The Treaty on the Functioning of the European Union (TFEU) precludes member states from placing restrictions on the freedom of other member states which provide services in the host country. In Bundesdruckerei GmbH v Stadt Dortmund, the Court of Justice of the European Union (CJEU) held that a member state could not require subcontractors based exclusively in another member state to pay their employees a minimum wage.
Stadt Dortmund (the city of Dortmund) issued a tender document at EU level for a public contract to digitalise documents which stipulated that the successful tenderer had to guarantee a minimum wage of at least €8.62 per hour for anyone employed under the contract. This was to ensure that foreign service providers could not undercut local firms and that organisations paying “a reasonable wage” could not be penalised by potential competitors who paid less.
Bundesdruckerei informed Stadt Dortmund that, if it were awarded the contract, the work would be carried out exclusively in Poland by a subcontractor. It asked for confirmation that the requirement to pay a minimum wage would not apply to the subcontractor as there was no such law in Poland. Stadt Dortmund refused saying it was obliged by regional law to apply the requirement to whoever won the contract.
Decision of German tribunal
Bundesdruckerei asked the regional Public Procurement Board (GPPB) to oblige Stadt Dortmund to amend the tendering documents so that the requirement to pay a minimum wage would not apply to subcontractors from another member state whose employees would carry out the contract exclusively in that state.
As the GPPB was unsure whether it was compatible with European Union law and, in particular, with the freedom to provide services set out in article 56 of the TFEU, it referred the issue to the CJEU.
Article 56 of the TFEU states that: “… restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended.”
Decision of CJEU
The CJEU held that the regional law could constitute a restriction on the freedom to provide services as it constituted “an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host Member State”.
Although it could, in principle, be justified on the basis that it protected the wages of employees, it could not be justified when applied solely to public contracts if there was no information to suggest that private sector employees were not also in need of the same wage protection as those working in the context of public contracts.
In any event, the requirement to provide a fixed minimum wage reflecting the cost of living in the contracting member state (but which bore no relation to the cost of living in the member state where the contract was to be performed) prevented subcontractors from deriving a competitive advantage from the differences between the two rates of pay and was therefore disproportionate.
Article 56 therefore precluded the legislation in the region to which Stadt Dortmund belonged from applying to a subcontractor in another member state. The Polish subcontractor could not therefore be obliged to pay their workers a minimum wage.