A short Twitter exchange this
morning, ended with the suggestion that I blog on the issue of Procurement and
the Living Wage. It won’t be the first
time I have done this, but it’s no problem to do so again.
Pat Kane @thoughtland tweeted:
I am interested in
BoJo London living wage. In 2012, re: EU procurement, law WAS threatened: http://ow.ly/3im5lA
Info on situation now?
The article in question suggested a Westminster Government view in
2012 that the London Living Wage (or at least its application through
procurement contracts) might be in contravention of EU Procurement Law. This is not a novel view, and is essentially
repeated in Scotland by the Scottish Government. Boris Johnson, Ed Miliband and others
disagree. The short answer to the twitter question would have been. 'The situation is the same as was then. London continues to implement a number of Living Wage contracts and there has been no legal challenge'.
In 2012,
the Scottish Government sought the ‘clarification’ of the European Commission on the possibility of requiring
contractors, as part of the public procurement process, to pay their staff a
'living wage', higher than the minimum wage.
It has to be said that, assuming the Scottish Government would like it
to be the case that the living wage can be stipulated through public contracts,
it was not a very sensible or helpful letter to write.
The response from the
European Commission enabled the Minister Alex Neil to conclude:
“This clarification
confirms my understanding that it is not possible to require contractors to pay
their employees a living wage as part of a public procurement process.”
First off, we should deal
with one common misapprehension. The proposal to include Living Wage provisions
within the Procurement Scotland Bill is not about requiring contractors to
become Living Wage employers in all of their business activities – nice though
that would be. To say that (for example)
SERCO, which isn’t a Living Wage employer, was barred from tendering for, or
being awarded, any public contract because it isn’t a Living Wage employer in
general, would be illegal under EU law.
The more interesting question is whether public bodies can stipulate as a contract performance clause that the Living Wage should be paid in
the delivery of a particular contract. This is essentially what the amendment to the Procurement Bill we have been supporting seeks to do.
To be fair to the Scottish Government, they did explore this
issue to a degree with the EU Commission.
The EC response was that such actions were possible, providing that the payment
of the Living Wage was compliant with the Posted Workers Directive, and in particular
with interpretation following the judgment in the Ruffert case. What this judgment signifies, in a nutshell, is that in
certain circumstances there are restrictions on the setting of wage levels for
contracts above national minimums if the likely effect on other EU companies is
to introduce “an additional economic burden that may prohibit, impede or
render less attractive the provision of their services in the host Member State”. In this respect the key issue, whether in
relation to the Ruffert judgment or the more general clause 56 of the Treaty of
the Functioning of the European Union, is whether companies based in other EU
members states would be commercially disadvantaged by a Living Wage stipulation
and , if that were the case, whether it could be justified in terms of the
social provisions within EU Procurement Law.
In the Ruffert case, the action which was ruled illegal was to
set a contract condition that the successful bidder should adhere to wage
levels set through collective bargaining agreements in a specific part of the
construction sector. This was action was
defended by Lower Saxony on three grounds, the key one being that the state measure was justified by the objective of protecting workers.
The European Court of Justice found against Lower Saxony on the
grounds that the wage stipulation was not necessary to protect workers citing the fact that the provision was not necessary, was not universally applied (only to public sector
construction contracts) and because the rate was higher than provided for by
national legislation.
It should be said that trade unions across Europe have plenty of reasons to dislike the Ruffert case but that does not mean that its implications can be ignored and on the face of it, it appears to pose some difficulties for Living Wage and procurement in Scotland,. But before jumping to that judgment, the following should be considered.
1)
In the Ruffert case the potential for the wage stipulation to be to the detriment of
companies based in other member states was effectively agreed by all
parties. That is to say that no one questioned
that the effect of the Lower Saxony approach to contracting would be to restrict
the ability of companies based in other EU to member states to successfully
compete. In construction, workers are
routinely paid at rates considerably higher than the minimum wage. Thus there
is the potential for a company to pay posted workers above the legal minimum,
but below the industry standards and still absorb other costs (travel,
accommodation etc) implicit in posting workers.
As we will see, it is far more difficult to argue that a Living
Wage stipulation for contracts such as in social care or cleaning is comparable. Whilst it was difficult in Ruffert to deny that there was any protectionist element in Lower Saxony’s actions, it would be
much easier so to do in respect of a Scottish Living Wage provision.
2)
There was no actual set wage rate identified by
Lower Saxony in the Ruffert case. The wage
rate being set by collective sector agreements in part of the construction
industry. This makes it harder to a)
judge the potential detriment to a contractor b) to argue that the different wage
rate was set by “laws, regulations and/or administrative provisions” as is required by the Posted Workers Directive
and c) that the wage rate was necessary for the protection of workers.
The legal opinion we have been provided with, and is a matter of public record, suggests that it is possible to legislate in Scotland in a way that avoids these problems.
Firstly an objective analysis could be undertaken to assess the potential impact on companies based in other member states of introducing a Living Wage contract performance clause. A possible question might be. Are there any companies from other EU member states currently delivering any Scottish procurement contracts, employing posted workers and paying less than the Living Wage? I’m fairly certain the answer is No. The vast majority of procurement contracts are in the field of health and social care. Some of the Scottish based companies and voluntary organisations pay between the Minimum wage and Living Wage, and the difference between the two rates is currently £1.14 per hour. To quote Unison's Dave Watson in his evidence to the Scottish Parliament
“Let us think about this: that directive is a European piece
of legislation governing cases in which a company, presumably from a low-wage
eastern European economy, posts workers to Scotland to deliver a particular
public service contract. One could imagine certain high-level, high-wage areas—for
example, the offshore areas where the people Pat Rafferty represents work—where
a company might want to bring workers over, accommodate them and so on. Can you
really see the same thing happening in a cleaning or hospitality contract,
where the difference in wages will be between the national minimum wage and the
living wage? Is that profit margin enough to pay for the accommodation of
hundreds of Polish, Romanian or Bulgarian cleaners or hospitality workers?
Clearly it is not, which is the reason why there have been no challenges.”
Secondly, the Scottish Government can go further in its
justification for stipulating a Living Wage than Lower Saxony did in the Ruffert
case. It can argue that the protection
it suggests is a question of ‘human dignity’. Our legal advice says that attaching more
weight to the employment protection issues such as describing the Living Wage as
a matter of human rights protection makes the courts apparently more willing to
accord them greater weight. Could such a
description be justified? Of course it
could. Firstly, the Living Wage is significantly lower and 'more basic' than the likely wage rates being suggested in the Ruffert case. Also, unlike the UK Minimum Wage which is
essentially a negotiated rate set by government based on the balancing of both fairness
and commercial considerations, the key processes involved in setting the Living
Wage (Minimum Income Standard, participatory budgeting etc) have a meaningful read
across to human rights.
Thirdly, the Scottish Government could set the Living Wage rate
in (probably) secondary legislation and provide a note on how the future rate
would be calculated. This would do two
things. It would avoid the ‘Ruffert
problem’ of the rate not being set by ‘laws
regulations and/or administrative provisions’. It would also provide the potential to
quantify any potential detriment to companies bidding from overseas on the
basis of posting workers (not that we believe the need would ever arise).
Would
one final problem remain? Would a court
rule as sufficient cause for overturning a contract the fact that the Living
Wage rate is not universal (i.e. only applied to public sector contracts) and
that the rate of pay guaranteed is greater than that provided for in the
national legislation? It seems to me that this is unclear. Firstly it is uncertain whether this would be
a defining issue given that the other problems arising from Ruffert could be
dealt with and particularly important in this might be the different criteria
adopted for setting Minimum Wages and Living Wages (with the second being more
grounded in human dignity considerations). Secondly, and perhaps quite
importantly, the Scottish Government does not have the legislative competence to change the level of
the National Minimum Wage even if it wanted to.
I am certainly no legal
expert. But what I do know is that significant
advances on procurement and social and environmental policy have been achieved
precisely because European Governments and other public authorities have taken
a proactive approach to exploring the boundaries of EU procurement law- A6.1.2
C-225/98 Nord-Pas-de-Calais
Region (Commission v the French Republic) is a frequently quoted example.
It is also the case that there has never been a legal challenge to the
use of Living Wage contracts in London.
So, to return to an important point. Not only, would the Scottish
Government have a strong case, but it is very hard to imagine the circumstances
in which its case would be tested by a commercial company in court.
It is for these reasons that I am tempted to conclude that there are
other considerations, chiefly financial ones, which are at play here. That’s a
debate we should be prepared to have openly rather than relying on a single and
questionable interpretation of EU law.
