competition and state aid implications of minimum wage in procurement

Competition and State aid implications of

‘public’ minimum wage clauses in EU public

procurement after the RegioPost Judgment

Dr Albert Sanchez-Graells

Public Procurement & Labour Standards–Reopening the Debate after RegioPost

University of Bristol Law School, 9 May 2016

9 May 2016

1Debate after RegioPost

Agenda

• Discussion of selected issues re dumping and competition

• Competition law implications

• State aid implications

• Preliminary conclusions

Debate after RegioPost 2

9 May 2016

Link to competition law - dumping

• Interestingly, Art 1 LTTG stressed that ‘that law is intended to combat distortions of competition in the award of public contracts that result from the use of low-paid personnel’ (AG Mengozzi, [7])

• Is intra-EU ‘dumping’ prohibited/prohibitable?

• Bundesdruckerei [34] points in opposite direction: ‘prevents subcontractors … from deriving a competitive advantage from the differences between … rates of pay’


9 May 2016

Asymmetry between cross-border &

inter-regional provision (of services)

• RegioPost allows for anti-dumping [‘public sector’] minimum wage requirements for posted workers

• Bundesdruckerei rejects anti-dumping [general?] minimum wage requirements for non-posted workers

• From an economic perspective, these different rules make no sense and create difficulties in terms of:

• Alternative (non in situ) provision (of services)

• Hybrid (in situ + remote) provision (of services)


9 May 2016


9 May 2016

Asymmetry between cross-border &

inter-regional provision (of services)

• Ultimately, this creates reverse discrimination of domestic undertakings vis-à-vis intra-EU suppliers

• [and foreign ie non-EU suppliers, as a result of GPA?—Art 25 Dir 2014/24; issue whether Bundesdruckerei and RegioPost are considered part of Directive or not]

• This makes very poor economic sense [this protectionism has severe potential impacts on public sector efficiency] and is likely to trigger further litigation


9 May 2016

Can ‘public’ labour standard clauses be

non-protectionist / not anti-competitive?

• Structurally, these clauses raise barriers to entry

• Almost impossible to disentangle protection from social dumping and protection from competition/ undertakings in other jurisdictions

• Moreover, special rules for ‘public contracts’ are more likely to have protectionist features (‘good employer’?)

• In my view, this raises complex issues under principle of competition in Art 18(1) Dir 2014/24


9 May 2016

Labour standard [minimum wage or not]

clauses and Art 18(1) Dir 2014/24

• Art 18(1) Dir 2014/24 prevents any artificial narrowing of competition

• Creation of ‘procurement specific’ labour standards / other requirements seems to fit this analytical framework

• Difficulty of applying Art 18(1) in a RegioPost scenario -> issue of mis-transposition of Dir 2014/24?

• Strict proportionality test to be applied to inclusion of labour standard clauses [under Art 70 Dir 2014/24]


9 May 2016

Competition law implications

• Some general competition law impacts

• Crowding out of SMEs and disadvantage vis-à-vis companies with more ability to delocalise

• Raising participation costs (two-tier industrial relations) + intra-MS barriers to participation (red tape, generally)

• Entrenchment of incumbency advantages

• Possibility to cross-subsidise/predate on the basis of different public/private contract performance cost structures


9 May 2016


from private perspective

• If undertakings with strong public procurement position engage in predation in private markets

• Possible application of Art 102 TFEU and domestic equivalents in case there is a dominant position (big if?)

• If undertakings (SMEs?) coordinate their behaviour in ways that aim to avoid minimum wage clauses

• Possible application of Art 101 TFEU and domestic equivalents to their ‘employment avoidance’ agreements?


9 May 2016


from public perspective

• There is no clear way of challenging the anti-competitive aspects not caught by private behaviour

• Issues of ‘State action’ and effet utile of TFEU, but currently not caught by CJEU case law precisely due to lack of involvement of private parties

• Unless, there is significant private involvement (including trade unions) in the setting up of the wages payable under contract compliance clauses


9 May 2016

State aid implications

• Generally, the imposition of (above market) minimum wage requirements as contract compliance clauses can result in an undue economic advantage for the awardees of those contracts

• Directly, particularly if overheads or fixed costs are set as a proportion of variable costs, or as result of indexation clauses

• Indirectly, due to ability to exploit two-tier employment structures as discussed


9 May 2016


• Generally, if there is an economic advantage, it could be caught by Art 107 TFEU, but this triggers

• Difficulty concerning ‘seemingly general’ rules

• If it is considered State aid, its exemption is complicated by the fact that it does not really fit the criteria under Commission Regulation (EU) No 651/2014 of 17 June 2014 (General BER)


9 May 2016


• 2014 General BER: only allows some employment aid

• Recruitment and employment aid for disadvantaged workers and workers with disabilities [Art 1(1)(f) and Arts 32 & 33]

• Aid oriented towards job creation [Art 17(5)]• Employment directly created by an investment project shall (a) be

created within 3 years of completion of the investment; (b) be a net increase in the number of employees in the establishment concerned; (c) be maintained during a minimum period of 3 years

• Aid to maintain jobs is not covered (operating aid)


9 May 2016


• Can it be considered de minimis under Commission Regulation (EU) No 1407/2013 of 18 December 2013?

• total amount of aid granted per Member State to a single undertaking shall not exceed EUR 200,000 over any period of 3 fiscal years [Art 3(2)] BUT

• applies only to transparent aid—ie where it is possible to calculate precisely the gross grant equivalent of the aid ex ante without a risk assessment [Art 4(1)]

• To me, not clear at all that this criterion can be met


9 May 2016

Preliminary conclusions

• The Bundesdruckerei-RegioPost “system” for the use of Art 70 Dir 2014/24 to enforce labour standards creates structural restrictions of competition

• Should be controlled under strict proportionality test, ultimately justified by Art 18(1) Dir 2014/24

• Limited scope for application of competition law, in particular to “public-side” competition restrictions

• Limited (?) scope for application of State aid rulesDebate after RegioPost 16

9 May 2016

Thank you for your attention

Be in touch

[email protected]

http://www.howtocrackanut.com

@asanchezgraells


9 May 2016

mailto:[email protected]

http://www.howtocrackanut.com/