ECJ restricts minimum wage requirements in public contracts in Germany
1. Award-specific minimum wage requirements and case at issue
14 of the 16 German states have introduced award-specific statutory minimum wage requirements in the last two years. Hereafter, the tenderers are obliged to verifiably adhere to minimum wages in the execution of public contracts. A corresponding contractual commitment is to be incurred together with the offer. Compliance with the obligation is subject to contractual penalties. Non-compliance may also result in termination of the contract.
The State Procurement Act in the case at issue (Procurement Act of North Rhine-Westphalia, TVgG-NRW) like some other State Procurement Acts includes a corresponding obligation for the entire chain of subcontractors.
In the present case, the contracting authority rejected an exemption from minimum wage requirements for services (in this case: file digitization) to be provided by a wholly owned subsidiary as a subcontractor solely from other European countries. According to the tender documents also subcontractors were supposed to pay the relevant minimum wage under the TVgG-NRW to their employees. This obligation was now rejected by the ECJ.
2. No award-specific minimum wage for subcontractors, who provide their services exclusively abroad
The European Court of Justice (ECJ) declares the application of a State-specific minimum wage (here: State Procurement Act of North Rhine-Westphalia - TVgG-NRW) in the awarding of public contracts at least then incompatible with the freedom to provide services (Article 56 TFEU), if the contracted services are provided completely from other European countries.
The obligation to pay the minimum wage affected in this case the freedom to provide services and is not justified by the protection of workers nor the national social security system. By specifying a minimum wage, which is measured based on the cost of living in the Member State of the contracting authority, subcontractors from other Member States are deprived from being competitive in public tender procedures by using price advantages resulting from possibly lower cost of living in their countries of origin.
Our Expertise Public Law
3. Leeway for the companies concerned
The decision opens up new opportunities for the establishment of companies competing for public contracts in Germany. If services by subcontractors can be bought cheap from abroad, these price advantages can contribute to the competition. The decision of the ECJ clarifies only a limited part though; namely in cases, in which services are provided by subcontractors whose employees are based solely abroad. For designing a specific offer it is to clarify how to deal with services that are only partially provided from abroad and what standards are to be used for determining a cost of living differential, i.e. in which countries subcontractors may be exempt from the minimum wage obligations. In addition, the question of the general admissibility of procurement specific minimum wage requirements remains unanswered.
For further information, please contact:
Dr. Susanne Mertens, LL.M.
E-Mail: Susanne.Mertens @bakermckenzie.com
Dr. Marc Gabriel, LL.M.
E-Mail: Marc.Gabriel @bakermckenzie.com
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