ECJ upholds German law on posted workers

In January 2002, the European Court of Justice (ECJ) largely upheld the German Law on the Posting of Employees, which grants minimum wages and working conditions to foreign workers while working on German construction sites. The judgment was widely welcomed by the Ministry of Labour, the construction workers' trade union and some employers.

On 24 January 2002, the European Court of Justice (ECJ) issued a judgment which largely upholds the German Law on the Posting of Employees (Arbeitnehmer-Entsendegesetz). Based on this law, provisions of certain collective agreements in the building industry can also be applied to foreign workers and their employers.

Extension of agreed minimum wages in construction

In 1999, the German government adjusted the Law on the Posting of Employees (DE9909117F) to comply with the requirements of EU Directive (96/71/EC) concerning the posting of workers in the framework of the provision of services (the 'posted workers' Directive - TN9909201S). This Directive seeks to prevent distortions of competition and forms of 'social dumping' which could be caused by the unrestricted movement of labour within the EU.

The German law provides that foreign national workers in the construction industry should be covered by the same minimum pay rates and employment conditions as German workers. Because Germany does not have a statutory minimum wage, this goal is accomplished by way of the extension of collective agreements. In effect, such an extension applies the terms and conditions of a collective agreement to those employees who are not covered because they are either not members of the signatory trade union or because their employer is not a member of the employers' association which is party to the agreement. With the help of this extension provision, based on section 5 of the Collective Agreements Act (Tarifvertragsgesetz), certain collectively agreed provisions thus also apply to foreign employers and employees doing construction work in Germany.

Portugaia challenges fine in court

The legal case which finally came before the ECJ was the result of a fine which was imposed on the Portuguese-based construction company, Portugaia Construções Lda. In 1997, Portugaia had carried out construction work in the German city of Tauberbischofsheim, using its own workforce. When the controllers at the local employment office (Arbeitsamt) checked Portugaia's records, they found that the company had significantly underpaid their workers in relation to German rates. As a result, the employment office ordered the company to pay back the difference between the minimum wage as provided by the Law on the Posting of Employees and the lower amount paid to the workers concerned. In total, the employment office fined Portugaia DEM 140,000. The construction company challenged this fine in the local labour court (Arbeitsgericht). The local labour court referred the case directly to the ECJ, with the aim of clarifying whether two aspects of the German Law on the Posting of Employees are in line with Articles 49 and 50 of the EC Treaty:

  1. whether it is permissible to rectify minimum wage provisions solely on grounds of the need to protect the domestic construction industry; and
  2. whether it would violate European Union law if German companies were allowed to pay below minimum standards set by industry-wide collective agreements if they have signed a company-level agreement which provides for such lower standards.

ECJ judgement

In its judgment in case C-164/99, the ECJ clarified that, in general, national provisions relating to minimum wages, such as those considered in the case at hand, are not precluded by Community law even when they require foreign companies to pay their workers the minimum remuneration as laid down by the national rules of the host state. The Court, however, also stated that, according to case law, restrictions on the freedom to provide services cannot be justified by economic aims, such as the protection of domestic businesses. Thus, the national courts are required to test whether posted workers have a genuine benefit from those rules which are designed significantly to augment their social protection.

As far as the second question is concerned, the court stated that it would be an unjustified restriction if minimum wage agreements could be undercut by company-level agreements which would be available to domestic companies only.

In a statement on this judgment, the German Ministry of Labour and Social Affairs argues that the second point does not challenge the Law on the Posting of Employees because: first, there are no such company-level agreements which could challenge the minimum wage and; second, the correct interpretation of the German law would reveal that it would not require foreign contractors to pay the minimum wage once domestic contractors had more beneficial terms and conditions. As far as the first point is concerned, the Ministry has no doubt that the entitlement to be paid a minimum wage would be a genuine benefit for posted workers.

Social partners' responses

The Building Agricultural and Environment Union (Industriegewerkschaft Bauen-Agrar-Umwelt, IG BAU) welcomed the ruling. In a written statement, the union voiced relief about the fact that the ECJ has not required a change to the German law. Echoing the Ministry of Labour, IG BAU also confirmed that it would not have any interest in concluding company-level agreements which would undermine the minimum wage in this particular industry.

The Main Employers' Association for the Construction Industry (Hauptverband der deutschen Bauindustrie, HDB) also welcomed the judgment. Its spokesperson, Heiko Stiepelmann, argued that the Law on the Posting of Employees does not cause any significant discrimination against employees from other EU countries. This is also true, Mr. Stiepelmann emphasised, in the case of the holiday funds and other social funds which have been declared generally binding for all employees working on German construction sites. It was particularly this latter issue which the European Commissioner for the Internal Market, Frits Bolkestein, had previously criticised.

Commentary

The Portugaia case shows again that there are two different types of logic applying to 'fair competition' within the EU which need to be balanced against each other. Indeed, it makes a difference whether lower-paid workers physically move to other Member States or whether workers simply help to produce cheaper goods and services which are then exported. By having enacted the posted workers Directive, a majority within the EU Council of Ministers seems to have acknowledged this distinction and decided to protect national regimes of labour law from the most destructive powers of unregulated wage competition, but also to protect migrant workers by providing them with access to national guaranteed minimum standards. As the recent ruling in the Portugaia case and similar cases have shown, this dual understanding of fair competition is still not universally accepted. There is, however, a case for maintaining minimum labour standards in construction. Threatened by the poor quality of the work of some 'fly-by-night contractors' the US Congress decided to introduce prevailing wage legislation as early as 1931. Large parts of this Davis-Bacon Act are still in force today. Why should Europeans be satisfied with less? (Martin Behrens, Institute for Economic and Social Research, WSI)

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