Judgment of the European Court of Justice: Dirk Rϋffert v Niedersachsen Case C-346/06, Judgment 3 April 2008
The Ruling
The European Court of Justice has today delivered its latest judgment on the relationship between social and employment protection measures and employers’ EU law business rights. The judgment follows on from its rulings in December in the Viking and Laval cases.
In Rϋffert, the ECJ, unusually departing from the opinion of the Advocate General in September 2007, finds that a German public authority was not entitled to include in a public works contract a clause requiring contractors and sub-contractors from other member states to pay rates of pay in accordance with German collective agreements in the building sector.
The Facts
A German authority awarded the contract to build a prison to a contractor on terms which required the contractor to ensure that it, and any sub-contractor, paid wages of at least the minimum provided for in a collective agreement which applied to building work in the public sector. Those terms were in accordance with relevant principality law on the award of public procurement contracts.
The contractor engaged a Polish sub-contractor for part of the work. It paid wages at a rate lower than that provided for in the German collective agreement.
The German authority terminated the contract and sought to enforce a penalty clause against the Polish sub-contractor. The liquidator of the contractor claimed damages arguing that the relevant principality law was incompatible with the freedom to provide services contained in Article 49 of the EC Treaty.
Judgment
The Posted Workers Directive sets out the minimum terms and conditions which member states must ensure are applied to workers posted to their territory from another member state. Those minimum conditions include minimum rates of pay provided for in collective agreements which are “declared to be universally applicable”.
The Directive then sets out criteria for determining whether collective agreements are to be regarded as universally applicable.
The European Court of Justice finds that the relevant German principality law did not itself prescribe a minimum rate of pay. The minimum rate was whatever was provided for in the collective agreement. It then decided that the collective agreement was not universally applicable, not least because it only applied to public sector contracts.
For these reasons, the minimum rates of pay to which the German authority had sought adherence by its contractor and its Polish sub-contractor did not count as minimum conditions which had to be protected according to the Directive.
Because the minimum rates of pay did not require protection under the Posted Workers Directive, the relevant German principality law, and corresponding provisions in the building contract, were not permitted by EU law.
The European Court of Justice then goes on to say that its decision is confirmed by consideration of Article 49. Infringement of an employer’s freedom to provide services can be justified by the objective of ensuring the protection of workers. But that justification did not apply because the relevant collective agreement only covered a limited geographical area and did not apply to private sector contracts.
Analysis
The judgment follows closely the logic of Laval. In the context of posted workers, if the employment protection measure (be it the legitimacy of industrial action, or a clause requiring compliance with collective agreements in a procurement contract) exceeds the level of protection guaranteed by the Posted Workers Directive, then it is likely to be contrary to EU law.
This is a absurd logic. The Posted Workers Directive is designed to ensure that workers posted from one member state to another enjoy minimum standards of protection by reference to the minimum legal standards and applicable collective agreements in the member state to which they are posted.
The Posted Workers Directive is not intended to set limits on the circumstances in which pay and conditions can be provided for under the law and collective agreements in member states to which workers are posted. It is a gross distortion to suggest that it is.
The judgment in Rϋffert actually goes further than the judgment in Laval. The ECJ reached its conclusion in Rϋffert solely by reference to the Posted Workers Directive, and then subsequently confirms it by reference to Article 49. Its distorted analysis of the Posted Workers Directive does not even contemplate circumstances in which infringement may be justified by reference to overriding objectives such as the protection of workers.
It is right and legitimate that workers and trade unions should seek to impose minimum labour standards, such as commitments to abide by rates of pay in collective agreements, in public procurement contracts. They should be permitted, and indeed encouraged to do so in the interest of maintaining national labour standards and preventing social dumping.
The ECJ’s stance that such minimum standards would undercut the competitive advantage of employers such as the Polish contractor in the Rϋffert case is completely misguided. Employers are already protected by the EC Treaty’s non-discrimination principles. They should not be protected if they seek to obtain competitive advantage by undercutting the industry norms, standards and collective agreements in the member states in which they seek to operate.