European Court rules that pay terms cannot be fixed in public tenders

In the recent case of Dirk Rüffert versus Land Niedersachsen, the European Court of Justice ruled that it is unlawful and contrary to EU law to set out, within tender requirements, obligations beyond those established by law regarding the pay and conditions of public contract workers. Trade unions have strongly criticised the judgement, arguing that it prioritises the free movement of services over national labour regulations.

The case of Dirk Rüffert versus Land Niedersachsen (C-346/06) is the last in a series of three cases that were recently heard at the European Court of Justice (ECJ) on the extent to which the freedom to provide cross-border services, as set out in Article 49 of the EC Treaty, may be restricted through the exercising of other rights. The other two rulings were the Viking case (C-438/05) (127Kb PDF) (EU0706029I) and the Laval case (C-341/05) (137Kb PDF) (EU0801019I, SE0801019I). The Rüffert case also considers how the action under question impacted on Directive 96/71/EC on the posting of workers and how it should be interpreted in light of Article 49 EC.

Background to case

The Dirk Rüffert versus Land Niedersachsen case emerged as a result of a German regional law which contained provisions on the awarding of public contracts. The law aimed to counteract abuse of competitive practices arising through the use of ‘cheap labour’ and to alleviate ‘burdens on social security schemes’. It did so by stipulating that public contracting authorities could award contracts for building works and local public transport services only to undertakings which pay the wages laid down in the collective agreements at the place where the service is provided.

On this basis, a contract was awarded to a company to carry out construction work in a prison. The contract contained a declaration that the payments to employees would be in line with the relevant collective agreement. The company used the services of a Polish subcontractor and, soon after, it was suggested that the subcontractor was employing workers on site at less than the wage rate set in the collective agreement.

An investigation was subsequently launched and, as a result of the findings, the contract was terminated. The company and the regional authority both cross-claimed damages. The case went to the Higher Regional Court and was eventually referred to the ECJ. The latter was asked to rule on whether the regional law constituted an unjustified restriction of rights provided for in Article 49 EC.

ECJ ruling

The ECJ ruled that Directive 96/71/EC must be interpreted in the context of Article 49 EC. This therefore precludes a Member State from adopting a legislative measure which requires the contracting authority to designate as contractors for public works contracts only those undertakings that agree in writing in their tenders to pay their employees at least the same rate of pay as that prescribed in the relevant collective agreement. The ruling means that tender provisions cannot require the tendering party to abide by additional conditions, other than those established by law.

Trade unions criticise ruling

The ruling has been strongly criticised by the trade unions. The General Secretary of the European Trade Union Confederation (ETUC), John Monks, commented:

This is another destructive and damaging judgement after the recent Laval ruling by the ECJ. They both assert the primacy of the free movement of services over existing labour regulations which apply to the place where the service is provided.

Mr Monks also criticised the court for not recognising the rights of Member States and public authorities to use public procurement instruments to combat unfair competition practices in relation to the wages and working conditions of workers employed by cross-border service providers. The ETUC general secretary referred to the judgement as 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-sized) enterprises to compete on a level playing field with foreign (sub)contractors’. He added that it was ‘feeding into increasing sentiments against open borders’ (see ETUC press release).

Lack of employer response

Neither BusinessEurope nor the European Association of Craft Small and Medium-sized Enterprises (Union Européenne de l’artisanat et des petites et moyennes enterprises, UEAPME) have issued formal statements on the ruling, although the outcome does remove a restriction on the ability of employers to hire workers on lower terms and conditions.

Commentary

This particular case, like the Viking case and Laval case, raises once again the question of the extent to which workers in the 15 EU Member States before enlargement of the European Union in 2004 and 2007 can maintain existing terms and conditions in the face of competitive challenges from the new Member States. The three cases also draw attention to the problems of social dumping and the inability of trade unions to effectively challenge measures that use migrant labour to reduce wage costs.

Sonia McKay, Working Lives Research Institute

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