In its judgment C-396/13, the Court of Justice of the European Union (“CJEU”) ruled on which monetary compensation should be considered part of the minimum wage. The CJEU further confirmed the right to transfer employment-related claims where such transfer is permitted by local law.

A Polish company had posted employees to its branch in Finland to carry out electrical installation work at a construction site for a nuclear power station. A Finnish trade union brought an action before a Finnish District Court, claiming that the Polish company had not paid its 86 posted employees the minimum wage in accordance with the applicable Finnish collective bargaining agreements. With penalty interest, the amount of the claim totaled EUR 6.6 million. The Polish company challenged the claim and further argued that the Finnish trade union did not have right of action as the proper party, since the employees had transferred their pay claims to the trade union and Polish legislation prohibited the transfer of employment-related claims.

The District Court requested a preliminary ruling from the CJEU on whether the Polish employees were entitled to transfer their pay claims to a Finnish trade union despite the prohibition in the Polish legislation. The District Court also sought a preliminary ruling on whether several different elements of pay should be considered “minimum rates of pay” as provided under Article 3 of the Posted Workers Directive (96/71/EC). 

In its judgment, the CJEU ruled that the right to an effective remedy laid down by the EU Charter of Fundamental Rights and the fact that the transfer of employment-related claims is permitted under Finnish law overrided the Polish prohibition to transfer employment-related claims. Consequently, the Finnish trade union was held a proper party to bring an action in the court. 

The CJEU also noted that the Posted Workers Directive clearly determines that questions concerning minimum rates of pay are governed (regardless of the law applicable to the employment relationship) by the law and practice of the host member state. In Finland, pay and various types of allowances are widely regulated in collective bargaining agreements. The relevant collective bargaining agreements had also been declared generally binding as required under the Posted Workers Directive. The CJEU held that whether the calculation of minimum wage is determined on an hourly or piecework basis, as well as the categorization of employees into pay groups is determined in accordance with the applicable collective bargaining agreement. The CJEU held, however, that in order to be enforceable, these rules regarding minimum wage must be binding and meet the requirements of transparency, i.e. they must in particular be accessible and clear. If these preconditions are fulfilled, it is not sufficient to give an employee the lowest pay in the pay group if e.g. the employee’s skills, education and experience would entitle him/her to higher pay based on the categorization of employees into pay groups. 

In addition to the base salary, the CJEU held that the minimum rates of pay also included other elements of monetary compensation, such as holiday bonus (Finnish: Lomaraha), flat-rate daily allowance and compensation for traveling time, as determined in the relevant collective bargaining agreement. However, the CJEU held that accommodation costs and meal vouchers paid by the employer were not part of the minimum wage, as they were meant to compensate living costs actually incurred by the employees as a result of their posting.

The CJEU’s broad interpretation of what constitutes the minimum wage means that posted workers are in practice entitled to the same monetary remuneration as Finnish employees. It will be interesting to see how the District Court assesses the requirement laid down in this case that the categorization of employees into pay groups be accessible and clear. In our experience, it may sometimes be challenging for employers who are not members in employer associations to interpret the provisions of the collective bargaining agreements, such as the categorization of employees into pay groups. 

The District Court will resume its consideration of the case in June 2015 based on the CJEU’s preliminary ruling. 

Comments on the case from a Swedish perspective: 

The CJEU's ruling suggests that the concept of "minimum rates of pay" under the Posted Workers Directive covers various ways of categorizing pay and allowances that are found in Swedish collective bargaining agreements, as long as these are "accessible and clear". This could mean that the scope for trade unions to take industrial action in support of entering into a collective bargaining agreement with an employer posting workers to Sweden under Section 5(a) of the Posting of Workers Act (Sw: Utstationeringslagen) is wider, in the sense that the collective bargaining agreements may contain more extensive provisions on categorizing pay and allowances, than previously assumed.