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Regulaton & Policy
Minimum wage in public contracts not to be extended to subcontractors in other member states

The minimum wage of an EU member state cannot be extended to a subcontractor established in another member state, according to a rule from the Court of Justice of the European Union.

The ruling was made following a case involving the city of Dortmund and German company Bundesdruckerei GmbH. According to the Law of the Land of North Rhine-Westphalia, some public service contracts may only be awarded to supplies who agree to pay their staff an hourly minimum wage. This law is put in place in order to avoid ‘social dumping’ and the ‘penalisation of competing undertakings which grant a reasonable wage to their employees.’

resize_61748613In this particular case the city of Dortmund required that Bundesdruckerei GmbH, a company bidding for a contract involving document digitisation and data conversion services, should guarantee employees a minimum wage of €8.62, including those of their subcontractors based in Poland. The employees of the subcontractors would also carry out all their work within Poland rather than Germany.

Bundesdruckerei argued that the minimum wage requirement was unfairly restrictive and took action. The German Public Procurement Board referred a question to the Court of Justice. The court has replied, stating that in such cases where a tenderer intends to carry out a contract using subcontracted workers in a foreign member state, the freedom to provide services would be prevented if the foreign subcontractor was required to pay minimum wage.

Imposing a minimum wage on subcontractors in a state where the minimum wage is lower would constitute an economic burden that may ‘prohibit, impede or render less attractive the provision of services’ in that foreign state.

The court also noted that the set minimum wage in Germany reflects the cost of living there, but bears no relation to the cost of living in Poland. A wide diversity of law and practice about minimum wage exists across Europe, and that is one of the main issues. The UK was one of the first countries to introduce a minimum wage in 1997. Today, its minimum wage is a lower percentage of average salary compared with that of Luxembourg or France, two of Europe’s larger economies. (We discussed the implications for UK government contracts should Labour win the next election here.) And Switzerland has voted against having an even greater minimum wage.  

While most countries have a statutory national, or collectively agreed, minimum wage in place — although this varies in terms of its level, uprating mechanisms and coverage — others have none at all. The levels of minimum wage or indeed their importance on a country’s agenda where they do exist vary so widely that it would be non-sensical for the Court of Justice to have ruled any differently. And we’re sure that last comment will invoke some stark counter comments from our readers.