Social clauses in public procurement procedures refer to social and labour standards that contractors have to fulfil in order to tender for public contracts. Such clauses require that all bidders respect certain locally established standards so that public contracts do not exert a downward pressure on wages and working conditions, i.e. that they do not work as an incentive to social dumping.
In a 2008 report (1.5Mb PDF) on the application of the ILO Labour Clauses (Public Contracts) Convention, 1949 (No. 94), the International Labour Organisation clarifies that social clauses, in the sense of this convention, go beyond ‘the mere fact that national labour legislation is of general application’ but require ‘the application by all bidders of the best locally established working conditions, i.e. those set by collective agreement, arbitration award or national laws or regulations’.
While many, but not all, EU Member States have ratified the ILO Convention No. 94, the use of social clauses in public procurement procedures is a very controversial issue in the European Union. In EU public procurement law and, in particular, European Court of Justice rulings concerning the issue, social clauses that go beyond the minimum standards of labour law and universally applicable collective agreements are seen to be in conflict with the principles of free movement of goods and services as laid down in Articles 34 and 56 of the Treaty on the Functioning of the European Union (TFEU) (former Articles 28 and 49 EC Treaty) and acknowledged as ‘fundamental freedoms’ central to the effective functioning of the Internal Market. Due to the supremacy of EU law the requirements of the internal market have led Member States to gradually remove social clauses from their national laws.
However, in some of its rulings the ECJ has emphasised the social objectives of the European Union and has acknowledged the possibility of allowing for objectives of a general interest in public procurement under certain circumstances. Against this background, on 21 September 1999, the ECJ ruling in the Albany case clarified the relation of competition law and collective agreements by concluding that collective agreements in pursuit of objectives of general interest fall outside the scope of competition rules.
Since 2004 public procurement procedures are regulated by two directives, Directive 2004/17/EC, referring to procurement procedures of entities operating in the water, energy, transport and postal services sectors, and Directive 2004/18/EC, governing procedures for the award of public works, and supply and service contracts in other sectors. Both directives draw on former case law and include provisions concerning employment protection, working conditions and social issues. For instance, according to Article 38 of Directive 2004/17/EC and Article 26 of Directive 2004/18/EC, contracting authorities may lay down special conditions relating to the performance of a contract concerning, in particular, social and environmental considerations.
With the ratification of the Treaty of Lisbon on 1 December 2009, when the Charter of Fundamental Rights of the European Union became legally binding, social rights finally received a legal status comparable to the fundamental freedoms of the Internal Market.
However, on 3 April 2008, in the Rüffert case, the European Court of Justice ruled that social clauses referring to collective agreements would be in breach of the freedom to provide cross-border services if these collective agreements are not universally applicable, thus restricting the scope of social clauses to the general application of national labour law.