The Commission’s proposal for a European Minimum Wage – another ultra vires challenge for the EU?

On 3 June 2020, the Commission issued the second phase of the consultation on possible EU action on fair minimum wages. The proposed action reflects the commitment made by the President of the Commission, Ursula von der Leyen to “propose a legal instrument to ensure that every worker in our Union has a fair minimum wage” within the first 100 days of her mandate. The proposal seems to have been favourably received – the European Parliament has indicated that it will support the Commission’s initiative and the European Trade Union Confederation considers that the measures are much needed, not only to repair the damage inflicted by the austerity measures but also to deal with the economic fall out of the Covid-19 pandemic. Commentators have supported the proposals by pointing out the social and economic benefits it would bring, and demonstrating that the EU was taking the ideal of a ‘social Europe’ seriously. While the Nordic Member States expressed concerns about the impact which such EU action could have on their system of collective bargaining, the outcome of the consultation was generally favourable.

In this entry, I will not engage with the question of the desirability of the minimum wage proposal, nor of its impact on national labour law. What I will consider is whether the legal basis on which the Commission seeks to rely on provides the EU with the necessary competence to enact the proposed measures. The analytical document (SWD(2020) 105 final) produced by the Commission in conjunction with the 2nd phase consultation provides quite a lot of detail about the type of measures that are being proposed, and the Treaty provisions that would form the legal basis for those measures. The argument advanced in this entry is that the Commission overestimates the degree of flexibility provided by the Treaty provisions, and that the proposed measures would likely be ultra vires.

The proposed measures
The possible measures proposed by the Commission [SWD(2020) 105 final, p. 55] are either a Directive stipulating “a set of minimum requirements and procedural obligations to be necessarily complied with [by the Member States]” and/or a Council Recommendation with “a common set of principles and criteria [which] provide a basis for action by all Member States with a view to achieving fair minimum wages across the EU”. The policy options, which these measures would realize include calling on Member States to
“provide for [s]tatutory minimum wages setting mechanisms to be guided by clear and stable criteria”;
“provide for [u]pdates of statutory minimum wages being conducted at reasonably frequent and regular intervals”;
“[s]pecify a number of elements to be taken into account for statutory minimum wage setting and updating” and
“[d]efine a set of indicators to guide the assessment of minimum wage adequacy” [p. 53-54].
In other words, the proposed measures would be binding and/or non-binding EU legal acts which would guide member states both in respect of the processes by which minimum wages are set, and the level at which the minimum wage is set.

The legal basis which the Commission proposes to rely on in order to enact these measures is Article 153(1)(b) TFEU [p. 55]. Article 153 is part of Title X of the TFEU, on Social Policy, which sets out a number of objectives, including the promotion of employment, and improved living and working conditions (Article 151 TFEU). Article 153(1) TFEU provides that “with a view to achieve the objectives of Article 151, the Union shall support and complement the activities of the Member States” in a number of fields. One of these fields is working conditions, and the Commission points out that  “insofar as wages, including minimum wages, are a key component of working conditions, the initiative could be based on Article 153(1)(b) TFEU on ‘working conditions’” [p. 45].

There are two types of measures that can be adopted under Article 153: non-binding measures under 153(2)(a), which are “designed to encourage cooperation between Member States through initiatives aimed at improving knowledge, developing exchanges of information [etc.]” but exclude harmonisation; and binding Directives under 153(2)(b) which impose “minimum requirements for gradual implementation, having regard to the conditions and technical rules obtaining in each of the Member States”.

However, and importantly in the context of this proposal, Article 153(5) states that “[t]he provisions of this Article shall not apply to pay […]”. This restricts the scope of the whole of Article 153, which means that the EU is precluded from adopting either binding or non-binding measures under 153(2) (a) and (b) if they concern pay.

It is difficult to see how the measures being considered by the Commission would not be measures in respect of pay, and therefore precluded by Article 153(5). The Commission argues that they do not fall under 153(5) because the proposed measure would not “seek to harmonise the level of minimum wages across the EU, nor would [they] seek to establish a uniform mechanism for setting minimum wages” [SWD(2020) 105 final, p. 46]. The problem with this argument is that, even without Article 153(5), Article 153 does not allow for measures that ‘harmonise the level of minimum wages across the EU’ or that ‘establish a uniform mechanism for setting minimum wages’. This is because, as already pointed out, the binding measures that can be adopted under 153(2)(b) are restricted to “minimum requirements for gradual implementation, having regard to the conditions and technical rules obtaining in each of the Member States”. The EU therefore would not have any competence to set either a uniform level or a uniform procedure for minimum wage, even without 153(5). The Commission’s interpretation would make Article 153(5) completely redundant.

The Commission argues that its interpretation follows from “the constant caselaw of the EU” [SWD(2020) 105 final, p. 46]. In support of this argument, it cites C-268/06 Impact, where the Court held that Article 153(5) “must be construed as covering measures that amount to direct interference by EU law in the determination of pay within the European Union” [§124 – emphasis added]. But there are measures that can constitute a direct interference in the determination of pay without amounting to setting a uniform level of wages or a uniform mechanism to set those wages. Measures which introduce the requirement to have a minimum wage, which provide criteria for how such wage is to be set and at what level, amount to direct interference in the determination of pay.

The cases cited by the Commission concern EU measures which clearly are not a direct interference in the determination of pay: Impact concerned Directive 1999/70 on Fixed Term Work. The objective of this Directive [Recital 14] is to protect fixed term workers from discrimination. Of course, the prohibition of discrimination includes a prohibition not to pay fixed term workers less merely on the grounds of fixed term work. However, the connection to pay is clearly indirect. The same goes for the other instruments to which the Commission refers [at p. 46], such as Directive 97/81 on part-time work, Directive 2008/104 on temporary agency work, Directive 2019/1158 on work-life balance for parents and carers, Directive 2019/1152 on transparent working conditions. These measures, like most labour law measures, have an indirect impact on pay. Nevertheless, they are not measures concerning pay.

In contrast, the measures the Commission proposes to introduce are measures, which clearly are intended to affect the level of pay in the Member States. As the President of the Commission put it, they are an EU legal instrument “to ensure that every worker in our Union has a minimum wage”. This may well be a very laudable aim, but it is also a clear and direct interference, by the Union, in the determination of pay in the Member States. As such, the proposed measures are precluded by Article 153(5). It is worth noting that alternative legal basis, such as the flexibility clause in Article 352 TFEU would also appear to be problematic, as others have pointed out. Such alternative legal basis have however, not even been considered by the Commission in its Analytical Document.

The finding that the measures are precluded by Article 152(5) might seem like a technicality. The measures seems to have important and laudable aims to protect workers’ rights, strengthen the European economy, and counter the populist rhetoric that only the nation states stand for the ‘ordinary people’. Given the crisis that the EU and its Member States face in light of the Covid-19 pandemic, there may be a temptation to ask for flexibility in the interpretation of the competences conferred by the Treaties. Still, it may be worth bearing two points in mind. First, to introduce measures, which are clearly intended as a direct interference by the EU in the determination of pay in the Member States, would not merely show flexibility in interpretation, it would introduce measures, which the Member States expressly excluded from the competence of the EU. Second, the legitimacy of the EU rests, as the Court of Justice emphasised in as early as 1986 in Les Verts, on the EU being “a community based on the rule of law, inasmuch as neither its Member States nor its institutions can avoid a review of the question whether the measures adopted by them are in conformity with the basic constitutional charter, the Treat[ies]” [§23]. The importance of ensuring that the EU acts within the limits of its competence has been emphasised quite recently by Germany’s Federal Constitutional Court.

I suggest there are great dangers for the EU if it allows itself to enact measures that stretch its competence beyond the limits provided for by Article 153 TFEU. Whilst there might be some short term gains to the ‘output legitimacy’ of the European project, the long term damage this may do to the credibility and legitimacy of the EU legal order is likely to be much greater.