The Court held that if a member State has in force a system for declaring the rate of pay fixed by a collective agreement to be universally applicable but fails to make such a declaration, a legislative measure of that member State applicable to public contracts is precluded by Directive 96/71/EC on the posting of workers in the framework of the provision of services from imposing a requirement on providers of cross-border services who post workers to that member State to comply with the rate of pay fixed in the collective agreement.
Here's the story. A German contractor was awarded the contract to build a prison and it undertook to pay those working on the site the wages at the rate fixed in the "Buildings and public works" collective agreement. But the German contractor employed a Polish subcontractor whose workers posted from Poland were paid roughly half the German rate fixed in the collective agreement.
The law of the Land of Lower Saxony - where the prison was being built - on the award of public contracts states that public works contracts may be awarded only to undertakings which agree in writing to pay their employees at least the wages at the rate prescribed by the applicable collective agreement. The contractor must also undertake to impose that obligation on subcontractors and to monitor their compliance with it. Non-compliance with that undertaking triggers the payment of a contractual penalty. Because the Polish subcontractor breached the German contractor's obligation, the German company was fined.
The German company appealed the fine in the competent German court which then referred the question to the Court of Justice whether Article 49 EC on the freedom to provide services precludes a statutory obligation requiring a contractor in a public works contract to undertake to pay its employees at least the remuneration prescribed by the applicable collective agreement.
The Court of Justice held that, in the particular circumstances of this case, the law of the Land of Lower Saxony was contrary to Directive 96/71/EC read in the light of Article 49 EC.
The Court found that the rate of pay provided for by the ‘Buildings and public works’ collective agreement was not fixed according to one of the procedures laid down by Directive 96/71/EC. Although Germany has a system for declaring collective agreements to be of universal application, no such declaration appears to have been made in respect of the collective agreement applicable in this case. As a result, such a rate of pay cannot be considered to constitute a minimum rate of pay within the meaning of Article 3(1)(c) of Directive 96/71 which member States are entitled to impose, pursuant to that directive, on undertakings established in other member States, in the framework of the transnational provision of services (see, Case C‑341/05 Laval un Partneri, paragraphs 70 and 71 - see our post here).
The Court also held that the law of the Land of Lower Saxony was contrary to Article 49 EC. By requiring undertakings performing public works contracts and, indirectly, their subcontractors to apply the minimum wage laid down by the ‘Buildings and public works’ collective agreement, a law such as the one in issue may impose on service providers established in another member State where minimum rates of pay are lower an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host member State. Therefore, such a measure is capable of constituting a restriction within the meaning of Article 49 EC.
The Court also found that no plausible justification of the measure had been put forward.