The tug o’ war for subcontracting in public procurement

 

 

Trygve Harlem Losnedahl, Doctoral Research Fellow at the University of Oslo, Centre for European Law.

 

Current interest

 

Brussels’ internal market watchdogs are communicating diverging views on subcontracting in public procurement.

 

In a large report on good practice for socially responsible procurement from May 2020, the Commission praises the Norwegian municipality of Skien’s model to combat social dumping and work related crime in public procurement.* Among the measures taken by the municipality is to limit the length of the contract chain to increase transparency and control, by requiring that every sub-contractor must be under the direct control of the main contractor.

 

At the same time, the EFTA Surveillance Authority (ESA), which corresponds to the Commission with regard to the EEA-states of Iceland, Liechtenstein and Norway, has sent a letter of formal notice to Norway claiming that a less restrictive national limitation on subcontracting chains is contrary to EU law. The Norwegian national rule applies to the construction and cleaning sectors, and sets the maximum length of three links in the contract chain, i.e. main contractor, sub-contractors and sub-sub-contractors. In the letter of formal notice, ESA leans heavily on a CJEU preliminary ruling from 26 September 2019, C-63/18 Vitali (see brief comments on the judgment by David McGowan in PPLR 2020 issue 1). Vitali was the first ruling from CJEU under the “new” procurement directives of 2014 regarding limitations on subcontracting. The ruling has apparently left quite some uncertainty.

 

In the following, I will give a brief background of the conflicting interests in limitations on subcontracting in public procurement, and case law up until the adoption of the new procurement directives of 2014. A presentation of the Vitali-case will then follow before I (critically) assess ESAs interpretation of the Vitali-case and ESA’s application of the Vitali-case on the Norwegian legislation.

 

The background – getting to the Vitali-case

 

To subcontract or not to subcontract, that has been the question in a number of judgments from the CJEU during the last thirty years (especially Cases C-389/92 Ballast Nedam Groep I, C-5/97 Ballast Nedam Groep II, C-176/98 Holst Italia, C-314/01 Siemens AG Österreich and ARGE Telekom & Partner, C-94/12 Swm Costruzioni 2 and Mannocchi Luigino). There has been a kind of tug-o-war where public buyers have been pulling for a right to limit subcontracting, for such reasons as preventing work related crime (Vitali) and quality control of the procured services (C-406/14 Wroclaw and C-94/12 Swm Costruzioni 2 SpA and Mannocchi Luigino DI). On the other side, supporters of unrestricted competition on the internal market have been pulling to reduce any limitations which could make public contracts less attractive for businesses. From an internal market perspective, limitations on subcontracting are seen as restrictions on the right to provide services. It has especially been seen as restraining small and medium sized enterprises (SMEs). Because SMEs are unable to compete for large public contracts, the only way for SMEs to get a slice of the larger public contracts is via the main contractor, i.e. via the main contractor’s right to subcontract.

 

The interpretation in favour of open competition reached a peak in the Wroclaw-case (C-406/14 Wroclaw), which was decided under the now repealed 2004-directive, and has similar facts as the Vitali-case. The Polish city Wroclaw initiated a procurement procedure for a roadworks contract. The tender specifications set out that tenderers were “obliged to perform at least 25% of the works covered by the contract using its own resources”. In other words, no more than 75% of the works for the specific contract could be subcontracted. Such a tender requirement was compatible with the Polish law at the time, and the Polish government argued that it was compatible with the 2004-directive article 26. Article 26 allowed contracting authorities to “lay down special conditions relating to the performance of a contract, provided that these are compatible with Community law and are indicated in the contract notice or in the specifications.” Article 26 also stated that such conditions relating to the performance of a contract could concern social and environmental considerations.

 

The CJEU found that the 25%-stipulation was contrary to EU law, i.e. the stipulation that the main contractor had to perform 25% of the works itself. The court ruled that the 2004-directive art. 48(3) provided a right to subcontract which was “in principle, unlimited” (para 33). As regards to the argument set out by the Polish government that the 25%-stipulation was a “special condition” allowed under article 26, the court rejected the view. The court stated that “since [the 25%-stipulation] is contrary to Article 48(3)”, the stipulation “is contrary to EU law”. As mentioned, the wording of art. 26 contains the reservation that special contract conditions have to be “compatible with Community law”. Thus, the court must be understood as concluding that since another article of the directive gives a right to subcontract, special conditions under art. 26 which limits that right, are incompatible with union law. As one can see, the court gave the general right to subcontract according to article 48(3) precedence over art. 26, and left art. 26 basically without any substance in relation to setting conditions which could limit subcontracting.

 

To further underscore the court’s view on the right to use subcontractors as a strongly protected right, AG Sharpston argued that in her view, there was only one permissible restriction on subcontracting (paras 31-34). Namely, when contracting authorities are not in a position to verify the technical and economic capacities of the subcontractors and those subcontractors are to perform essential parts of the public contract. The court had opened for such an exception in C‑314/01 Siemens and ARGE Telekom (para 45-46).

 

As I will comment on further below, the 2014-directives intended to put more emphasis on social, environmental and labour protective considerations, thus tilting the balance back from the unrestricted market position.

 

The Vitali-case

 

On 18 April 2016, the Italian legislature adopted legislation which set out that “any subcontracting shall not exceed 30% of the total amount of the contract for works, services or supplies” (para. 9). In other words, 70% of the contract value had to be performed by the main contractor, and there were no exceptions from this 30% limitation. The legislation’s main objective was to combat Italy’s many criminal organizations, which regularly made use of subcontracting in public contracts due to the reduced transparency and division of responsibility that comes with subcontracting. (Reduced transparency and control in contract chains is also highlighted in the Commission report on socially responsible procurement in a case study from Copenhagen (page 240).)

 

The Vitali-case (C‑63/18) treated a restricted tendering procedure launched by the publicly owned Autostrade per l’Italia SpA in August 2016, for the award of works on a motorway close to Milan. The contract value was roughly 85 million euros. Vitali SpA placed an offer in which more than 30% of the service was to be performed by subcontractors. Vitali was excluded since the offer did not comply with the new national 30%-limitation on subcontracting.

 

One does not have to be a trained lawyer to see the apparent discordance between the ruling of the Wroclaw-case and the new Italian 30%-limitation. It follows from the Vitali-judgment that the Italian legislature was aware of the conflict between the ECJ case law and the 30%-limitation, but that the legislature took the new 2014-directives as an opportunity to adopt measures which the former directives prohibited (paragraph 16). However, Italy’s view fell on deaf ears at the court. The court chose to render its judgment without an Opinion from the Advocate General.

 

The CJEUs main reasoning is found in paragraph 38 to 42 of the judgment. The court presents its conclusion (somewhat pre-emptively) in paragraph 38, that the Italian limitation “goes beyond what is necessary” to combat criminal organizations. In paragraph 39, the court presents the legal basis for the necessity condition, namely that article 18 of the directive obliges the contracting authority to observe the principle of proportionality. In paragraph 40 and 41, the court presents arguments for the disproportionality of the Italian 30%-limitation, before it in paragraph 42 argues that combating crime could be achieved with less restrictive measures, thus returning in paragraph 43 to the conclusion that “a restriction on the use of subcontracting such as that at issue in the main proceedings cannot be regarded as compatible with Directive 2014/24”.

 

Since ESAs proceedings against Norway is based on an interpretation especially of the Courts reasoning in paragraph 40 and 41, I cite them in full:

 

“40  In particular, as pointed out in paragraph 30 of the present judgment, the national legislation at issue in the main proceedings prohibits, in general and abstract terms, use of subcontracting which exceeds a fixed percentage of the public contract concerned, so that that prohibition applies whatever the economic sector concerned by the contract at issue, the nature of the works or the identity of the subcontractors. Furthermore, such a general prohibition does not allow for any assessment on a case-by-case basis by the contracting entity (see, by analogy, judgment of 5 April 2017, Borta, C‑298/15, EU:C:2017:266, paragraphs 54 and 55).

 

41 It follows that, in the context of national legislation such as that at issue in the main proceedings, in respect of all contracts, a significant part of the works, supplies or services concerned must be performed by the tenderer itself, failing which it will be automatically excluded from the procurement procedure, including where the contracting entity would be able to verify the identity of the subcontractors concerned and would take the view, after verification, that such a prohibition is not necessary in order to combat organised crime in the context of the contract in question.”

 

ESA’s (mistaken) reasoning

 

As mentioned, ESA has sent a letter for formal notice to Norway claiming that a national legislation which limits subcontracting chains, is contrary to EU/EEA-law. Norway has rejected ESA’s view, and ESA is currently assessing whether to instigate infringement proceedings before the EFTA court (the EFTA equivalent of the CJEU under the EEA Agreement). ESA states in the letter that it “relies on the judgment of the CJEU in Vitali to conclude that the necessity condition is not met”, i.e. that the Norwegian three chain limitation on subcontracting in public procurement is not necessary to combat work related crime.

 

In my opinion, ESA makes three mistakes in its interpretation and application of the Vitali-case. Firstly, ESA cherry-picks legal sources, not taking sufficiently into account amendments in the new directive. Secondly, ESA mistakes a characterization by the CJEU for criterion. Thirdly, ESA fails in its assessment of the similarities and differences between the Italian and the Norwegian rule. I will substantiate these three claims in the following.

 

Mistake 1: Cherry picking legal sources from the 2004-directive, and ignoring changes to the new directive

 

The “new” 2014-directives intended to open more for social, environmental and labour protective considerations, thus tilting the scale a bit back from pursuing the goal of an ever less restricted competition on the internal market. The Commission report addresses this in its introduction:

 

“The 2014 Public Procurement Directives make it clear that social aspects can be taken into account throughout the procurement cycle, from preliminary market consultation, through to the use of reservations and the light regime, and to social award criteria and contract performance conditions. Public buyers across Europe are starting to take advantage of these opportunities and demonstrate real social impact in their purchasing. Despite this, Member States are not yet fully exploiting the possibilities of public procurement as a strategic tool to support social policy objectives.”

 

The most important amendment of the directives in this regard, was the articles on principles of procurement. The “principles-clause” in the 2004/18-directive (article 2) only included the principle of equality, transparency and non-discrimination. When the EU legislator adopted the 2014-directives, it included in the new “principles-clause” (article 18 of the 2014/24 directive) a requirement that economic operators must comply with applicable obligations in the fields of environmental, social and labour law. In Tim SpA (C-395/18) paragraph 38, the CJEU underlined that “the Union legislature sought to establish” the requirement to comply with social, environmental and labour law as a principle of procurement law, “like the other principles”, i.e. equal treatment, non-discrimination, transparency, proportionality and prohibiting the exclusion of a contract from the scope of Directive 2014/24 or artificially narrowing competition. In other words, the CJEU understood (and accepted) the EU legislators’ view that these social principles should be on the same foot as the traditional inner-market principles.

 

Through article 18, the EU-legislator also clarified and limited what had been argued to be a (wide) principle of competition in public procurement law. (See especially Sanchez Graells “Public Procurement and the EU Competition Rules”, 2^nd edition, 2015, and for an opposing view, Sue Arrowsmith, "Purpose of the EU Procurement Directives: Ends, Means and the Implications for National Regulatory Space for Commercial and Horizontal Procurement Policies, The," Cambridge Yearbook of European Legal Studies 14 (2011-2012): 1-48.) Article 18 now establishes that “[t]he design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition.” By including “intention” and “artificially” in the wording of the “principles clause”, it is clear that the competition principle includes a subjective element. Even though it is not clear how this will be interpreted and operationalized, there must be an “intention” in some form by the public buyer to “artificially narrowing” competition.

 

Unlike the Commission report, ESA does not appear to take this development in legislation, nor new case law, into account. ESA does not comment on the development of the directive’s “principles clause”, nor on Tim SpA.

 

Quite to the contrary, ESA appears to cherry pick some of the more “competition friendly” case law from the CJEU, even though this case law concerns the now repealed 2004-directives and despise the fact there exists relevant case law concerning the 2014-directives. An example is that ESA chooses to cite Borta (C-298/15) when it argues that the Norwegian sub-contracting limitation puts unjustified restrictions on competition, even though the CJEU explicitly states in Borta that the new 2014-directive “cannot be taken into consideration in order to answer the questions referred” (para. 29). In Borta the CJEU strongly underscored the interest of competition, as it wrote that “it is the concern of the European Union to ensure the widest possible participation by tenderers in a call for tenders” (para. 48). As to relevant case law under the 2014-directive, Vitali itself addresses the goal of competition under 2014-directive, but the wording that CJEU uses in Vitali (para. 27) is that it is “in the interests of the European Union to ensure, in the field of public procurement, that the opening up of competition in tendering procedures is enhanced.” – in other words, a quite more reserved formulation.

 

ESA’s choosing and interpretation of legal sources, as opposed to the Commission’s, directs ESA to a view which excessively emphasizes the interest of unrestricted competition. This naturally affects ESA’s assessment of the proportionality of the Norwegian limitation.

 

Mistake 2: Characterization, not criteria

 

The other mistake is that ESA takes Vitali’s characterization of the Italian rule as “general and abstract” for criteria. Under the heading “Assessment of the necessity condition”, ESA begins:

 

“The Authority [i.e. ESA] relies on the judgment of the CJEU in Vitali to conclude that the necessity condition is not met… In reaching its conclusion, the CJEU relied on the fact that the [Italian] provision was in general and abstract terms, so that the prohibition applied whatever the economic sector concerned by the contract at issue, the nature of the works or the identity of the subcontractors, and that it did not allow for any assessment on a case-by-case basis by the contracting entity.

 

The Authority considers [the Norwegian provisions] to be materially similar to the provision in Vitali in that they are also in general and abstract terms and do not allow for any case-by-case assessment as to whether or not they are necessary to meet their objective.”

 

In the letter, ESA returns to an assessment of whether the Norwegian rule is set in “general and abstract” terms and if it allows for a proper case-by-case assessment. ESA holds that the Vitali-judgment establishes these as two criteria, which each is sufficient to conclude that at national limitation on the right to subcontract in public procurement is contrary to the proportionality principle, i.e. the necessity condition. The two criteria are (1) that the limitation is set “in general and abstract terms”, or (2) does “not allow for a case-by-case assessment”.

 

As to the first of these two, i.e. “general and abstract terms”, ESA has mistaken a characterization for criteria. When the CJEU writes that the Italian provision was set "in general and abstract terms", it must be understood as a characterization of the Italian percentage rule, not as a criterion for what types of provisions that are (always) considered to fall short of the necessity condition. In law making, general and abstract rules have been an ideal ever since the first (and less successful) codifications of the Enlightenment, such as the very detailed style of the Prussian ALR of 1794, with its 19 160 articles at a detailing level such as “to a library is to be counted the shelves and cabinets where the books are located” (Anners, Erik: ''europeiske rettens historie''. Utg. Universitetsforl.. 1983. Page 211-212).

 

More importantly, such a criterion would be quite impossible to apply. What does it mean that a rule is general or abstract? How do you measure generalness or abstractness of a provision? When does a rule tip to general and abstract from, I suppose, specific and concrete?

 

ESA does not try to develop or elaborate how it understands the criteria of “general and abstract”. ESA does however conclude that the Norwegian three-chain limitation is not “general”, since it is limited to the sectors of construction and cleaning services. Even so, ESA finds that the limitations “are otherwise in abstract terms”, as they “apply limitations on subcontracting based on the number of links in the chain without any further assessment of the nature of the works/services or the identity of the subcontractors.”

 

In my view, neither “general” nor “abstract” are criteria that the CJEU established to assess the necessity of limitations on subcontracting. What the CJEU did in Vitali was to look at the specific traits of the national limitation, to assess whether the limitation was necessary to achieve the limitation’s goal of combatting organized crime. The specific traits that the CJEU highlighted in Vitali paragraph 40, were that it “prohibits, in general and abstract terms, use of subcontracting which exceeds [1] a fixed percentage of the public contract concerned, so that that prohibition [2] applies whatever the economic sector concerned by the contract at issue, [3] the nature of the works or [4] the identity of the subcontractors. Furthermore, such a general prohibition [5] does not allow for any assessment on a case-by-case basis by the contracting entity…” [Numbers added to clarify the different elements].

 

As is often the case when the CJEU undertakes a proportionality assessment, it does not state whether each of the elements in its reasoning are to be understood as criteria that are necessary and/or sufficient for reaching the same conclusion in similar cases. As I have shown above, ESA understands “general and abstract terms” as criteria that are sufficient to conclude that a limitation on subcontracting falls short of the proportionality test. This leads ESA to an all too narrow approach to the necessity condition, instead of a comprehensive assessment where all relevant traits of a national limitation are taken into account.

 

Mistake 3: Not identifying the differences

 

I will here highlight three important differences between the Italian rule in the Vitali-case and the Norwegian rule, which ESA, as opposed to the Commission, misses and/or misjudges.

 

Firstly, the Italian rule applied to all sectors and all contracts. The Norwegian rule is limited to the construction and cleaning sectors, which are sectors especially troubled with work related crime. As shown above, ESA finds that this sectorial limitation does not make the Norwegian rule as “general” as the Italian, but since ESA means that the Norwegian rule is otherwise set in “abstract terms”, it concludes that it has similar shortfalls as the Italian rule. In my view, this is a misjudgement by ESA, which follows from ESA’s own form of Begriffsjurisprudenz, where “abstract” is mistakenly applied as a legal criteria. The differences in sectorial scope of the Norwegian and Italian rules is highly relevant in a normal proportionality assessment. Since the Norwegian rule only applies to two sectors, it is a less restrictive measure than the Italian pan-sectorial rule.

 

The second important difference is that the Italian rule prohibited main contractors from subcontracting more than 70 % of the value of the contract to subcontractors, whereas the Norwegian rule prohibited tenderers from allowing more than two links of subcontractors in the contract chain, i.e. the main contractor, subcontractors and sub-subcontractors. The Norwegian rule sets limitations neither on the value that can be sub-contracted nor on the total numbers for subcontractors or sub-subcontractors, just the length of each chain.

 

The Commission report highlights both these two traits of the Norwegian rule in its presentation of the procurement policy of the municipality of Skien. The municipality has established a main rule of maximum one level of subcontracting under the main supplier, i.e. an even more restrictive rule than the national two-level-limitation. The Commission report argues:

 

“While there is no restriction on the number of subcontractors or the proportion of the contract subcontracted, all subcontractors must be under direct control of the main contractor in order to avoid fragmentation of responsibility. This provision accounts for possible specialisation needs within a contract and does not impair access to public procurement by smaller operators.”

 

Under the Norwegian limitation, subcontractors can carry out 100 % of the works. That was impossible under Italian law, where 70 % had to be carried out by the main contractor itself. So, where the Italian rule effectively removes 70% of the public procurement market of large contracts from SMEs, the same cannot be said of the Norwegian rule. This is a major difference between the Norwegian and Italian limitations.

 

ESA does identify that the Italian provision “limited the proportion of the contract which could be subcontracted”, but ESA does not appear to see, or does not find it of relevance, that the consequence of such a 30 % proportional limitation is that 30 % of the public procurement market is made unavailable to SMEs.

 

The third important difference between the Norwegian and Italian rule, is that the Norwegian rule, unlike the Italian, has exceptions. Norwegian contracting authorities can accept longer supply chains in construction and cleaning contracts when it is “necessary to ensure adequate competition” and where unforeseen circumstances mean that more links are necessary for the contract to be performed. ESA dismisses the relevance of the second since it only addresses practical issues. ESA dismisses the first, since the condition for the exception is “to ensure adequate competition”. ESA means that the condition for the case-by-case assessment should not be conditioned upon the necessity of “adequate competition”, but on the necessity to achieve the objective of the restrictive measure, i.e. to combat work related crime. I agree with ESA that such an exception would better encompass the elements of the EU/EEA proportionality test. In the overall proportionality assessment however, I mean that the case-by-case possibility adds to the conclusion that the Norwegian limitation is in accordance with the proportionality principle in Article 18 of the directive.

 

Conclusion

 

The procedure is still ongoing between ESA and Norway. ESA required more information from Norway on the applicability of the exception, which was provided by the Government in mid-February. ESA is now assessing whether to file an infringement procedure before the EFTA court. Given the uncertainty ESA’s position has stirred up, at least in the EFTA-states, and especially among municipalities and labour unions, we can hope ESA actually files a lawsuit – and loses.

 

* The Report is by the Executive Agency for Small and Medium-sized Enterprises, published 4 June 2020, page 63-64. The report was updated in September 2020, where it is stated on page 63: “This updated version of the report omits a paragraph on subcontracting elements of this practice, which was included in the original version. The paragraph has been removed pursuant to doubts which arose with respect to the lawfulness of such elements.”

 

Photo credit: Erik den yngre, via Wikimedia commons

More majority voting on EU social policy? Assessing the Commission proposal

Ane Aranguiz, PhD Candidate, University of Antwerp

On 16 April 2019 the Commission launched the discussion on how to render decision-making process at EU level more efficient in the social field by activating the passerelle clauses and moving from unanimity to qualified majority voting (QMV) and from special to ordinary legislative procedure without undergoing an unwieldly process of Treaty reforms – although a unanimous vote of Member States is still necessary to approve this change.

The passerelle clauses are part of a number of ‘flexibility mechanisms’ introduced by the Lisbon Treaty that allow to simplify the decision-making process thereby enabling a more efficient exercise of EU competences where special legislative procedure and unanimity are maintained. The Lisbon Treaty provides for a general passerelle clause enshrined in Article 48(7) TEU that is applicable to all policy areas -with the exception of military or defence-related decisions-, as well as specific passerelle clauses that apply only in certain policy areas, namely, Article 32(3) TEU on Common Foreign and Security Policy, Article 82(3) TFEU on judicial cooperation in civil matters, Article 153(2) TFEU on social policy,  Article 192(2) TFEU on environmental policy and Article 312(2) TFEU on the Multiannual Financial Framework.

Background

This Communication is the last of a series of four aiming at reviewing the passerelle clauses provided for the EU Treaties as envisioned by President Juncker in his 2018 State of the Union address. In September 2018, the Commission presented the first proposal on common foreign and security policy, followed by a communication in January 2019 on taxation. In April 2019, the Commission presented the last two proposals first on energy and climate and later on social policy. (None of these proposals has been followed up by the Member States yet).

In social policy, most areas where the EU has competence to act are already subject to QMV and ordinary legislative procedure, which has allowed for an expansion of the social acquis at the EU level over the years. Yet, a reduced but significant number of areas of social policy still require unanimity among EU Member States and a special legislative procedure. These areas include measures relating to the protection against dismissal, social representation and defence of workers’ and employer’s interests, conditions of employment for third-country legal residents, non-discrimination (based on gender, racial or ethnic origin, religion or belief, disability, age, and sexual orientation) and social security and social protection for workers outside cross-border situations.

The specific passerelle clause under Article 153(2) would allow for the transition of the first three areas, whereas the general passerelle could further be applied to the latter two. Differences remain between the general and specific passerelle clauses regarding the procedural requirements for their activation. In order to activate the general clause, the European Council has to take the initiative and indicate the precise envisaged change in the decision-making procedure and notify national parliaments, which have up to six months to object to the proposal. After that, the European Council may, by unanimity and once consent by the European Parliament has been obtained, adopt the decision authorising the Council to act by QMV or enabling the adoption of the corresponding measures by ordinary legislative procedure. This procedure allows also for the half-way activation of the clause where they move from unanimity to QMV while maintaining the special legislative procedure. The activation of the specific passerelle clause, differently, is ‘only’ subject to unanimous agreement in the Council on the basis of a proposal by the Commission and after consultation with the Parliament.

According to the Commission, other than the fact that these policy areas might have major implications on the financial equilibrium of the national welfare systems, a limitation specifically provided for in Article 153(4)TFEU, there is seemingly no logical reasons that explain why these fields remain subject to unanimity and special legislative procedure. Consequently, in December 2018 the Commission presented its roadmap for the proposal for more efficient law-making in social policy and opened the feedback period that collected 27 opinions from different stakeholders.

The Communication

The Communication opens the debate on the enhanced use of QMV and ordinary legislative procedure with the aim of rendering the decision-making process more timely, flexible and efficient.

The Communication emphasizes that while the activation of the passerelle clause would change the decision-making method, it would not alter the overall EU legal framework and earmarked that EU measures are still subject to the principles of subsidiarity and proportionality, the limitations under the social policy title Article 153 TFEU regarding, inter alia, defining fundamental principles of social security or the specifically excluded areas of the right to association, the right to strike and the right to impose lockouts.

Further in the Communication, the Commission discusses the possibility of activating the passerelle clause in the five areas where unanimity and special legislative procedure is still required. Yet, the Commission concludes that only in two out of the five areas the activation of the would passerelle clause have an added value. Firstly, the Commission argues in favour of the use of the passerelle clause in the field of non-discrimination to facilitate equal protection against discrimination that guarantees an effective redress mechanism for all. Particularly, the Commission states that while there is certain level of protection for gender and racial discrimination in employment, equal treatment on the grounds of belief, disability, age and sexual orientation remains protected only in employment and occupation. The Commission considers necessary to address the inconsistent and incoherent EU legal framework where some individuals are better protected than others. (Note that a Commission proposal in this field from 2008 has not yet been agreed).

The Commission also sees suitable to activate the general passerelle clause with regard to social security and social protection of workers for the adoption of recommendations in the near future. The Commission here recalls the recently politically agreed recommendation on access to social protection for workers and the self-employed which is still pending for final adoption, and considers that a more effective decision-making process is desired to support the process of modernisation and convergence of national social protection systems.

Nevertheless, as for the other three fields where unanimity and special legislative procedure is required, namely, protection against dismissals, employment conditions of third-country nationals and the representation and collective defence of the interests of workers and employers, the Commission does not see fit to activate the passerelle clause due to either the limitations envisioned in the Treaty, the sufficiency of the existing legislation or the strong links and diversity between national social protection systems.

Commentary

The proposal put forward by the Commission should be given a cautious welcome. From a positive standpoint, the fact that most of social policy fields where the EU has competence require QMV and unanimity is required only in few domains leads to an uneven a fragmented development of the social acquis. Moving from unanimity to QMV in those limited areas allows for a swiftly and effective policy response in all areas of EU law and prevents one single Member State from vetoing social initiatives while still requiring a high degree of consensus. Secondly, transitioning to an ordinary legislative procedure allows for highlighting the role of the European Parliaments as a co-decision making. While the special legislative procedure relegates the role of the European Parliament to the subordinated position of a mere consultant, in ordinary legislative procedures the European Parliament becomes an equal to the Council and allows for a more democratic decision-making process where the direct beneficiaries are being represented. The activation of passerelle clauses in the social field would therefore not only avoid blockage by a single Member State, but also give the European Parliament a real co-legislator role. Considering the obstacles faced in the adoption of social policy legal instruments due to the lack of consensus in the Council, an active involvement of the usually more socially progressive European Parliament, is likely to free the decision-making process in social matters to a certain extent.

Yet, there are a number of points of concern. To begin with, the activation of the passerelle clause is only envisioned for two out of the five social policy areas that still require unanimity and the special legislative procedure. Moreover, these are the exact same two that cannot rely on the special passerelle clause under Article 153(2) but must be based on the general provision under Article 48(7) which, in turn, requires a much stricter procedural formula. On top of this, one of the two fields, namely social security and social protection of workers, is only contemplated with regard to the adoption of recommendations, thus disregarding the possibility to adopt binding instruments. This is particularly striking when considering the challenges faced recently by the Commission in the formulation of a measure for access to social protection of workers and self-employed, where the Commission inclined for a proposal for a recommendation due to the lack of political support to adopt a binding instrument by Member States.

The activation of the passerelle clause is clearly a positive development, yet, the fact that this is such a limited activation is highly regrettable. Continued fragmentation on social policy may moreover lead to the use of enhanced cooperation, where Member States might separately agree on social policy instruments for higher protection of their citizens. Yet, this will unquestionably result in a two-speed Europe between those Members within and out the enhanced cooperation framework.

The dynamism of the Commission in the context of the European Pillar of Social Rights provides the perfect platform to keep adapting, updating and adopting new social legislation at the EU level thus aligning EU law with the social priorities identified by Juncker’s Commission. If, and this is a big if, the discussion opened by the Commission leads to activating the passerelle clause (even if only limitedly), it will in all likelihood lead to new proposals by the Commission tackling non-discrimination in a more comprehensive manner that could be adopted in a more efficient manner. However, this will fundamentally depend on whether or not the next Commission resumes the enthusiastic social activism of the Juncker delegation.

Yet, if the Pillar is indeed the last chance for social Europe that many have claimed, this initiative represents a missed opportunity to render effectiveness in the decision-making process in social policy by closing the door to facilitating measures tackling clear gaps on the current EU legislation, most clearly with regard to protection against dismissals. It is equally regrettable the choice to limit the use of the passerelle clause to adopt a binding unified response to the inadequacies of our current social protection systems. In times of increased Euroscepticism and rising non-standard forms of employment, providing a response to concrete needs of citizens remains an imperative for future-proving the EU, therefore, it is in the best interest of the same to remove any obstructions of the use of Union competences that allow to move closer to an actual social market economy. At the very least, this initiative embodies the intention to partially unclog the ‘way’ when there is certain degree of ‘will’.

Barnard & Peers: chapter 20

Photo credit: The Independent

The European Labour Authority: a Brand New EU Agency in Bratislava

Bartłomiej Bednarowicz, PhD Researcher at the Faculty of Law of the University of Antwerp

Background

On Thursday, the Council decided that Bratislava will host the headquarters of a brand new EU agency: the European Labour Authority (ELA). The idea for the ELA was spelt out by President Juncker already in September 2017 in his annual State of the Union address. Juncker viewed ELA’s main mission to ensure EU labour mobility in a simple and effective manner and to strengthen fairness and trust in the internal market. Interestingly, the proposal to establish the ELA rolled out of the European Pillar of Social Rights (EPSR) and was presented as a part of the Social Fairness Package, together with a proposal for a Directive on transparent and predictable working conditions in the EU (adopted by the Council on the very same day as the Regulation establishing the ELA; see discussion of the Directive here), a proposal for a Council Recommendation for access to social protection for workers and the self-employed and a Commission Communication on the monitoring on the implementation of the EPSR.

In a speedy manner, in March 2018 the Commission put forward a legislative proposal to establish the European Labour Agency and on Valentine’s Day in 2019, the Commission, the European Parliament and the Council reached a provisional agreement and changed the name from Agency to Authority. Finally, in June 2019, the Council adopted the proposal for a Regulation and selected Slovakia to host the Authority. The ELA is to start its operations in October 2019 already in Brussels and is expected to reach its full operational capacity in Bratislava by 2024. [Update: the Regulation was published in the EU Official Journal in July 2019]

Competences

Pursuant to the Regulation establishing the ELA, the main objective of the Authority is to assist the Member States and the Commission in their effective application and enforcement of EU law related to labour mobility across the EU and the coordination of social security systems. The ELA has the mandate to act only within the scope of selected EU acts in the framework of: posting of workers, free movement of workers, social security coordination, social aspects of road transport and cooperation between the Member States to tackle undeclared work. This catalogue remains closed but can be extended on a basis of any future acts that confer tasks on the Authority. More importantly, to maintain its mandate, the ELA is to neither affect any rights or obligations of individuals or employers that are granted by either EU or national laws, nor the mandate of national authorities responsible for enforcement in these fields.

Furthermore, in order to attain its primary objective, the ELA has been fitted with some additional tasks. Firstly, it is to facilitate access to information on rights and obligations regarding labour mobility across the EU as well as to relevant services. Secondly, it is to promote and enhance cooperation between the Member States in the enforcement of relevant EU law across the Union, including facilitating concerted and joint inspections. Thirdly, it is to mediate and help to look for a solution in cases of cross-border disputes between the Member States. Finally, it is to support cooperation in tackling undeclared work.

Organisation and the seat selection

The European Labour Authority will have a permanent structure comprising of a Management Board (including representatives of the Member States, Commission, European Parliament and social partners), an Executive Director and a Stakeholder Group with purely advisory functions (including representatives of the Commission and social partners). On top of that, the Authority aims at being made up of around 140 staff members, some of them seconded from the Member States. In addition, there will be one national liaison officer seconded from each Member State who will facilitate the cooperation and exchange of information between the Authority and her Member State. The Executive Director, on the other hand, will be appointed for a five-year term by the Management Board from a list of candidates proposed by the Commission, following an open and transparent selection procedure including a hearing before the European Parliament. Finally, the Commission is willing to secure approximately €50 million for the Authority’s annual budget.

As for its seat, 4 Member States competed in the selection process: Slovakia, Cyprus, Bulgaria and Latvia. The Council, in a rather transparent way, steered the selection process and published on its website all the offers prepared by the governments. Then, the European Commission assessed the offers based on the geographical balance, accessibility of the location, availability of the proposed premises and overall city’s readiness to accommodate the needs of international staff. At the Council meeting convoked on 13 June 2019, 23 Member States voted in favour of the Regulation establishing the Authority with its seat in Bratislava, 3 voted against (Austria, Hungary and Sweden) and 2 abstained (Czechia and Poland). Admittedly, it will be the very first EU agency to be located in Slovakia that advertised itself with a rather dull slogan ‘ELA in Slovakia, a good idea’. At least, the ELA’s staff will enjoy the state-of-the-art L12 building at the ‘Eurovea City’ in Bratislava and a stunning view on the Danube river.

Comments

An idea for a (pan)-European labour inspectorate has been considered for a long time as simply ‘the wishful thinking’ of some social partners, especially workers organisations. It also has never really attracted a lot of attention, as the Commission feared scoring an own goal due to a lack of the Member States’ support to set up such an agency in the first place. However, the Juncker Commission has finally put the social rights back at the EU agenda and proposed a rather breakthrough initiative in a dazzling form of the European Pillar of Social Rights. The Commission has already delivered quite plenty on the Pillar and mainstreamed many fruitful debates surrounding the social aspects of employment that under the years of austerity and flexicurity have been put aside. The Authority indeed emanates from the EPSR and aligns well with the accompanying proposals presented by the Commission within a broad framework of European Union cross-border employment and the Social Fairness Package.

The potential of the Authority cannot be surely underestimated. Its main advantages can be summarised in three aspects. Firstly, in the field of legal issues of international employment, it will provide the national authorities with some valid operational and technical support, mostly to exchange information, develop some best practices, carry out inspections and also to settle any disputes. Bridging the information and cooperation gap between the Member States is indeed a noble objective and quite a desired one as well. In practice, it is often the case that national authorities are unable to facilitate dialogue with each other and exchange information due to the complex and lengthy internal procedures and the language barrier. Having national liaison officers from all Member States designated to be at the ELA’s disposal will definitely plug that gap and speed things up. Moreover, some national authorities might not have even dreamed of an ability of concerted and joint inspections, which is now a powerful tool in the ELA’s arsenal, subject however, to reaching an agreement between the Authority and the concerned Member State(s).

Secondly, what the enforcement of EU employment and social security law often lacked at national level, were synergies with the already existing EU agencies that would allow to rely on their expertise in areas such as health and safety at work, the management of an undertaking that is being restructured, skills forecasting or tackling undeclared work. Therefore, it is the ELA’s task to facilitate it all to untap the available potential and to strengthen the enforcement levels.

Finally, the Authority will simplify cooperation by integrating a number of existing committees and networks amongst the Member States which will hopefully lead to eliminating fragmentation in that area.

On the other hand, the Authority will definitely not serve as a panacea for all the flaws in the system. The role it will play mostly depends on how active the ELA with its Executive Director decides to be. There is a considerable room to be claimed by the Authority with some space for manoeuvre, but there are some open-ended questions as well. Sceptics and pragmatics may wonder how willing some of the national authorities will be to cooperate within the ELA’s network and agree to, for example, conduct inspections on their territory, which can expose the flaws of their own systems on an EU scale. It is also unsure whether the Member States known for a rather lenient approach towards social security laws will deem it in their best interest to assist ELA with the fight against fraud and abuse on their territories, as no such obligation arises. For them, it could mean the end of their competitive advantage of providing a legal framework for cheaper labour through foxy constructions such as letterbox companies.

Examples from the field of social security coordination and the experience with the Administrative Commission, a body comprising of government representatives, capable of reviewing cases of social fraud between the Member States, do not necessarily instil optimism. The number of successful outcomes of such cases is rather scarce and some national authorities are giving up on the Administrative Commission and often try to take matters in their own hands. Essentially, they reach out on their behalf to the institutions in the other Member States mostly without any tangible end-effects. Moreover, the Authority’s tasks might overlap with those of the Administrative Commission, which was a major point of discussion during the negotiations about the ELA. The exact tasks division, despite indicated as ‘without prejudice’, might prove to be more problematic to delineate and can lead to duplication and competence battles. It is also doubtful how effective the Authority can really be and police the EU labour mobility market consisting of approximately 17 million EU-movers with rather modest resources of 140 staff.

To conclude, as for now, the Authority has baby teeth. It will be up to its adopted strategy, action plans and frankly, leadership to make sure that it will eventually get real teeth. The ELA has definitely promising potential but it remains to be seen how it will be utilised and how big of a dossier can it claim and handle. The expectations are high so we should all give the European Labour Authority a big leap of faith and wait for its very first results.

Barnard & Peers: chapter 20

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From Austerity Back to Legitimacy? The European Pillar of Social Rights: A Policy Brief

How Juncker can make ‘The European Pillar of Social Rights’ deliver a powerful message that the EU is an area of dignity, autonomy and social justice

Claire Kilpatrick (EUI), Elise Muir (Veni Fellow, Maastricht) and Sacha Garben (College of Europe, Bruges)

Since the financial crisis began and the EU's response to it included wider austerity in a number of countries, there have been doubts among many citizens that the EU is still committed to prosperity and rising living and working standards. The recently announced ‘European Pillar of Social Rights’ is an attempt to address this concern. In our view, the Pillar must include binding and high-profile pledges - on minimum wage and minimum income - in order to address citizens' concerns and for the EU to move on from austerity back to legitimacy.

The ‘European Pillar of Social Rights’ is a Commission policy initiative launched in March 2016. Our analysis reflects on the policy process and proposals to date. It explains why a High-Level Conference on the Pillar held in late January 2017 is the most important staging-post to date. We make proposals for orienting the Pillar initiative towards delivering dignity, autonomy and social justice in the EU and evaluate the constitutional implications, especially in terms of EU competence, of the commitments to introduce EU measures on minimum pay and income, and to restrict the Pillar to the euro-area states. The Pillar initiative seems likely to feed into the Commission White Paper on the Future of Europe launched in March 2017 which will be followed by a series of reflection papers of which the first mentioned is developing the social dimension of Europe. Accordingly it is an important new policy juncture for Social Europe which deserves analysis and input.

The Pillar is an open process with impressive civil society and EU institutional participation.

The High Level Conference organised by the Commission on 23 January 2017 on the European Pillar of Social Rights showed it attracts as much attention as it is mysterious. Numerous stakeholders alongside at least ten Commissioners, including President Juncker and Vice-President Dombrovskis, representatives of various EU institutions including President Tajani of the European Parliament and government ministers converged on Brussels to voice their opinions on the European Pillar of Social Rights.

The many interventions left little doubt that the precise legal shape and policy content of the Juncker Pillar remains undetermined and thus open for discussion. Hence, rather than reading the Pillar consultation document with its draft list of ‘principles’ as a quasi-finalised text with just its legal status and scope to be determined, the Pillar consultation is best seen as providing a vehicle for a wide range of proposals on resetting Social Europe.

Seen as such a process, the Pillar consultation has been a success. Over 16,000 individuals and organisations filled in the questionnaire issued as part of the Consultation and around 200 written contributions were submitted to the Commission. In Autumn 2016, national consultation events were held across the EU Member States. The very substantial NGO and union presence at the High-Level Consultation testifies to civil society engagement and investment in the Pillar consultation. Amongst these, the Social Policy Platform deserves to be highlighted. By bringing together since 1995 over 30 different social NGOs, including Age Platform Europe, PICUM (Platform for International Cooperation on Undocumented Migrants), EAPN (European Anti-Poverty Network), Housing Europe, ILGA-Europe, European Youth Forum and the European Disability Forum, it had an added legitimacy and voice in the process. It disseminated well-defined proposals for the Pillar. In light of Juncker’s announcement in his closing speech, it produced the most resonant proposal of a minimum income directive and a proposal on minimum pay via the European Semester.

The frames of discussion failed to give EU social rights and values their central place in the Pillar.

The European Pillar of Social Rights initiative comes after a decade which has altered perceptions of the EU as a benign or mildly positive force for social justice in Europe.  Sovereign debt and EMU governance are one important reason for this shift. Another relates to concerns triggered by free movement after the 2004 and 2007 enlargements. Political developments make it vital for the EU to use the Pillar to reassert the pursuit of social justice as a central part of its mission. Yet the urgency and importance of recentring the EU’s social justice roles and responsibilities was not fully acknowledged by many actors at the High-Level Consultation. There is a risk of doing too little.

Getting the frames of analysis right is crucial to guide the Pillar and the decisions and actions on its implementation. The frames or narratives which were very present during the High-Level Consultation were:

Social Europe was desirable provided EMU debt and deficit limits were respected;

Social Europe, the EMU and the internal market can or do happily co-exist;

Social Investment is the guiding frame for the Pillar of Social Rights and is not incompatible with social rights as human rights;

Adapting to new technologies and work platforms is the main priority for Social Europe.

In our view, these frames should not be those guiding the Pillar process or its implementation. Instead it is vital to make it explicit that the driving force for legal and policy change is the desire to protect the dignity and autonomy of individuals as well as social justice.

Dignity recognises the equal and intrinsic worth of every human being while autonomy requires political institutions not to deprive individuals of valuable options in areas of fundamental importance in their lives. In the absence of such an explicit message in the Pillar, or if the message is blurred by economic arguments in support for change, or made subject to economic conditions, or wishing away hard choices between the economic and the social, or attributing Social Europe’s malaise to new technologies and platforms, the message and its delivery will be imperilled. 

Protection of individuals and their dignity and autonomy has a firm EU law basis bolstered by national constitutional and international human rights law. Dignity is the foundational principle of the EU Charter of Fundamental Rights and many of the rights it contains are specifications of those foundational commitments. Hence ,for example, the Charter ‘recognises and respects the right to social and housing assistance so as to ensure a decent existence for all those who lack sufficient resources’ (Article 34(3)) and ‘the right to working conditions which respect his or her health, safety and dignity’ (Article 31). Most closely related to the value of autonomy in Social Europe are the EU Charter commitments to the right to engage in work and pursue a freely chosen occupation as well as the freedoms of association (Article 15), expression, information and consultation (Articles 11 and 27), to collectively bargain and take collective action (Article 28).

Beyond the EU Charter and human and constitutional rights’ commitments, the EU’s social justice and progress objectives feature prominently in the Treaties: in the TFEU’s preamble as the resolve to ensure the ‘social progress of their States by common action to eliminate the barriers which divide Europe’. Article 3 TEU conceptualises the EU as ‘a social market economy’ aiming at full employment and social progress, and provides that it ‘shall combat social exclusion and discrimination, and shall promote social justice and protection’. These objectives shall furthermore be mainstreamed across all EU policies, in accordance with Article 9 TFEU, which provides that ‘in defining and implementing its policies and activities, the Union shall take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion’.

A European Pillar of Social Rights must be founded on these values and be concerned with their promotion and guarantee in a changed EU membership and EMU context.

The EU constitutional implications of a Eurozone pillar and minimum income and pay guarantees

The Commission President made a twofold announcement: an initial focus of the Pillar on the Eurozone and a dual guarantee for minimum pay and income.

We strongly endorse the proposals to focus on minimum pay and income for those living and working in Europe. These proposals not only address the preoccupation that the EU has threatened these protection floors, they also enshrine the values of dignity and autonomy in the EU. Yet to properly realise those values requires minimum pay and income instruments to apply to all EU Member States, not simply Euro area states. Sovereign debt arrangements applied to three non-euro area states and concerns that enlargement threatens the social floor are not confined to euro area states either. Minimum pay and minimum income are social guarantees of a fundamental nature that should apply across the EU. Indeed the social acquis, other than the brief opt-out by the UK between Maastricht and Amsterdam, has always applied to all those living and working in Europe and should continue to do so.

Moreover, to make them tangible, these EU minimum income and pay guarantees must be enshrined in visible and effective instruments. In both cases, our preference would be for legally binding Directives which should be complemented with soft law commitments in the European Semester and programme commitments in sovereign debt loan states.

This raises questions of EU competence to adopt such legally binding measures.

For minimum income, we agree with the Social Policy Platform that Article 153(1)(h) TFEU which allows for binding measures to be adopted using the ordinary legislative procedure for the integration of persons excluded from the labour market is appropriate.

It is widely assumed that it is impossible for the EU to adopt a minimum pay directive because Article 153(5) TFEU states that the social policy legal base ‘shall not apply to pay’. However, the Commission may have in mind a creative literal reading of the combination between Article 153(5) and Article 352 TFEU (the ‘residual powers’ clause of the Treaties). Article 153(5) TFEU could be read as excluding only the adoption of a minimum pay directive under the Social Policy Title of the Treaty without excluding other possible legal bases.

Article 352 TFEU would then be examined as a potential legal basis for a minimum pay directive. Article 352 can be used ‘where the Treaties have not provided the necessary powers’ but cannot be used to harmonise Member States’ laws or regulations ‘where the Treaties exclude such harmonisation’. However, this harmonisation exclusion could be read as applying only in those cases where the Treaties clearly in terms outlaws harmonisation such as in the areas of vocational training (Article 166 TFEU) and culture (Article 167 TFEU) (each allowing legislative measures to be adopted ‘excluding any harmonisation of the laws and regulations of the Member States’). It therefore would not apply to Article 153(5) TFEU. Following this interpretation, a minimum pay directive could be adopted if it achieved the unanimous Member State support required under Article 352 TFEU. It remains to be seen if such a line of reasoning would be accepted by the EU legislator.

The question could be raised whether the internal market legal basis of Article 115 TFEU could be used for the adoption of a minimum pay directive (Article 114 TFEU cannot be used, since Article 114(2) TFEU prevents reliance on Article 114(1) to protect the rights and interests of employed persons). There is an argument that such a measure, even if it would retain certain differences in minimum pay levels among EU Member States, would help reduce distortions in competition. Not only would it facilitate the application of the Posting of Workers Directive in the area of cross-border service provision, having a certain minimum pay level in all Member States could more generally help limit competition on wages. Whether the expected reduction in distorted competition would be sufficient to fulfil the conditions for use of the internal market legal basis is an open question, and would depend in part on at what (relative) level the wage would be set and whether this significantly decreases current differences in pay among the Member States.

However, even if this would be accepted as possible in legal terms, there are several reasons why Article 115 TFEU would not be the advisable course of action. If the directive is about achieving genuinely social objectives, the use of an internal market legal basis is unwise, as the Court is then more likely to interpret the measure in a market-friendly way in case of a conflict between ‘the social’ and ‘the market’ (which is arguably what happened in the case of the Posting of Workers Directive, as well as the Collective Redundancies Directive).  And as Article 115 TFEU requires unanimity as much as Article 352 TFEU, there is little strategic advantage in using it either.

Subsidiarity concerns will evidently be addressed by setting pay and income levels appropriate to each state. EU respect for the Council of Europe and commitment to social rights can be underlined by using that body’s European Social Charter commitments and elaboration of the right to a fair remuneration (Article 4(1)) and to social assistance (Article 13) as base-lines.

The former provision requires States ‘to recognise the right of workers to a remuneration such as will give them a decent standard of living’, and the European Committee of Social Rights has ruled that the lowest net wage must be above a minimum threshold, set at 50% of the net average wage, while state conformity will be assumed above 60% of the net average wage. The latter provision deems assistance appropriate where the monthly amount paid to a person living alone is not manifestly below the poverty threshold (50% of median equivalised income as established by Eurostat).

If it is decided necessary for transitional or political reasons to proceed with the nineteen euro area states or some other subset of EU Member States, this opens a further set of questions about the legal basis of measures for minimum pay and income as the legal bases indicated are for all Member States. Although the Lisbon Treaty added a new legal basis, Article 136 TFEU, for measures addressed only to euro area states, we do not consider this a suitable basis for minimum income and pay legislative proposals for two reasons. The first is that, although used (questionably) to create measures providing for EMU sanctions for euro area states (see C. Kilpatrick, ‘The New Economic Component of EMU: A Lawful and Effective Design?’ EUI Working Paper, ADEMU Horizon 2020 Project Series, 2016), its centre of gravity lies in strengthening coordination and surveillance under the European Semester. The second is that legislative proposals for minimum pay and income, based on dignity, autonomy and social justice, should not be grounded in a macro- economic competence.

What then are the alternatives for legislative measures on minimum pay and income covering only some EU Member States? One possibility is enhanced co-operation, a process whereby some Member States adopt EU law without unwilling Member States (see Article 20 TEU and Articles 326-334 TFEU). This can be used only as a last resort where the Council has established that the objective sought cannot be achieved within a reasonable period by the EU as a whole and hence could provide an alternative avenue for minimum income and pay proposals should EU-wide agreement prove unattainable.

Another possibility is ‘going outside’ the Treaties via an international agreement on these matters between only the participating euro area states or those states and other willing participants. The former was the model used in the sovereign debt crisis to set up the European Stability Mechanism in 2012 and its predecessor, the European Financial Stability Fund in 2010. The latter was the path chosen for the Fiscal Compact Treaty of 2012. However, such parallel integration however raises important legitimacy concerns: see S. Garben, ‘Restating the Problem of Competence Creep, Tackling Harmonization by Stealth and Reinstating the Legislator’, in: S. Garben and I. Govaere (eds.), The Division of Competences in the EU Legal Order: Reflections on the Past, the Present and the Future (2017, Hart Publishing).

This is not to deny Mr Juncker’s welcome recognition that the constraints imposed in the context of EU macro-economic governance justify special attention to socializing the European Semester. It is also certainly the case that EU legislative commitments can usefully be complemented by action in the European Semester. We make proposals to do so in the next section. 

Beyond the Juncker announcement: the Pillar needs to strengthen, broaden the social acquis and socialize the European Semester

At the time of the 60th anniversary of the Treaty of Rome, it may be recalled that the TFEU enables the adoption of EU legislation on a fairly broad set of social questions. For instance, Article 153 TFEU allows for the adoption of legislation on workers’ health and safety, working conditions or information and consultation of workers. A whole body of social legislation has been adopted at EU level and begs for modernisation. As mentioned in this note already, the Charter of Fundamental Rights of the European Union - that has the same legal value as EU primary law since the entry into force of the Lisbon Treaty - also contains a set of provisions on solidarity that have so far been little used.

Curiously, the ability for the EU to intervene through legally binding instruments had been subject to little attention during the High Level Conference. One could hence fear that the Commission will shy away from making hard law proposals. We would thus like to underline the importance of anchoring the Pillar in EU social policy and giving expression to the social provisions contained in the Charter. This is necessary to ensure that the Pillar indeed enhances the protection of the dignity and autonomy of individuals across Europe.

We have already made suggestions elsewhere to broaden and consolidate the EU social acquis (see S. Garben, C. Kilpatrick and E. Muir, Towards a European Pillar of Social Rights: Upgrading the Social Acquis, College of Europe Policy Brief #1.17). We suggested the adoption of (1) a Directive for the Protection of Dependent Workers, ensuring the application of the existing EU social and labour law measures to all dependent workers (2) a Protection against Precarious Work Directive, (3) a Directive for the Enforcement of Workers’ Rights.  We also called for (4) a Declaration safeguarding the integrity of the social acquis as an EU floor for worker protection.

A further re-centring of EU competences in the social field could lead to the re-adoption of Directives such as the Collective Redundancies Directive and the Directive on the Transfer of Undertakings on social legal bases. Indeed, these Directives remain abnormally grounded in EU internal market competences. It would be naïve to ignore the possibility of tensions between the economic and the social dimensions of these instruments, as illustrated by the recent AGET case before the CJEU (freedom of establishment v. domestic rules protecting against collective redundancies). The social nature of these legislative instruments ought thus to be consolidated. The assertion of such an autonomous mandate for social rights would allow to better articulate economic and social concerns in cases of tensions.

In the meanwhile, existing tools of economic governance could be re-adjusted to make more space for genuine social priorities. In that sense, the social platform wisely suggested to use the infrastructures of the European Semester to counter the current trend pushing Member States to readjust wages downwards. The Commission could indeed support the introduction of references to adequate minimum wages in the Annual Growth Survey as well as in the Country Specific Recommendations and keep track of the development of wage levels. This would give more bite to the employment policy prong of the European Semester.

To that effect, it is important that Country Specific Recommendations continue to be adopted on the dual legal bases of Articles 121(2) (economic policy) and 148(4) TFUE (employment policy). Key players at European level are thus not only those in charge of economic and financial affairs but also those responsible for employment and social policy who are more likely to ensure that due attention is paid to employment and social concerns indeed. Mark Dawson has usefully observed that the involvement of the latest category of actors could be further enhanced in the Macroeconomic Imbalance Procedure (MIP; see M. Dawson, ‘The European Semester: Displacing Social Policy in the New ‘New Governance’’ in C. Kilpatrick (ed.) The Displacement of Social Europe (forthcoming). On file with the author).

Indeed, to the extent that this procedure does result in suggesting - if not imposing – changes in domestic social and employment policies as part of the Country Specific Recommendations, the decision-making process leading to their adoption shall be adjusted. This should allow for a stronger involvement of actors specialised in the field such as the Council configuration on Employment, Social Policy, Health and Consumer Affairs. For instance, see the Report from the Council Employment Committee and Social Protection Committee on ‘Assessment of the 2016 Country-specific Recommendations (CSRs) and the implementation of the 2015 CSRs’ on labour market aspects (p 10) and on social protection and inclusion (p 21).

Now, the Juncker Commission may be considering reserving, or enhancing, the emphasis on minimum pay (and income) in recommendations specific to Euro area members. Although we would regret a focus on Eurozone members only, if this approach was adopted it would be all the more so important to refer to Article 148 TFEU (employment policy) as a legal base besides Articles 136 (Eurozone) and 121(2) TFEU (economic policy) in order to ensure adequate representation of social players and interests.

Conclusion

The most concrete elements of information received during the Conference are unquestionably the announcements made by Commission President Juncker. Let us be clear, sending a message that the EU guarantees (directly or indirectly) minimum income and wages would be most welcome; and giving flesh to such guarantees through tools available in the context of EU economic governance is understandable. This however should be framed with appropriate conceptual and legal tools placing individual protection at the core of the process and, to that effect, it ought to be backed up with a solid effort to modernise the EU social acquis.

In that sense, it is to be hoped – as hinted at by President Juncker himself - that the initiative for the European Pillar of Social Rights will live up to the standards of the ambitious social agenda called for by Commission President Delors in the late 1990s. It may be recalled that this had resulted in the Proclamation by 11 out of the 12 Member states of the Community Charter of Fundamental Social Rights and came with a strong impulse for the adoption of new legislation (point 28 of that Charter). In the new EMU and enlargement context, the legislative focus should be on providing an updated and more comprehensive EU floor of social rights and should be accompanied by proposals to socialise the European Semester both in its process and its substance.

Barnard & Peers: chapter 20

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