On 3 April 2008, the European Court of Justice (ECJ), in the Rüffert case, ruled that Member States may not adopt legislative measures which limit contractors for public works contracts to those undertakings which, within their tender submission, agree to pay their employees at least the rate set by a collective agreement. The court ruled that such action would be in breach of the freedom to provide cross-border services, interpreted in the light of Article 49 EC (now Article 56 TFEU). This ruling, along with those of Viking and Laval, represents a significant development in relation to the exercise of conflicting rights and potentially a weakening of the rights of trade unions and workers.
The freedom to provide cross-border services is guaranteed under Article 56TFEU and, together with the freedom of establishment, is acknowledged as a ‘fundamental freedom’ central to the effective functioning of the EU Internal Market. Directive 96/71/EC on posted workers provides that Member States should ensure that the terms and conditions established by law or by universally applicable collective agreements apply to workers who are called upon to work for a limited period in another Member State. However, as the Laval case made clear, the absence of a law or a universally applicable collective agreement means that there is no term that must be applied.
The Rüffert case (Dirk Rüffert v Land Niedersachsen, Case C-346/06) concerned a law from the German federal state of Lower Saxony (Land Niedersachsen) on the award of public contracts, applying to all contracts with a value of more than €10,000. The law was aimed at counteracting distortions of competition within the construction and transport sectors that could arise through the use of cheap labour, by limiting the right to contract to those undertakings prepared to pay the wages laid down in the relevant sectoral collective agreement. The law also extended beyond the contract to sub-contractors and provided for a penalty on the contractor for any breach of the law by the sub-contractor.
Land Niedersachsen awarded a contract for structural work in the building of a prison to Objekt und Bauregie, with a contractual term requiring that workers be paid the construction sector rate. Objekt und Bauregie then sub-contracted the work to a company based in Poland. Concerns were later raised that the sub-contractor was paying its 53 workers employed on the building site just 46.57% of the minimum wage laid down in the collective agreement. The contract was terminated and a penalty notice was issued. Dirk Rüffert as the liquidator of the assets of Objekt und Bauregie took a claim against the payment of the penalty to a German national court that decided to refer to the ECJ two questions concerning the freedom to provide services. The first was whether the obligation to comply with collective agreements meant that undertakings based in other Member States would lose the competitive advantage they enjoyed by reason of their lower wage costs, compared to those in Germany and also whether this interfered with the freedom to provide cross-border services. The second question was whether, if the law was an interference with this freedom, it could be justified by overriding reasons related to the public interest, in particular for the necessary protection of workers.
In its ruling on the Rüffert case, the ECJ held that Directive 96/71/EC on the posting of workers would apply to cross-border services if an employment relationship existed between the undertaking and the employee during the period of the posting. It held that this was the case and the fact that the objective of the German law did not refer to the directive on posted workers did not mean that the directive was not applicable. The court noted that the German law did not itself fix a minimum rate but merely applied the terms of a collectively agreed rate and noted also that the requirement was not universally applicable, as it only applied in relation to public service works. The fact that private sector workers did not benefit from the German law meant that it was not arguable that it was for the protection of workers or had the objective of ensuring the protection of independence in the organisation of working life by trade unions.
Shortly after the ECJ had given its ruling on the Rüffert case, it was confronted with another case which similarly concerned measures to counter unfair competition, Commission v Grand Duchy of Luxembourg Case C-319/06. In its ruling on this case on 19 June 2008, it held that a Member State could not define which national public policy provisions were so important that they should apply to national and foreign service providers equally, to counter such competition.