EU Court ruling slammed as ‘invitation to social dumping’

A landmark ruling of the European Court of Justice (ECJ) outlawing minimum wage conditions in public tender contracts has been strongly criticised by trade unions, NGOs and politicians from across the political spectrum. The verdict could lead to the revision of an EU directive on the posting of workers abroad.

The Court ruled, on 3 April 2008, that a Lower Saxony law obliging public building contractors to respect collective agreements (see Background) is incompatible with the EU directive on the posting of workers. It notably judged that Germany had failed to respect specific procedures laid down in the Directive on making collective agreements universally binding. 

The Court conceded that member states are entitled to impose minimum rates of pay on foreign companies posting workers to their territory. But it went on to say that in the case of Lower Saxony, the restriction to the freedom to provide services was not justified by the objective of ensuring the protection of workers. 

The Court argued that there were no good reasons why workers should only be protected in this way when they work on projects which are subject to public works contracts, whereas those working under private contracts do not benefit from a similar level of protection. 

On the day of the Court Ruling, the European Commission adopted a Recommendation on posted workers. The non-binding text comes as a reaction to a number of key problems that the Commission identified by means of an in-depth monitoring of the posting of workers across the EU. According to the Commission, they concern the “virtual absence of administrative cooperation, unsatisfactory access to information and cross-border enforcement problems”.

Concequently, the Commission proposes a package of measures focusing on better information exchange, namely: 

  • Setting up an electronic network for exchange of information beteween member states’ administrations. This system will handle technical information in a structured way, dispensing of problems encountered earlier with respect to language use;
  • better access to information for both service providers and posted workers, mainly by means of understandable and accessible web sites, and;
  • setting up a High Level Committee for the exchange of information and best practice among member states.

The European Trade Union Confederation (ETUC) reacted with anger to the ruling, which it called "in effect an open invitation for social dumping, which will not only threaten workers' rights and working conditions, but also the capacity of local (small and medium) enterprises to compete on a level playing field with foreign (sub)contractors".

In particular, ETUC criticised the ruling's failure to recognise "the rights of member states and public authorities to use public procurement instruments to counter unfair competition on wages and working conditions of workers by cross-border service providers, as these would not be compatible with the Posting Directive". The trade union confederation added: "Nor does it recognise the rights of trade unions to demand equal wages and working conditions and the observance of collective agreed standards applying to the place of work for migrant workers regardless of nationality beyond the minimum standards recognised by the Posting Directive."

Reacting to the ruling in a statement, Joseph Daul, chairman of the centre-right EPP-ED Group in the European Parliament, and Elmar Brok MEP, said the case highlighted the "parity" between free trade in services and the need for social protection. Competition, they insisted, "must take place on fair terms and must not be allowed to lead to competition through ruinous low wages". If this is no longer ensured, they said, then the Posting Directive "has to be revised".

Martin Schulz MEP, leader of the Socialist Group in the European Parliament, agreed: "The freedom to provide services in other countries should not be at the expense of workers' wages and conditions. We cannot allow workers' social rights to be undermined." Schulz urged the Conservatives "to join in seeking a plenary debate on this issue as soon as possible in order to advance forward social progress".  

Schulz got backing from Conny Reuter, the secretary general of NGO Solidar, who urged the European Parliament "to ask the Commission to re-open the posting directive so that the principle of equal pay for equal work is at the center and not the periphery of European policies," adding: "Only then will the right to decent work and decent lives for all be achieved."

Reuter said: "What this judgment re-confirms, following the similar verdict in the Laval and Viking cases, is that in today's Europe not everyone is equal. In the battle between the 'freedom to provide services' and the responsibility to protect workers, the workers have lost out yet again. It is not surprising then that many citizens question whether the Europe we are creating is a social Europe, with decent jobs or a haven for free-market ideologues which seek to undermine the fundamental principle of equal pay for equal work."

Public employers' association CEEP was concerned that "on the one hand, public authorities and public enterprises are losing more and more freedom to integrate social considerations into public procurement and on the other, social partners' autonomy of collective bargaining is increasingly restricted". 

CEEP Secretary General Rainer Plassmann said he fears that "the freedom to provide services, meant to contribute to economic growth, to create more employment and to increase public welfare, becomes a backdoor problem for public authorities and enterprises as contracting entities and social partners aiming exactly at these goals". 

Plassmann added: "In many service sectors it is of vital importance to work with a motivated, well trained and reliable work force. Decent pay for the employees is one of the key factors to get high quality services. Sometimes it is good to remind ourselves of basic rules."

A law by the German Land of Lower Saxony stipulates that building contractors applying for public tenders must respect working conditions and minimum wages laid down in a regional social partner agreement. The law specifies that the conditions must also apply to all subcontractors. Similar laws exist in other German Länder.

But Objekt und Bauregie (O&B), a local contractor charged with building a prison in Lower Saxony, employed a Polish subcontractor which paid its 53 workers less than half of the regional sectoral minimum wage collectively agreed by employers' associations and trade unions. The workers were posted to Germany, which means that they were employed in Poland but sent by their employer on a temporary basis to carry out their work in Germany.

Following a formal notice to the Polish company, criminal investigations and O&B's bankruptcy, Lower Saxony claimed a contractual penalty from the liquidator of the company's assets. The case went to a regional court of law, which raised the question of whether Lower Saxony's law was in line with EU rules on the freedom to provide services and the freedom of establishment. In December 2006, the case was thus referred to the European Court of Justice. 

  • 5 April 2008: "Euro Demo" for higher wages organised by trade unions in Ljubljana.

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