A labour code for public services is currently on the agenda in both the UK and the European Union. The Code would specify the terms and conditions under which staff are employed on public services provided under contracts with the private sector.
Background: UK 'fair wages policy'
Since 1891, the 'Fair Wages Resolution' of the House of Commons, revised in 1909 and 1946, instructed government departments to require their contractors to comply with specified 'fair' standards of wages and working conditions. However, the 1946 Resolution was revoked by the Conservative government elected in 1983. The Local Government Act 1988, section 17, outlawed the pursuit of such 'non-commercial' considerations in public procurement by local authorities.
Under the new Labour government's Local Government Act 1999, the Local Government Best Value (Exclusion of Non-commercial Considerations) Order 2001 (applying only to England, effective March 2001) allowed for employment standards to be taken into account, but only if linked to Best Value or TUPE.
ILO standards
ILO Convention No. 94 of 1949 on Labour Clauses (Public Contracts), modelled on the 1946 Resolution, requires contracts to include clauses ensuring working conditions:
(Article 2) '1. ...not less favourable than those established for work of the same character in the trade or industry concerned in the district where the work is carried on - (a) by collective agreement or other recognised machinery of negotiation between organisations of employers and workers...'. The Convention was ratified by the UK in 1950, but the Thatcher government denounced it in 1982. Nonetheless, ILO Convention No. 94 has been ratified by eight EU Member States, and similar policies are in effect in six others. The UK remains the only EU Member State without a formal policy requiring fair labour standards in public procurement.
European law
EU law regulates the process of offering public contracts in four directives covering works, supplies, services and utilities, and EU public authorities may include labour standards as conditions in the public procurement process. In Case C-225/98, Commission v France, decided on 26 September 2000, the European Court of Justice declared that it was lawful for a public authority to make the award of a public contract to build a school conditional on observing conditions concerning employment.
Other EU legal provisions affect public contracts. The Acquired Rights Directive 1977 (the TUPE Regulations) protects the terms and conditions of workers transferred when public services are contracted out to the private sector. However, new employees hired by the contractor are not covered, creating a two-tier workforce. Even an extended TUPE would not abolish the two-tier system, but merely re-draw the boundaries: there would be other workers on contracts with suppliers of services who would still not be protected.
EC legislative proposals on labour standards and public procurement
Proposals are being considered to require fair labour standards in public procurement in the EU. The supremacy of EC law means that such requirements would become mandatory in the UK.
Proposals from the European Parliament's Social Affairs Committee aim to ensure that 'current legal provisions in the social and employment field are complied with by all the candidates, so as to prevent unfair competitionÉ what matters is to create a level playing field for all candidates'. The process has four steps: (i) potential tenderers must be given access to appropriate information about employment protection and working conditions, which must be defined; (ii) compliance with these standards must be checked by the contracting authority during the pre-selection, and candidates who have breached social legislation may be excluded; official lists of approved economic operators will be used to assess suitability of candidates; (iii) selection of candidates and award of contracts will be conditional on compliance with the legal provisions relating to employment protection and working conditions; (iv) there are to be review and enforcement procedures after award of the contract.
European Court decisions on mandatory collective agreements
Recent decisions of the European Court of Justice on 25 October 2001 highlight the possibility of using collective agreements as the basis for a labour code for public services, and their potential advantages.
Case C-493/99, Commission v Germany, concerned German legislation which prevented the hiring out of employees among construction undertakings, including those outside Germany, unless they were party to collective agreements for the industry.
Such undertakings could be party to the collective agreements only if they had a subsidiary in Germany employing construction workers. The German government sought to justify the requirement as necessary in order better to monitor undertakings supplying labour from outside the EU: the objective was to protect workers from abuses which were notorious in the construction industry.
The European Court condemned the German legislation, but on grounds which do not undermine the role of collective agreements. The Court held that the requirement to have an establishment in Germany, which was a condition of affiliation to the collective agreement, violated the EC law on freedom to provide services. This went (point 22) 'beyond what is necessary to attain the objective of providing social protection for workers in the building industry'. However, if the German law had required affiliation to the collective agreement without the requirement of establishment, it would not have violated EC law on freedom to provide services. In sum, the case supports the proposition that legislation making mandatory affiliation by employers to a collective agreement, with the objective of protecting workers, is not an infringement of EC law.
On the same day, 25 October 2001, the Court decided joined Cases C-49/98, C-50/98, C-52/98 and C-68/98 to C-71/98, Finalarte. These concerned challenges under EC law to a German collective agreement by employers from other Member States who posted workers to Germany. The collective agreement required contributions to a paid leave fund for construction workers and provision of information for the calculation of these contributions. It allowed for payment of the holiday entitlement directly to the workers employed by firms established outside Germany.
The European Court refused to condemn the collective agreement. It was for national courts to decide on the balance between the economic burden on the employers and the social protection of workers. The agreement might well reflect (point 63) 'objective differences between business established in the Federal Republic of Germany and those established in other Member States as regards the effective implementation of the obligation to give holiday pay'.
In these cases, the European Court appears willing to support the role of collective agreements as establishing mandatory fair labour standards.
UK government policy
In the Financial Times of 28 September 2001 under the heading 'Ministers accept public services pay shield', it was reported that 'Ministers have accepted, in principle, proposals from unions to protect all private sector staff working in public services from any deterioration in pay and benefitsÉ Ministers confirmed yesterday that they were seeking a wages agreement. 'It is our hope that we can reintroduce the fair wages resolution in some form' said one'.
Bringing the UK back into line with the policy of all other EU Member States on mandatory labour standards on public contracts is particularly important now as the EU is revising the public procurement directives. The European Parliament will finalise its position on the revised procurement directives in early 2002, and the Council of Ministers will decide at a meeting in March 2002. The UK government is an important player determining whether labour standards become mandatory on public contracts.
In the UK, the government needs to translate its commitment in principle to a new fair wages resolution into proposals for practical implementation of a policy guaranteeing fair labour standards in public services. The Fair Wages Resolution of 1946, ILO Convention No. 94 and the recent decisions of the European Court of Justice all point to collective agreements as the basis for mandatory fair labour standards for public services.