European Commission v Federal Republic of Germany

Under German law, employers are obliged to grant employees the possibility of converting part of their gross salary into pension savings. This serves to compensate for reductions in the statutory pension system. Conversion of salary claims based on collective bargaining agreements with a trade union requires a separate collective bargaining agreement. The Federation of Local Authority Employer Associations and the United Service Sector Union (ver.di) negotiated such a collective bargaining agreement, designating selected state-owned pension providers which local authorities must use to implement the pension scheme. The local authorities contracted with these pension providers without a call for tenders. The European Commission argued that this practice violates EU public procurement directives, whereas according to the German government’s view the Commission was interfering with the autonomy of the social partners.

In its judgment dated 15 July 2010 the ECJ followed the reasoning of the Commission and declared that, insofar as service contracts in respect of occupational old-age pensions were awarded directly to the pension providers referred to in the collective bargaining agreement, without a call for tenders, Germany disregarded its obligations under Council Directives 92/50/EEC and 2004/18/EC. The Court ruled that although the underlying legislation and the collective bargaining agreement were intended to meet a social policy objective, this in itself would not release local authority employers from the obligation to comply with EU public procurement legislation. The ECJ also defined a calculation method to determine whether the value of the public service contract exceeds the current threshold of €193,000. This will only be the case for large local authorities.

The legal impact of the judgment on existing insurance contracts was not dealt with by the ECJ and remains unclear. However, the current practice based on collective bargaining agreements cannot be maintained. From now on, local authorities must call for tenders at European Union level to select their pension provider. Although the decision only affects local authorities directly, it also applies to all public employers (eg federal and state authorities). Private insurers have welcomed the judgment, which gives them access to this market.