively agreed minimum rates of pay.

The judgment would seem to deviate from the Court’s traditional interpretation of the rules on minimum wages. For example, in its controversial judgment of case C-341/05 Laval, the Court found that a Swedish trade union’s blockade was an unjustified restriction on the free movement of services as the requirement that an agreement on employment conditions be signed before rates of pay could even start being negotiated was disproportionately restrictive to the objective of protecting employment conditions. However, the Regiopost judgment most sharply deviates from Case C-346/06 Rüffert, in which the Court stated that German legislation imposing local collectively agreed minimum rates of pay on public works contracts was in contravention of the Posted Workers’ Directive as it could not be said to be ‘universally applicable’ as required under the Directive, in part because it applied solely to public contracts and not private ones.

It could be argued that Rüffert can be distinguished from Regiopost as at the times of the facts of Rüffert, the applicable secondary legislation on public works contracts (Directive 93/37/EEC) did not include a provision relating to special performance conditions, unlike either the 2004 or the 2014 Public Procurement Directives. However, at the time of Rüffert, Advocate General Bot in his opinion on the case did not even consider the public/private contract argument, and in any event stated that the rules should be permitted, given that they clearly would be under the 2004 Public Procurement Directive once the transposition date had passed. The Advocate General would thus seem to have been finally vindicated in this assessment, given the Court’s judgment in Regiopost. Indeed, in Regiopost both Advocate General Mengozzi and the Court rejected the claim made by the Applicants that the German legislation should be held to be incompatible with EU law as it applied solely to public contracts and thus could not be deemed to be universally applicable under the Posted Workers’ Directive. The Advocate General explicitly stated that Article 26 Directive 2004/18 would be denied its “practical effect” if Member States were not permitted to adopt laws and practices which lay down employment conditions and minimum rates of pay that apply solely to public contracts. 

Therefore, it seems the Court has turned a new page, at least when it comes to public tenders to which the Public Procurement Directive is applicable. However, given that the low rates of pay applicable in the case (the minimum rate of €8,70 is just €0,20 over the current federal minimum wage of €8,50) it is yet to be seen exactly how far-reaching the Regiopost decision will be in the future.

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