Regiopost is the latest instalment in an already complex web of rules which govern how public procurement law can be used to achieve social policy objectives. In particular, the case draws on:
- The principle of free movement of services in the Treaty on the Functioning of the EU (TFEU or Treaty);
- Directive 96/71/EC (the Posted Workers’ Directive or PWD);
- Directive 2004/18/EC (the 2004 Public Procurement Directive); and
- Judgments of the Court of Justice of the EU (CJEU) in recent years, including Rüffert v Land Niedersachsen (Rüffert)2 and Bundesdruckerei v Stadt Dortmund3 (Bundesdruckerei).
Commentary on the above authorities is often politically-charged and perhaps reflects a tension between, on the one hand, the tendency of the Treaty’s principles to promote market liberalisation (e.g. the free movement of services) and, on the other, the reluctance of some public authorities to avoid spending public money on contracts which might be seen to encourage “social dumping”.4
Article 56 TFEU – free movement of services
Article 56 TFEU guarantees protection for the free movement of services between the EU Member States. A national restriction on the freedom of an EU business to provide services into another EU country can constitute a breach of the Treaty if it is directly or indirectly discriminatory. However, a restriction can be justified if it satisfies one of a number of exemptions in the Treaty, including if the restriction is necessary for the protection of workers’ rights.
Posted Workers’ Directive
The PWD provides that workers who are temporarily “posted” from one EU Member State to another by their employers are entitled to enjoy the same minimum employment rights as those available to workers permanently located in the host Member State. The employment rights which can be imposed in respect of posted workers are limited to rules set down by “law, regulation or administrative provision” and collective agreements or arbitration awards which have been declared “universally applicable” (i.e. which are observed by all undertakings in the geographical area and in the profession or industry concerned).
Public Procurement Directives
The 2004 Public Procurement Directive was in force in Germany at the time of the facts giving rise to the Regiopost dispute. Article 26 of the 2004 Public Procurement Directive provided that that authorities awarding public contracts are entitled to set down “special conditions” relating to the performance of the contract, which can include social and environmental conditions, provided those conditions are otherwise compatible with general EU law and are set out in the initial tender documents.
The 2004 Public Procurement Directive has since been replaced by Directive 2014/24/EU (2014 Public Procurement Directive). In the new Directive, Article 70 largely mirrors the language of Article 26 of the 2004 Public Procurement Directive, although it also expressly refers to the possibility of using “employment-related” special conditions.
The Rüffert judgment
The CJEU was asked whether it was compatible with EU law for a German regional law to require public authorities to obtain a written undertaking from bidders tendering for a public services contract, to pay their employees the minimum remuneration specified by a collective wage agreement when performing that contract.
The CJEU first considered the compatibility of the German law with the PWD. It held that the collective wage agreement which the regional law sought to impose on subcontractors could not be imposed in respect of Polish workers “posted” to Germany to carry out the contract at issue, as it was not a “law” or a universally applicable collective agreement. In particular, the Court noted that:
- There was a mechanism under German law for collective agreements to be declared universally applicable, but no such declaration had been made in respect of the minimum wage law in question; and
- The wage agreement applied only to workers in relation to public contracts, but not in relation to private contracts.
The Court considered that its interpretation of the PWD was confirmed by an analysis of the law on free movement of services (Article 56 TFEU). The Court held that the regional law in principle constituted a restriction on free movement and that it could not be justified by reference to the objective of protecting workers’ rights since there was no evidence to illustrate why workers delivering public contracts were in need of a greater degree of protection than workers carrying out private contracts.
The Bundesdruckerei judgment
In 2014, the CJEU was asked whether it was compatible with EU law for a German regional law to require tenderers to commit to paying workers in relation to a public contract a minimum wage established by German regional law, even in circumstances where a tenderer proposed to rely exclusively on workers located in an EU Member State other than Germany (in this case, Poland).
The Court held that the PWD was not the appropriate frame of reference as there was no intention to “post” Polish workers to Germany. That being the case, the regional law’s compatibility with EU law was analysed from the perspective of the TFEU, in particular the principle of the freedom to provide services.
As in Rüffert, the Court held that the law in principle constituted a restriction on the freedom to provide services because it prevented subcontractors established in another EU Member State deriving a competitive advantage from differences in the respective prevailing rates of pay between two Member States. Crucially, this restriction could not be justified by reference to the objective of protecting workers’ rights, in particular because (as in Rüffert) the measure applied only to workers in relation to public contracts, and there was no information to suggest that workers delivering a public service contract were in need of such enhanced protection.