EU Commission proposes Directive on adequate minimum wages

At the end of October 2020, the Commission published its proposal for a Directive on adequate minimum wages for workers across Member States. The right to adequate minimum wages is established by Principle 6 of the European Pillar of Social Rights. In light of this, Commission President Ursula von der Leyen promised a legal instrument regarding minimum wages in the beginning of her mandate.

Minimum wage protection can be provided by collective agreements (as is the case in 6 Member States) or by statutory minimum wages set by law (as is the case in 21 Member States). According the to the Commission, an adequate minimum wage ensures a decent living, helps to sustain domestic demand, strengthens incentives to work and reduces in-work poverty and inequality (it also helps to reduce the pay gap). However, the Commission has found that in the majority Member States, the minimum wages are not set at an adequate level, which has caused poverty risk for the minimum wage workers in these countries.

In order to reach the objectives, the proposal establishes a framework to improve the adequacy of minimum wages and to increase the access of workers to minimum wage protection. It does not install minimum wages itself. As countries with a high collective bargaining coverage rate tend to display a lower share of low-wage workers, higher minimum wages relative to the median wage, lower wage inequality and wages higher than the others, the proposal seeks to encourage collective bargaining on wages. To this end, Member States are required to build the capacity of social partners so they can engage in collective bargaining on wage setting, and to urge constructive, meaningful and informed negotiations on wages  Moreover, when the collective bargaining coverage does not reach at least 70% of the workers, Member States should provide for a framework for collective bargaining and establish an action plan to promote collective bargaining. Also, when the minimum wages are not laid down by collective agreements but rather are statutory, the proposal requires an effective and timely involvement of the social partners in the minimum wage setting procedures.

EU minimum wages

The proposal also includes a requirement for the Member States to provide for clear and stable criteria aimed at promoting adequacy. These criteria need to be updated regularly and they should at least include purchasing power of minimum wages, the general level of gross wages and their distribution, the growth rate of gross wages, and labour productivity developments.

Further, the proposal intends to limit the possibility to use variations and unjustified disproportionate deductions of minimum wages.

Finally, the proposal aims for good compliance, enforcement and monitoring in order to effectively guarantee the workers their minimum wages.

Taking this proposal into account, the fear of the Scandinavian countries that this Directive would interfere with their collective bargaining systems does not seem to have become a reality in this tender, which is respectful towards the autonomy of the social partners and towards systems of collective bargaining on wage setting. Nonetheless, the proposal remains controversial as its legal basis is art. 153(1)(b) TFEU (also Article 153(2) TFEU is mentioned), which allows the EU to support and complement the activities of Member States in the field of working conditions, while Article 153(5) has excluded wage-setting from the legal competences of the EU. The Commission states that it respects this limit, since the proposal does not contain measures directly affecting the level of pay. The European Trade Union Confederation (ETUC) has stated that the proposal is a positive step, but it also noticed room for improvement. In contrast, Business Europe called the proposal a “recipe for disaster”.

The Commission’s proposal will now go to the European Parliament and the Council for approval.

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