Member states not prevented from imposing minimum wage requirements in public contracts, says EU court

The Court of Justice of the European Union (CJEU) ruled that the minimum wage requirement should be classed as a "special condition relating to the performance of the contract", and so permitted by the EU's Procurement Directive of 2004 so long as it could be objectively justified on the grounds of protecting workers. It did not make any difference that there were no general minimum wage laws in Germany at the time, it said.

Public procurement expert Ayla Skene of Pinsent Masons, the law firm behind Out-Law.com, said that the case provided useful guidance on a topical issue, even though the 2004 Directive has since been superseded.

"Any guidance on the boundaries within which a member state can encourage fair working practices through procurement is welcome," she said.

"The minimum wage and living wage continue to be a topical issue politically. The Scottish Government recently published guidance concerning the promotion of 'fair work practices' through public procurement," she said.

The CJEU had been asked to rule on the compatibility of the minimum wage requirement by the German courts, after private postal company RegioPost challenged its exclusion from the municipality of Landau's postal services procurement exercise on the grounds that it had not declared that it would pay any staff providing the services a minimum wage. The value of the contract on offer, which would have run for a minimum of two years, far exceeded the €200,000 limit which brought it within the scope of EU procurement law applicable at the time.

Both the contract notice and specifications referred to a local Law of the Land of Rhineland-Palatinate ('the Law'), which required those providing services under public contracts to pay those staff a minimum wage. At the time of the events in question, there was no collective agreement setting a mandatory minimum wage for postal workers in Germany more generally. RegioPost argued that the condition breached procurement law as it interfered with its freedom to provide services within the EU.

Although RegioPost submitted its tender before the deadline, it did not include the minimum wage compliance declaration required by the contract notice. The local authority wrote out to the company, giving it 14 days to correct the omission. When the required paperwork did not appear, RegioPost was excluded from the procurement exercise.

In its judgment, the CJEU ruled in favour of the local authority. It distinguished the case from a 2008 decision in which a minimum wage requirement was ruled unlawful on the grounds that the Law was "universally applicable" to all public contracts. The minimum wage provisions in the earlier case, known as Ruffert, were set out in an industry-specific collective agreement.

"In this case, [the] special condition was set out in the contract notice and in the specifications, so that the procedural condition as to transparency … is satisfied," the court said.

"The imposition, under national legislation, of a minimum wage on tenderers and their subcontractors, if any, established in a member state other than that of the contracting authority and in which minimum rates of pay are lower constitutes an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host member state. Consequently, a measure such as that at issue in the main proceedings is capable of constituting a restriction ... [that] may, in principle, be justified by the objective of protecting workers," it said.

The court also found that it was "appropriate and proportionate" to exclude RegioPost from the procurement process for non-compliance since the local authority had given it a chance to supplement its tender with the required information.