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LEGAL NEWS - The use of labour clauses in public tender in Denmark

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18. March 2016

The use of labour clauses in public tender in Denmark – are such clauses in compliance with EU law? A recent judgment of the European Court of Justice brings unfortunately no clarification to this question.

Labour clauses are clauses that request the contractor to comply with the Danish conditions regarding minimum wage, maximum working hours and working conditions, to ensure that these conditions are not less favorable than the conditions for similar work according to collective agreements concluded between the most representative employers’ and labour organizations. Furthermore, the contractor has to ensure that its sub-contractors and their subcontractors also are informed on the applicable working conditions. The contracting authority may require documentation for the compliance with such clause from the contractor including its subcontractor, and the contractor has then to submit documentation in the form of salary slips, employment contracts, tax statements, time sheets, residence permits, etc. within a short time. Non-compliance will lead to penalties and the termination of the contract. 

Almost all public authorities in Denmark (90 pct. of the municipalities) are using labour clauses in public tender to prevent social dumping. In 2014 the Danish Ministry of Employment published a new circular imposing all state authorities (ministries, agencies etc.) and recommended all municipalities and regions to use labour clauses in all contracts regarding construction and engineering, manufacturing and the provision of services.  Ever since it has been discussed, whether the use of such clauses is compliant with European Law, including the principles of equal treatment, prohibition of discrimination based on nationality and the principle of proportionality. 

The question is whether you can impose a foreign contractor to ensure similar working conditions as set by collective agreements, including minimum wages set by the collective agreement. 

Working conditions in Denmark are traditionally set by collective agreements entered between the parties of the labour market – the main principle of the Danish Model. Under the Danish model, employers and employees reach voluntary collective agreements on pay, working hours and other working conditions. Collective agreements thus determine working hours, minimum salaries and terms of notice for workers. In Denmark, there is no legally stipulated minimum wage or maximum working hours. As an employer (national or foreign), you are only bound by a collective agreement if you are a member of an employer association or if you have concluded an adhesion agreement or a local agreement with a trade union.

The question is whether you may require a foreign contractor to obey to a Danish collective agreement - even if the foreign contractor is not part of the collective agreement - and to require the foreign contractor to follow Danish minimum salaries as defined in the applicable collective agreement. The problem very often is that it can be more difficult for foreign companies not familiar with the Danish system to comply with the conditions in Danish collective agreements. The Danish Employers’ Association (“Dansk Arbejdsgiverforening”) is of the opinion that the labour clauses violate EU law and that a statutory minimum wage therefore has to be introduced in order to be compliant when using labour clauses. 

The parties of the Danish labour market hoped that European Court of Justice would clarify the situation in the RegioPost case (C-115/14). In its judgement the European Court stated that a public authority in Germany was entitled to use a labour clause in a public tender, which obligated the contractor to ensure the payment of minimum wage set by national German labour law. However, this new ruling unfortunately does not give any clearance whether the Danish use of labour clauses in public tender complies with the provisions of the European Posting Working Directive, as it does not answer the questions what shall apply in the event that there is no statutory minimum wage. 

Public authorities will thus continue to use labour clauses in public tenders, and as a contractor you have to comply with such clauses, as long as they appear clearly and transparently from the tender material. If you refuse to sign such clauses in the offer, the contracting authority may reject your bid. It is thus important to get familiar with the Danish labour market when participating in public tender in Denmark.

For any further inquiries or questions you are welcome to contact Attorney-at-Law Alexandra Huber, LEAD advokatpartnerselskab, ah@leaddenmark.com

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