The CJEU has recently decided that the principle of freedom to provide services under Art. 56 TFEU (“Treaty on the Functioning of the European Union”) precludes the application of legislation that requires a tenderer for services under a public contract to pay a fixed minimum wage if the company that will provide the services is based in another member state. (“Bundesdruckerei GmbH v. Stadt Dortmund,” C-549/13)

In the case at hand, a German government authority had issued a call for tenders for a public contract regarding the digitalization of documents. The tendering procedure was subject to a state law that required all tenderers to pay a minimum wage of at least EUR 8.62 per hour to all employees involved in performing the contract, regardless of by whom and where those employees were actually employed. One of the tenderers intended to perform the services through a wholly owned subsidiary located in Poland. The tenderer refused to commit to the requested minimum wage and argued that the requirement could not be applicable if the services are performed in another EU member state where the average wages and cost of living are considerably lower than in Germany.

The CJEU has subsequently decided that legislation requiring the tenderer to pay a minimum wage constitutes an unjustified restriction on the freedom to provide services within the meaning of Art. 56 TFEU. It therefore held the legislation to be in breach of EU law, insofar as it applies to services that are performed in other member states that have lower or no minimum wage requirements at all.

The CJEU reasoned that, even though, in principle, measures aiming to ensure reasonable wages may generally be justified in light of the legitimate goal of protecting employees and preventing so-called “social dumping,” imposing the minimum wage was, nevertheless, not an appropriate measure in this case to achieve these objectives. By trying to impose an across-the-board minimum wage requirement that did not relate to the actual average cost of living of the member state in which the services would eventually be performed, the legislation – in the Court’s opinion – went well beyond the means necessary to ensure an appropriate social standard. In doing so, it illegitimately hindered subcontractors and competitors from other member states from gaining a competitive advantage out of the differences of the respective rates of pay in the member states.

The CJEU’s decision will apply to the state law in question and to similar legislation that thirteen out of the sixteen states in Germany have passed, each requiring tenderers for public contracts to pay differing minimum wages. As a result of the CJEU decision, these laws may not be applied, insofar as they require minimum wages for services that are performed in other member states. Also, although the scope of the present decision was limited to a tenderer that was planning to use a wholly owned subsidiary to perform the required services, based on the reasoning of the CJEU, it seems highly likely that the same rules would also apply if the tenderer itself was based in another member state.

All in all, the decision of the CJEU is not very surprising. Its rationale flows directly from one of the core principles of the European internal market: the freedom to provide services in other member states without restrictions. Notably, however, the decision clarifies that this freedom also consists of the possibility to legitimately exploit the differences between the wage levels in different member states in order to gain a competitive advantage. Also, the decision further establishes the general principle that the authority of a member state to enforce a minimum wage is strictly limited to its own territory.