Dirk Rüffert v Land Niedersachsen
The European Court of Justice (ECJ) has just delivered its latest judgment on the relationship between social and employment protection measures and the EU business law rights of employers.
It decided in Dirk Rüffert v Land Niedersachsen that a German public body was not entitled to include a clause in a public works contract requiring contractors from other member states to pay the same rates as those set down in German collective agreements.
The judgment follows on from two other important ECJ rulings in Viking and Laval (see LELR 49 and below).
Following a public invitation to tender, a German authority awarded a contract for building a prison that required the contractor (and any sub-contractors) to pay at least the minimum wages stipulated in the relevant collective agreement. These terms were in line with the German principality law on awarding public procurement contracts.
The contractor engaged a Polish sub-contractor to do part of the work. When it failed to pay the minimum wages set down in the collective agreement, the German authority terminated the contract. It then tried to enforce a penalty clause against the Polish sub-contractor.
The liquidator of the contractor claimed damages arguing that the German principality law was incompatible with the freedom to provide services contained in Article 49 of the EC Treaty.
The Posted Workers Directive sets out the minimum terms and conditions which member states must apply to workers posted to their territory from another member state.
These include minimum rates of pay provided for in collective agreements which are “declared to be universally applicable”. The directive then sets out criteria for determining whether collective agreements are universally applicable or not.
The ECJ decided that the German principality law did not itself prescribe a minimum rate of pay. The minimum rate was whatever was provided for in the collective agreement. It then decided that the collective agreement was not universally applicable, not least because it only applied to public sector contracts.
On that basis, the minimum rates of pay that the German authority had tried to enforce did not count as minimum conditions which had to be protected under the directive. The relevant German principality law and corresponding provisions in the building contract were not, therefore, permitted by EU law.
As for Article 49, the ECJ said that infringing an employer’s freedom to provide services can be justified if there is also an objective to protect workers. But that justification did not apply in this case because the relevant collective agreement only covered a limited geographical area and did not apply to private sector contracts.
The judgment closely follows the logic of the Laval case. In the context of posted workers, if the employment protection measure (be it the legitimacy of industrial action, or a clause requiring compliance with collective agreements in a procurement contract) exceeds the level of protection guaranteed by the Posted Workers Directive, then it is likely to be contrary to EU law.
This is a frankly absurd logic. The Posted Workers Directive is designed to ensure that workers posted from one member state to another enjoy minimum standards of protection by reference to the minimum legal standards and applicable collective agreements in the member state to which they are posted.
The Posted Workers Directive is not intended to set limits on the circumstances in which pay and conditions can be provided for under the law and collective agreements in member states to which workers are posted. It is a gross distortion to suggest that it is.
The judgment in the Ruffert case actually goes further than the judgment in the Laval case. The ECJ reached its conclusion in Ruffert solely by reference to the Posted Workers Directive, and then subsequently confirms it by reference to Article 49. Its distorted analysis of the Posted Workers Directive does not even contemplate circumstances in which infringement may be justified by reference to overriding objectives such as the protection of workers.
It is right and legitimate that workers and trade unions should seek to impose minimum labour standards, such as commitments to abide by rates of pay in collective agreements, in public procurement contracts. They should be permitted, and indeed encouraged, to do so in the interest of maintaining national labour standards and preventing social dumping.
The ECJ’s stance that such minimum standards would undercut the competitive advantage of employers such as the Polish contractor in the Ruffert case is completely misguided. Employers are already protected by the EC Treaty’s non-discrimination principles. They should not be protected if they seek to obtain competitive advantage by undercutting the industry norms, standards and collective agreements in the member states in which they seek to operate.