Reference no: EM133177127

You be the Arbitrator Minimum Wage

Minimum Wage

The Law on the Posting of Workers extends certain collective agreements to employers established outside Germany and to their workers posted to Germany. That provision is worded as follows:

The legal rules resulting from a collective agreement governing the construction industry which is declared to be universally applicable ..., which relate to minimum pay, including pay for overtime ... shall also apply ... to an employment relationship linking an employer established outside Germany and his employee working within the territory covered by that collective agreement. ...

[T]he collective agreement on the minimum wage provides that the minimum wage consists of the hourly pay provided for by that agreement and the bonus granted to workers in the construction industry, which together make up the total hourly pay under the agreement. ... [A]llowances and supplements paid by an employer, with the exception of the general bonus granted to workers in the construction industry, were not to be regarded as constituent elements of the minimum wage. ... those supplements include in particular allowances in respect of overtime, night and Sunday work or work on public holidays, in addition to bonuses for travel and for heavy work.

 

Facts

It is an obligation of the member states to the European Union to ensure that employers from other countries that have posted their workers within the member state's borders follow the host country's minimum wage laws. This obligation stems from the promotion of freedom of movement for workers and nondiscrimination against another member state's citizens. The EU Commission investigated a complaint lodged against the Federal Republic of Germany that it was not enforcing the minimum wage law because it was not including in the calculation of the minimum wage all allowances and supplements paid by the employer. By not including those allowances and supplements, the foreign employer was required to pay its workers a higher minimum wage than German employers were required to pay. Specifically, the omitted allowances included bonuses for the 13th and 14th salary months, holiday pay, contributions to retirement accounts, bonuses for the quality of the work performed, and bonuses for dirty, heavy, or dangerous work.

Issue

Did Germany apply the correct method for comparing the minimum rate of pay due under German law and the amount of pay actually paid by the employer established in another member state to its posted employees?

The Position of the Parties

According to the commission, employers established in the other Member States may be obliged, under the provisions applicable in those states, to provide other elements of pay in addition to the normal hourly pay. For example, an employer in the U.K. may be required to compensate its construction workers posted outside the U.K. for any medical bills they are required to pay because they would not have access to U.K.'s universal health care coverage while outside the U.K. Under the German legislation, such payments cannot be taken into account for the purpose of calculating the minimum wage. The commission contends that the failure to take into account allowances and supplements results in higher wage costs than those that German employers are required to pay to their employees and that employers established in other Member States are thus prevented from offering their services in Germany. Although the commission agrees that the Member State to the territory of which a worker is posted is allowed to determine the minimum rate of pay applicable within its borders, a Member State cannot, in comparing that rate and the wages paid by employers established in the other Member States, impose its own payment structure on that employer.

According to the German government, it recognizes allowances and supplements paid by an employer that does not alter the relationship between the service provided by the worker and the payment that he receives. By contrast, allowances and supplements that do alter the balance between the services provided by the worker and the consideration that he receives in return cannot, according to the German rules, be recognized as forming part of the minimum wage and cannot be treated as constituent elements of that wage rate. The German government argues that hours worked that involve requirements of a particularly high degree of quality, or that involve special constraints or dangers, have a greater economic value than that of normal working hours and that the bonuses relating to such hours must not be taken into account in the calculation of the minimum wage. If those amounts were taken into account for the purposes of that calculation, the worker would be deprived of the economic value corresponding to those hours of work.

What would be the award and opinion in this arbitration?