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Last week a new ruling by the European Court of Justice (ECJ) prevented the imposition of local minimum wages negotiated through collective bargaining on companies from   different member states of the European Union. It stated that these locally negotiated minimum wages which are higher than those set nationally or by industry, cannot be imposed on companies that are based elsewhere in the EU.The ruling has raised fears  of ‘Social Dumping’  occurring across the Union as companies are effectively freed from local collective wage regulations.

The Cases

The latest decision follows a long line of rulings weakening the bargaining power of unions across Europe. Recent rulings by the ECJ have involved both the export of cheap labour from Eastern European member-states to Western member-states by companies based in countries with lower labour standards, and the attempted relocation of a company to an accession state in order to reduce costs.

In December, the ECJ delivered a judgment on the Viking Ferry case. Viking operated a ferry company between Estonia and Finland, which at the time was making a loss. When the company sought to register the company in Estonia to take advantage of cheaper Estonian labour, international unions of seamen took action against Viking in order to attempt to prevent the move. The ECJ ruled that the action by the unions was unlawful as it restricted the right of employers to relocate within the EU.

Another recent case was the Laval case. Laval was a Latvian construction company which won a contract to build a school in Sweden. It later refused to sign up to collective bargaining agreements which would have forced it to pay wages that were above the legal minimum for the sector in Sweden. Laval went into liquidation after Swedish unions blockaded the school, and caused Laval to lose the contract.

Again the ECJ held that the company was working within its economic rights, and was not required to adhere to wage rules that went above and beyond the legal minimum.

Last week the ECJ ruled in a case against the Lower Saxony authority, whose procurement rules specified that a company should pay workers locally negotiated minimum wages. A Polish subcontractor brought the case to the European Court, after having a contract terminated because they were found to be paying workers less than the wage imposed by the local authority.

The firm argued that these rules discriminated against Polish companies and breached EU law on the provision of services in other member states. There are also suggestions that the practice may breach the Posted Worker Directive, which holds that where states have in place laws or mandatory collective agreements on terms and conditions of employment, they must ensure that these apply to workers temporarily posted to their territory.

What We Think

These rulings form a worrying trend.  Our research shows that the statutory minimum wage can only be said to be a living wage in 26% of countries across the world.  The position is better in Europe, but still only 48% of European countries’ minimum wages are deemed to provide a living wage for workers.  It is clear that there is a need for more protection of workers’ incomes than statutory minimum wages can provide.

These rulings suggest that companies from accession states can undercut local firms by using their own workers and paying them at the minimum rate possible in the host country. Surely this must be discriminatory, when local workers would be paid more for the same job?  Is this not a European ‘race to the bottom’?