Ane Aranguiz, Postdoctoral Researcher, University of Antwerp

Almost a year after promising an initiative on minimum wages, the European Commission presented its controversial proposal for a directive on this issue on October 28, 2020. This proposal has been met with criticism, particularly regarding the Commission’s authority on this matter, potential impacts on the autonomy of social partners and collective bargaining, and concerns about how this might affect the competitive advantage of member states with currently lower wages.

Background

In many EU countries, minimum wages haven’t risen as much as other wages. Trends like globalization, digitalization, and the rise of non-standard employment have led to a widening gap between low-paid and high-paid jobs. Additionally, collective bargaining systems have weakened. The COVID-19 crisis has amplified these issues, disproportionately impacting sectors with more low-wage earners and vulnerable groups like women, young people, low-skilled workers, and individuals with disabilities.

Since the European Pillar of Social Rights (EPSR) was adopted in 2017, EU institutions have focused on ensuring better social rights for citizens. The latest effort is a proposed directive on adequate minimum wages, aligning with the EPSR’s principle 6. This aims to create fairer working conditions and a more equitable labor market across the EU, potentially boosting productivity and socioeconomic progress.

This initiative was first outlined in the 2019-2024 European Commission Political Guidelines. In January 2020, the Commission published its communication on “building a strong social Europe for just transitions,” alongside the first stage of consultations. During this stage, social partners were asked about the necessity and potential form of a minimum wage initiative. The second consultation stage, held between June and September, focused on the initiative’s specific content and legal structure. Due to a lack of consensus among social partners on entering negotiations for an agreement (as per Article 155 TFEU), and after conducting an impact assessment based on the Better Regulation policy, the Commission submitted its proposal for a Directive.

Content

Based on Article 153(1)(b) TFEU (working conditions) and Article 153(2)(b) TFEU, the Commission’s proposed directive aims to ensure workers are paid fairly, allowing for a decent standard of living across the EU. The directive is designed to be adaptable, respecting individual countries’ characteristics, national authority, contractual freedom, and the autonomy of social partners. It also encourages collective bargaining regarding wages, ensures formal coverage of these agreements, and guarantees compliance with existing agreements related to statutory minimum wages.

The proposed directive comprises four chapters:

1. General Provisions (Articles 1-4): covering the subject matter, scope, definitions, and promotion of collective bargaining on wages.
2. Statutory Minimum Wages (Articles 5-8): addressing adequacy, permissible variations and deductions, involving social partners in setting and adjusting statutory minimum wages, and ensuring workers’ effective access to these wages.
3. Horizontal Provisions (Articles 9-12): relating to public procurement, monitoring, data collection, and penalties.
4. Final Provisions (Articles 13-19): covering implementation, information dissemination, evaluation, review, non-regression clauses, more favorable provisions, transposition into national law, entry into force, and addresses.

Several provisions within these chapters deserve special attention. Firstly, the proposal’s scope encompasses all EU workers with employment contracts or employment relationships as defined by law, collective agreements, and relevant ECJ case-law. Recital 17 clarifies this by specifically mentioning frequently debated categories like domestic workers, on-demand workers, intermittent workers, voucher-based workers, those falsely classified as self-employed, platform workers, trainees, and apprentices. Notably, it emphasizes that an employment relationship is determined by actual work performed, not just the job description, aiming to ensure minimum wage coverage for workers in non-standard employment forms if they meet similar criteria.

Article 4 focuses on promoting collective bargaining, mandating a framework for it in areas where coverage is below 70%. This necessitates a public action plan that must also be presented to the Commission. For statutory minimum wages, Article 5 stresses adequacy, requiring member states to establish clear, consistent national criteria considering the purchasing power of minimum wages, the overall level and distribution of gross wages, wage growth, and labor productivity developments. Additionally, member states must consider internationally recognized reference values. While the preamble mentions the at-risk-of-poverty threshold as a potential tool for evaluating adequacy, there’s no specific reference value or threshold within the provision itself. Meanwhile, Article 6 restricts variations and deductions that might create different statutory minimum wage rates, stating that any such instances must be justifiable and proportionate.

Furthermore, a monitoring system involving supervision, data collection, and assessment of the existing framework is established. Article 10 mandates an annual report, statistics, and information categorized by gender, age, disability, company size, and sector, which the Commission will analyze and report on to the Council and Parliament.

These elements are complemented by standard provisions covering remedies, implementation, non-regression, information dissemination, evaluation, and transposition into national law.

Analysis

Despite criticism, this proposal is quite robust, particularly in guaranteeing access to minimum wages, transparency, and compliance, though possibly less so regarding adequacy. It reflects the Commission’s efforts to address concerns about the autonomy of social partners and potential negative consequences for collective bargaining. Beyond provisions explicitly focused on promoting social partners (Articles 4 and 7), the preamble extensively addresses these concerns (recitals 18-20), while a dedicated chapter (Chapter 2) focuses solely on statutory minimum wages to differentiate between the two systems.

One of the proposal’s strongest points is its broad scope. Combining a wide definition of “worker” with the obligation to establish a framework for collective bargaining in areas lacking coverage, and clear limits on variations and deductions for statutory minimum wages, will likely result in broader minimum wage coverage for many currently excluded workers, should the proposal be adopted. This, along with regular monitoring and access to effective remedies, could bring greater fairness to the labor market.

However, as anticipated, the proposal is less strong regarding wage adequacy. Positively, member states with statutory minimum wages must consider essential factors when determining minimum wage levels, such as whether they enable recipients to access essential services and participate in society. However, there’s no guidance on how to use these elements or a defined threshold or standard for member states to aim for, such as the at-risk-of-poverty threshold (60% of the equivalized median wage), even though, in 2018, most statutory minimum wages were insufficient to lift individuals out of poverty. This might seem counterintuitive, as the directive aims to combat in-work poverty. However, it’s understandable given the Commission’s chosen legal basis (Article 153(5) TFEU), which restricts regulating pay levels. While this ensures fairness and transparency in wage-setting, minimum wages below the poverty line are difficult to consider “adequate.” Using a different legal basis might have allowed for stronger commitments to adequacy.

Another positive aspect is linking the Directive to fundamental rights instruments like the EPSR, the Charter of Fundamental Rights (Article 31 CFR), the European Social Charter (Article 4), and the 131 ILO Convention. These links could help guide interpretation for member states or courts during disputes and facilitate judicial dialogue between different bodies. Additionally, explicitly referencing Article 31 CFR ensures that the Directive aligns with the CFR. While the Bauer case opened the door for directly applying Article 31 CFR, without a clear reference in the directive, it might be debatable whether minimum wages fall under this provision, as Article 31 CFR doesn’t explicitly mention them.

The monitoring system (part of the European Semester), access to the Technical Support Instrument, and the European Social Fund Plus to develop and enhance minimum wage technical aspects will likely facilitate effective implementation, further bolstering the proposal.

Conclusion

In conclusion, the Commission has proposed a robust initiative aiming to establish “fair” minimum wages. However, these may not necessarily be “adequate” as the proposal’s title suggests.

It remains to be seen whether the proposal will survive opposition to EU-level minimum wage regulations, at least in its current form. This opposition might lead to significant weakening during negotiations between the Council and Parliament or even complete abandonment, potentially becoming the fourth victim of the yellow-card procedure.

Barnard & Peers: chapter 20

Photo credit: Recruiting Times