The Far-Reaching Implications of the Laval Quartet: The Living Wage Campaign in
the UK post-Rüffert
Aristea Koukiadaki
May 2013
Abstract
The decisions of the Court of Justice of the European Union in the Laval quartet disturbed its
long-standing respect to labour law rules and industrial relations systems at national level and
brought the issue of the interaction between economic freedoms and social rights in the EU
into intense – and unequivocally political – focus. Among these cases, the Rüffert decision
(C-346/06) had significant implications for the scope, under EU law, for the inclusion of
social clauses in public procurement. Against this context, the paper examines the
implications of the Court decision for the Living Wage Campaign in the United Kingdom.
While Rüffert and the absence more generally of a more favourable framework at EU level
could have led to a retraction from the support of the campaign, there is evidence of
significant consolidation and further promotion of the LLW. This is attributed to the
concerted efforts of non-judicial actors to respond to the challenges to the campaign
following Rüffert and recent developments in UK procurement law.
1. Introduction
Public procurement – “the purchasing by government from private sector contractors, usually
on the basis of competitive bidding, of goods and services that government needs”
(McCrudden, 2004: 3) – is one of the main sources of public spending. In light of its
economic significance, it is not surprising that governments have often used their purchasing
power as a tool to advance public policy objectives. In its most recent guidance on socially
responsible public procurement (SRPP), the European Commission stressed that ‘SRPP can
be a powerful tool both for advancing sustainable development and for achieving the EU’s
(and Member States’) social objectives’ (2010: 7). With respect in particular to labour
standards, the incorporation of social objectives in public procurement has usually a twin
objective: first, to remove labour costs being used as an element of competition among
bidders for public contracts, by requiring that all bidders respect as a minimum of labour
standards; and, secondly, to ensure that public contracts do not exert a downward pressure on
wages and working conditions (ILO, 2008).
The UK was one of the first countries to use public procurement to achieve social
outcomes. The 1891 Fair Wages Resolution of the House of Commons had committed
government departments to include a stipulation in all contracts with private sector employers
that workers must be paid generally accepted rates for the job (Bercusson, 1976).1 During the

University of Manchester (email: aristea.koukiadaki@mbs.ac.uk). Work in progress: please do not cite without
permission.
1
The 1891 Resolution obliged the contracting authorities to ensure that workers under public contracts receive
the prevailing wage levels (Bercusson, 1978). A revised version of the Resolution 1909 referred not only to
1
1950s, the UK ratified also ILO Convention 94 of 1949 on Labour Clauses (Public
Contracts). The latter introduced a requirement for contractors to include in the contracts
clauses ensuring working conditions: ‘…not less favourable than those established for work
of the same character in the trade or industry concerned in the district where the work is
carried on – (a) by collective agreement or other recognised machinery of negotiation
between organisations of employers and workers…’.2 A number of socio-economic goals
were later linked to procurement, including among others, promoting fair labour conditions
and fair wages, and the use of public works to tackle unemployment (McCrudden, 2004).
However, a range of reforms were introduced in the 1980s with a view to introducing
greater competition. In 1983, the Thatcher government denounced the ILO Convention and
abolished the Fair Wages Resolution. A few years later, health and local authorities became
compelled to submit various defined activities to external competition through Compulsory
Competitive Tendering (CCT) legislation. The latter prohibited local authorities from
including conditions in contracts for works, services and supplies which related to “non
commercial matters” and included the composition, conditions of employment and training of
a contractor’s workforce.3 The result was that emphasis shifted from the state as a welfare
provider to the state as welfare enabler through contract provision (McMaster, 1995: 409).
CCT was abolished with the 1999 Local Government Act that was introduced by the then
newly-elected Labour government. But, the Act introduced a legal duty on councils to attain
‘best value’ for local public services, which, essentially, makes it extremely difficult for
councils not to tender contracts competitively, unless there are good reasons to the contrary;
in practice, public authorities are thus unlikely to be able to demonstrate best value to the
satisfaction of auditors and the Secretary of State by following just the ‘traditional route’
(Vincent-Jones, 2006: 56). At central government level, the procurement policy is also
founded on the ‘value for money’ principle.4
Overall, the responsibility for public procurement in the UK lies with the Efficiency
and Reform Group (ERG) in the Cabinet Office. The objective of the ERG is to achieve ‘best
value’ in procurement, subject to policy considerations consistent with EU law. The 2006
guidance on social aspects of procurement, which was issued by the predecessor of the ERG,
the Office for Government Commerce (OGC) stated that in order to comply with EU
procurement law any incorporation of social issues must be: relevant to the subject of the
contract; consistent with government policy on value of money, but not necessarily at lowest
price; and be approached from the point of the ‘whole life’ cost (OGC, 2006).
The need for consistency of the domestic regulatory framework to the EU law and
policy in this area results from the binding obligations of both central and local government
departments and private providers by the EU acquis. The latter consists of the free movement
provisions in the TFEU, the general principles of EU law (in particular equal treatment, nondiscrimination, mutual recognition, proportionality and transparency), the procurement
directives and the case law of the Court of Justice of the European Union (CJEU). However,
prevailing but also to collectively agreed wages. This meant that in sectors with collective agreements
contracting companies had to consider the collectively agreed pay standards (Schulten, 2013: 11).
2
Article 2 of ILO Convention No. 94. See also Recommendation No 84. It has to be stressed that the general
applicability of national labour law to work done in the execution of public contracts does not constitute the
focus of the Convention and Recommendation, although this view has been extensively expressed in connection
with their application in a number of states, including the UK (for this point, see ILO, 2008, which also provides
a comprehensive review of the application of the Convention).
3
Section 17(5) and 19(10) of the Local Government Act 1988.
4
For a consideration of the compatibility of the ‘best value’ regime with EU law, see Fee et al. (1998).
2
the absence of a public law/private law distinction in conjunction with the lack of a special
regime of public law contracts means that ‘it is often difficult to translate European
procurement concepts into domestic law; in theory we only have a single regime of private
law for contracting, although in practice contracting is used as a means for the organisation of
public services and for meeting public policy goals’ (Boeger and Prosser, 2009: 360). Despite
this, a recently published evaluation report on the ‘impact and effectiveness of EU Public
Procurement Legislation’ that was commissioned by the European Commission reported that
social requirements in the tender documents were most widespread in the UK, where more
than 80 per cent of contracting authorities made use of them. It was also found that the
diffusion of social award criteria is positively correlated to the existence of national
initiatives for a socially responsible procurement policy, including in the UK (ibid, 35f). 5
While the CJEU had dealt with the issue of social clauses in public procurement on a
number of occasions in the past, its case law attracted the attention of labour lawyers and
industrial relations scholars only as a result of the Laval quartet group of decisions.6 There is
now an extensive volume of literature7 on the cases that form the infamous quartet: Viking,8
Laval,9 Rüffert10 and Luxembourg.11 In brief, the cases concerned the implications of EU
market freedoms (the freedom of establishment in Viking and freedom of movement of
services in Laval, Rüffert and Luxembourg) for the interpretation of the Posting of Workers
Directive (PWD), the status of terms and conditions of employment that are defined by
collective agreements that are not universally applicable but also legislation (in the case of
Luxembourg) and the rights and restrictions for trade union collective action. In prioritising
the economic freedoms, the case law challenges the use of instruments for combating social
dumping and brings into attention, more generally, the desirability of allowing greater scope
for regulatory competition within the EU. In this context, the CJEU decisions have been
interpreted as marking a significant move in the direction of inter-state competition in labour
law and, as such, increasing the risk for a ‘race to the bottom’ (Deakin, 2008).
At national level, the decisions challenge existing social protective measures that are
based on means other than those permitted under EU law. Whilst referring to the EU level,
Kilpatrick’s idea of catalysis as a metaphor for ‘the conceptualisation of the EU judicial and
legislature’s relationship with each other and other actors in the governance of internal
market’s interface with labour rights because it captures the need for change managed by
interdependent actors and institutions, is also helpful for the analysis of the developments at
national level (Kilpatrick, 2011: 20, emphasis in original). The decisions in the Laval quartet
create opportunities ‘for relevant non-judicial actors to consider and respond to problematic
conditions and practices’ (ibid, 2011: 20). While much attention has been paid on the
implications of the case law for the institutional foundations on which the comparative
5
In a study on the impact of EU procurement rules on labour issues in the UK utility sector, Aspey (2012) found
that while overall the EU legal regime had little impact on utilities’ procurement process, it had restricted
significantly the policy of favouring British or local firms, with the majority of utilities refraining from
including such policies owing to the EU regime despite their wishes.
6
For exceptions to this in the legal literature, see McCrudden (2007) and Arrowsmith and Kunzlik (2009).
7
An overview of the literature can be found at http://www.etui.org/Topics/Social-dialogue-collectivebargaining/Social-legislation/The-interpretation-by-the-European-Court-of-Justice/Reaction-to-thejudgements/Articles-in-academic-literature-on-the-judgements
8
Case C-438/05, International Transport Workers' Federation, Finnish Seamen's Union v Viking Line ABP, OÜ
Viking Line Eesti, judgment of 11 December 2007.
9
Case C-341/05, Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet, Svenska
Byggnadsarbetareförbundet, avd. 1, Svenska Elektrikerförbundet, judgment of 18 December 2007.
10
Case C-346/06, Rechtsanwalt Dr. Dirk Rüffert v Land Niedersachsen, judgment of 3 April 2008.
11
Case C-319/06, Commission v Luxembourg, judgment of 19 June 2008.
3
advantages of the EU member states with coordinated market economies (mainly Sweden,
Germany and Sweden) have depended, the decisions also challenge liberal market
economies, among others the UK. The literature so far has explored the direct consequence of
the Viking and Laval decisions on the regulatory framework of industrial action in the UK
(Hayes et al. 2011) and posting of workers (Barnard, 2009). In their analysis, Hayes et al
(2011) distinguish between three types of effects of the case law in the UK. First, the ‘chilling
effect’ describes ‘the enormous risks, potentially including substantial damages, faced by
trade unions, and widened disclosure requirements.’ Secondly, the ‘ripple effect’ is ‘observed
by trade unions alarmed by a recent spate of injunctions granted against industrial action and
the arguments advanced by employers seeking to undermine collective bargaining’. The
third, so-called ‘disruptive effect’ is ‘manifested in an increased likelihood of unofficial
strikes over which unions have little control’. As it will be suggested in this paper, the effects
of the Laval quartet in the UK system of labour law and industrial relations go even further
than the three-pronged analysis of Hayes et al. (2011) to incorporate the issue of social
clauses, and particularly, the Living Wage Campaign, in UK public procurement.
In order to assess the implications of the jurisprudence for the compatibility of living
wage clauses with EU law, empirical legal analysis will examine if and how latitude for the
inclusion of social clauses in public procurement can be guaranteed post-Rüffert. The analysis
of the empirical findings will be based on a single phenomenon – the interaction between EU
market freedoms and social rights, as influenced by UK public policy and case-law
developments as well as employer and union strategies regarding the Living Wage Campaign
(LWC). Section 2 sets out an overview of the EU framework concerning social clauses and
public procurement and assesses the significance of Rüffert as well some other developments
in the EU regulatory framework on procurement. Section 3 goes on to discuss the
implications of the decision for the legality of the LWC and focuses on the responses and
strategies of local authorities and central government, trade unions, employers and civil
society organisations.12 Section 4 concludes.
2. The EU regulatory framework regarding social clauses in procurement and the
Rüffert decision
2.1 The EU acquis on social clauses in public procurement
One of the most important instruments in EU procurement law is Directive 2004/18/EC on
the coordination of procedures for the award of public works contracts, public supply
contracts and public service contracts (Public Sector Directive or PSD).13 Its purpose was to
modernise EU law on public procurement by increasing flexibility, taking account of new
practices or market reality, and simplifying the procurement rules (Nielsen, 2007). In terms of
social considerations, the PSD represented the ‘outcome of the institutional struggle’
(Kilpatrick, 2011: 6) between the European Parliament and the CJEU, which until then had
developed significant judicial activism towards greater social content in public
procurement,14 and the Commission and the Council, on the other hand, who were in favour
of limiting the scope for such issues.
12
Interviews with held with representatives of the following organisations: CBI, TUC, Unison (2), Citizens UK,
GMB, Unite and the Cabinet Office.
13
Directive 20024/18/EC, OJ 2004, L 134/114. The Directive was transposed in the UK through the Public
Contracts Regulations 2006 (SI 2006/5), as amended in 2009 (SI 2009/2992).
14
See, for instance, the following cases: C-31/87 Beentjes v State of the Netherlands, [1988] ECR 4635; C225/98 Commission v France (Nord-Pas-de-Calais) [2000] ECR I-7213 and C-513/99 Concordia Bus [2002]
ECR I-7213.
4
As Barnard (2011: 259) explains, under the PSD there are five main stages in a
procurement regime: ‘(1); the pre-procurement stage where the contracting authorities
identify whether and what to purchase, and which procedure to apply; (2) the specification
stage where the contracting authorities set out technical specifications in the contract
documentation; (3) the identification of suitable potential suppliers stage; (4) the contract
award stage; and (5) the performance stage. Stages (3)-(5) offer the most potential for
requiring tenderers to adopt improved terms and conditions.’ With respect specifically to the
interplay between procurement and EU market freedoms, the PSD provides scope for
application of labour rights in host states in three areas that are relevant to the posting of
workers: ‘1. When public contractors can be expected to comply with generally applicable
(host-state) labour obligations; 2. When public contractors can use labour criteria at the award
stage to either award a tender or reject a tender (e.g. undertakings to address unemployment,
to comply with labour standard clauses etc.); 3. When public contractors can impose special
labour obligations at the contract performance stage (such as local labour preferential hiring
clauses or special wage rates)’ (Kilpatrick, 2011: 6).
In the first area, minimum host-state standards, as laid down in the PWD, must be
complied with by out-of-state public contractors while higher than minimum host-state
standards are possible provided they comply with the PWD and article 56 TFEU (Kilpatrick,
2011: 7).15 According to Barnard (2011: 260), contracting authorities may have the
possibility at the supplier selection stage ‘to exclude, on the grounds of equal treatment,
tenderers who refuse to comply with a certain number of specified terms and conditions of
employment’. In the second area, it is important to point out that, in line with art 53, contracts
can be awarded one of two bases: first, the lowest price, or second, the most economically
advantageous tender (MEAT). The lowest price basis does not allow the incorporation of
social considerations in procurement, whereas the MEAT basis may provide the basis for
such an inclusion but there is uncertainty regarding its precise scope. According to Barnard
(2011: 262), the formulation of art 53(1) implies that ‘not only must the criteria now be
linked to the subject-matter of the contract but the tender must be the most economically
advantageous from the point of view of the contracting authority’.16 However, the possibility
for abnormally low tenderers to be rejected could include scope for rejecting a tender priced
according to significantly lower home-state wages and holidays because the tenderer is
posting workers to carry out the contract (Kilpatrick, 2011: 9).17
The area where the scope for the inclusion of social issues is the greatest is, according to
art 26 of the PSD, at the contract performance stage.18 In Buying Social, it was stated:
‘Sustainability criteria (including social criteria) may also be incorporated in the contract
In the 2001 Interpretative Communication on social procurement, the Commission stressed that in ‘purely
national situations’ all domestic labour legislations, as set out in legislation and collective agreements, apply. In
contrast, in cross-border situations, ‘requirements justified by overriding interests in the general interest that are
in force in the host-country must among others, be complied with by service providers’. Also, ‘provisions more
favourable to workers may, however, also be applied (and must then also be complied with), provided that they
are compatible with Community law (2001: 20).
16
See also Kilpatrick (2011: 9)
17
This is also stipulated in the UK Regulations. However, according to Burgess (2012: 88-89) this clause has
applied so far in cases where a contractor contends that a bid by a competitor was well below the range of what
might be expected and the public authority has failed to request an explanation (Morrison Facilities Services
Limited v Norwich City Council [2010] EWHC 487 (Ch).
18
Art 26 stipulates that ‘contracting authorities may 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. The conditions governing the performance of a contract may, in particular, concern social and
environmental considerations’.
15
5
performance condition, provided they are linked to performance of the contract in question
(e.g. minimum salary and decent labour conditions for the workers involved in the
performance of the contract)’ (Commission, 2010, 34 and 51). On this basis, Kilpatrick
(2011: 10) suggested that, pre-Rüffert, art 26 allowed public authorities to impose social
obligations over and above those generally applied, including a living wage requirement.
However, as we shall see in the next section, this interpretation of art 26 of the PSD has been
called into question by Rüffert.
2.2 The Rüffert case
Rüffert concerned the compatibility of the Law of Lower Saxony on the award of public
contracts (‘Landesvergabegesetz’), which required that public contracts for building works
worth more than EUR 10,000 be awarded only to undertakings which agreed to pay staff
working on such contracts a minimum wage as prescribed by a collective agreement on
‘building and public works’. The law applied equally regardless of whether the contractor in
question was a domestic undertaking or an undertaking from another Member State and the
requirement was in the form of a ‘contract performance condition’ that came into effect after
the award of the contract. In its decision, the Court first noted that the obligation to comply
with the collective agreement could be considered as imposing an additional economic
burden that may impede or render less attractive in its decision and as such constitute a
breach of art 49 (now 56 TFEU). It then went on to find that it is a violation of the Treaty to
impose working conditions (as a performance condition in a tender) for those working on
public contracts that do not apply to workers in general (that is, to those working on private
as well as on public contracts).19 The reason for this was that although the PWD permitted
Member States to require the payment of minimum wages as prescribed by ‘collective
agreements’ which had been declared ‘universally applicable’, the collective agreement in
this case did not conform to that requirement as the agreement applied only to workers
engaged on public contracts and not equally to those engaged on private contracts.
On the basis of the facts of the case, it is rather obvious that Rüffert was related not only
to legal questions concerning the cross-border situation of workers but also to procurement
law aspects. However, Directive 93/37/EEC concerning the coordination of procedures for
the award of public works contracts (the predecessor to the PSD) was neither referred to by
the German court of appeal nor applied by the CJEU (Arrowsmith and Kunzlik, 2009: 1).20
This is all the more surprising, as according to McCrudden (2011: 136), the procurement
directives address directly the posted workers’ issue, by permitting the incorporation of
certain exclusions into the qualifications expected of tenderers before they are allowed to
proceed to make a bid at all. Equally importantly, the CJEU assumed that the state law
provision was discriminatory against workers in other Member States on the basis of art 49
(now 56 TFEU) but there was little, if any, evidence confirming the allegedly negative impact
of the law on out-of-state contractors or indeed the opposite (McCrudden, 2011: 132).
Neither did the judges consider ILO Convention 94 on Labour Clauses, which has been
ratified by a number of EU Member States.21
19
The view of the Court was different from the opinion of the Advocate General, who argued that the PWD
could not be interpreted as precluding such a measure on the basis that article 3(7) of PWD allows enhanced
national protection.
20
McCrudden (2011) suggests that there was evidence that some members of the Court may have
misunderstood art 26 of the Public Services Directive that allowed contracting authorities to lay down special
conditions relating to the performance of the award.
21
The following EU Member States had ratified the Convention during the time when the case was heard:
Austria, Belgium, Cyprus, Denmark, Finland, France, Italy, the Netherlands and Spain. It been put forward that
6
With respect to the legal implications of the decision for procurement situations
involving posting of workers, it has been suggested that post-Rüffert a public authority cannot
‘insist anymore, as an award criterion, as a reason for rejecting a tender as abnormally low or
as a contract performance condition, compliance with terms and conditions of employment
beyond the minimum standards in art 3(1) of the PWD (Kilpatrick, 2011: 15). Nor will it be
able to insist on compliance with special labour standards, applicable only to public
contractors at any stage of the procurement process (Kilpatrick, ibid). These consequences
stem from the limits introduced by the Laval quartet more generally to the minimum
standards clause in art 3(7) and the art 3(10) public policy provision. The effect is to create a
set of inequalities: first between workers, as posted workers, who work alongside home-state
workers that receive a certain level of wages, will receive lower wages; and, secondly, ‘home
firms will be treated ‘worse’ (by not being able to avoid the effect of ‘home’ labour
conditions in the procurement context), whereas ‘non-home’ firms are able to avoid (some) of
these labour costs’ (McCrudden, 2011: 145), creating thus a problem of ‘reverse
discrimination’ (Barnard, 2011: 268).
However, apart from its implications for the question of labour standards in the case
of posted workers, Rüffert raises the more general issue of the application of art 49 (now 56
TFEU) to the inclusion of social and environmental considerations in procurement possibly
more generally. As McCrudden (2011: 133-134) explains, if the inclusion of social issues in
procurement is found to constitute a restriction within the meaning of art 56 TFEU and the
interpretation of art 56 in Rüffert should be seen as independent of the PWD, then the Court’s
approach would challenge ‘all those social linkages that were not also obligatory beyond the
procurement contractor’.22
While the CJEU failed to take into account the EU acquis and case law in the area of
public procurement in Rüffert, this was not the case in a more recent decision involving a
complaint by the Commission against Germany. The case concerned the award of pensions
related service contracts to organisations specified in the collective agreement without an EU
call for tender.23 Relying extensively on the Viking and Laval case law, the Court rejected
arguments made by Germany that the fundamental right of collective bargaining should not
be limited by the procurement rules.24 As Barnard (2011: 264-265) observes, the Commission
v Germany decision, which essentially subjects pensions arrangements negotiated collectively
to the full application of the public procurement directives, is challenging, especially for the
welfare systems of the Scandinavian states.25 However, at the same time, the Court seemed to
provide greater scope for the incorporation of social clauses in the tendering process and was
Rüffert is arguably in conflict with ILO Convention 94 and that Member States would be now obliged to
denounce the Convention even though this would be in contradiction to the aims of the European social policy
(Bruun et al. 2010); there is no evidence so far that any of the EU Member States that had ratified the
Convention have done this.
22
This is not a view shared though by Arrowsmith and Kunzlik (2009: 6), who suggest that Rüffert is confined
to the situation of the posting of workers.
23
Commission v Germany [2010] EUECJ C-271/08 (15 July 2010).
24
Interestingly, the Advocate General noted that there is no hierarchical relationship between fundamental
freedoms and fundamental rights (paras 183-186).
25
In Denmark, most public sector employees are – under collective agreements – entitled to pension
contributions from their employers as part of their wages. The pension contributions are paid to pension
providers designated by the collective agreements without putting pension schemes out to public tender. The
German case was therefore highly relevant for Denmark. Both the Danish and Swedish governments made
written contributions to the case where they referred to an analogy in Albany and defended the position that the
social partners are autonomous to conclude collective agreements and how they set up supplementary pension
systems as part of the collective agreement.
7
not prescriptive at which stage the social factors can be included. On the basis of this
interpretation, Barnard suggests that for the specific case of procurement that falls outside the
Directive, ‘the host state can now, with confidence, insist on applying its labour standards to
out-of-state tenderers, except services providers under Article 56 TFEU. However, what
remains unclear is whether the application of the proportionality principle might result in the
application of only minimum, not improved labour standards’ (Barnard, 2011: 266).
3. The implications of Rüffert for the LWC
3.1 The LWC pre-Rüffert
The concept of the ‘living wage’ is not new. In the Wealth of Nations, Smith recognized that
rising real wages lead to the ‘improvement in the circumstances of the lower ranks of people’
and are therefore an advantage to society (Smith, 1776). The modern UK LWC was launched
by members of London Citizens in 2001. Inspired by the experience of the LWC in the US, it
calls for every worker in the UK to earn enough to provide their family with the essentials of
life. The London Living Wage (LLW) is not a legally enforceable minimum level of pay, like
the national Minimum Wage (NMW). The latter is actually the only form of legallyenforceable pay minimum in the UK. Importantly, the Council of Europe sets a decency
threshold which implies that the NMW should be around two-thirds of the median. The UK’s
NMW has generally been around 45 per cent of the median wage since the late 1990s. The
gap between the legal minimum and the decency threshold set by the Council of Europe has
been met, in practice, by tax credits. This system has been allowed to develop because of
fears that a high minimum wage would cause unemployment (Deakin, 2013).26
It is also important to stress here that, as is the case with the NMW, collective
agreements in the UK are not legally binding either, unless expressly stated to be so by the
parties. Also, there has been no support for collectively-agreed industry-level arrangements
that will apply to non-signatory parties. With respect to the posting of workers, the UK
government did not make use of the options included in art 3(8) of the PWD concerning the
applicability of collective agreements in systems that lack extension mechanisms. As such,
any minimum pay rates or other provisions in such agreements cannot be made a requirement
of a procurement contract (for a discussion on the implications of this for procurement in the
private sector, see Barnard, 2009).
Since the inception of the LWC, the campaign has moved across different sectors of
the labour market, concentrating first on NHS Trusts, moving then to corporate banks and
universities and more recently to local authorities and central government (Wills, 2009).
While leading private firms, such as Barclays and KPMG, have committed to the LWC, the
support of the Greater London Authority (GLA) Group,27 one of London’s largest employers,
has been crucial. In 2005, in light of a series of successful campaigning and growing interest
from employers, the GLA established the Living Wage Unit to calculate the LLW. At
present, the LLW is constituted of an hourly rate, which is calculated according to cost of
living and gives the minimum pay rate required for a worker to provide their family with the
essentials of life. In London, the current rate is £8.55 per hour. Outside of London the current
rate is £7.45. Most prominently, the LLW has been implemented through a phased roll out
26
A recent OECD report (2011) stated that income inequality among working-age people has risen faster in
Britain than in any other rich nation since the mid-1970s.
27
The GLA Group consists of the Greater London Authority, the London Development Agency and the
Metropolitan Police Authority.
8
across the GLA group since 2005.28 It is now an element of the wider GLA group
Responsible Procurement Policy (GLA, 2006). The latter is placed in the context of the
Greater London Authority Act 1999, which establishes the principle purposes of the GLA as
economic development, wealth creation and social development, within the Greater London
area, and improvement of the environment. The Policy stresses that the GLA has the power to
do anything in furtherance of these principle purposes within the bounds of wider national
and European legislation (Burgess, 2012).
However, despite the supportive doctrinal interpretation of EU legislation pre-Rüffert
for the inclusion of living wage clauses in public procurement (see section 2 above), it was
considered unlikely that public authorities would lawfully be able to exclude automatically
any tenderer who refused to comply with the living wage. In a guidance issued in 2008 by the
then Office of Government Commerce (now part of the Cabinet Office) it was stressed:
‘There may be opportunities post-award for contracting authorities to work outside the
formal procurement process, on a voluntary basis, to promote the importance of social issues,
such as equality and adult skills to their suppliers and supply chain. This can be an effective
means of influencing suppliers’ culture, and helping to ensure that it fits with the contracting
authority’s own set of values and needs’ (emphasis added). The limited legal scope for the
inclusion of procurement linkages pre-Rüffert was also stressed by Unison: ‘Even before the
court cases, it was always accepted that you could not insist that a contractor pays the living
wage’ (Unison, interview notes).
Indeed, there is evidence to suggest that pre-Rüffert the GLA had regard to a
contractor’s attitude to living wage clauses on a case-by-case basis.29 Implementation was
generally undertaken when new GLA Group contracts were let as this was the most cost
effective time to implement the LLW provisions and the best opportunity to discuss the
policy and its implications with bidders. For instance, in re-tendering its cleaning and
catering contracts in 2006, bidders were required to indicate whether they would accept a
LLW clause as part of the contract, including ensuring that other employment conditions
were not reduced as a result of paying a living wage (Hall, 2008). When looking to
implement the LLW into its own contracts the GLA considered the proportionality of the
LLW provisions to the subject, size and duration of the contract. Last but not least,
introducing the LLW at the earliest possible stage of the procurement process was seen as
enabling bidders and the contracting organisation to discuss the policy and its implications
before tenders were submitted.
3.2 The LWC post-Rüffert
3.2.1 The interpretation of Rüffert by the UK social actors
A first issue to consider is how different actors interpreted the implications of Rüffert for the
inclusion of living wage clauses in procurement. While the decision raised some concerns
within trade unions, local authorities, suppliers and civil society organisations, there was an
implicit understanding that as long as the campaign was successful, it would be possible to
continue with the practice of incorporating such clauses in procurement contracts. However,
the situation changed when the then Office of Government Commerce (now part of the
Cabinet Office) drew attention to the decision in its 2009 communication: ‘This judgement
means that that imposing a contract condition requiring the payment of the London Living
28
In 2012, there were over 3,400 employees working for companies with contracts from the GLA Group who
benefited from the LLW (GLA, 2012).
29
A similar approach was adopted by local authorities.
9
Wage to workers on a contract creates a risk of legal challenge against the UK, on the basis
that it is restricting the freedom to provide services. It is therefore recommended that such
minimum wage requirements should only be pursued on a voluntary basis’.30 The use of the
CJEU case law by the OGC was interpreted in the context of the newly elected Coalition
government’s attempts to achieve savings on financial resources following the outsourcing of
public services (Unison, interview notes).31 In a similar way, the view of the Cleaning and
Support Services Association (CSSA) was that the reliance on the part of public officials on
legal arguments was used as a means to limit the applicability of the living wage and thus
restrict public expenditure (CSSA, interview notes).
But, following the publication of the OGC guidance on Rüffert, the Cabinet Office was
asked by the central government to come up with a way of ‘managing the living wage’
(Unison, interview notes); the importance of the LLW at political level, especially for the
Mayor of London, prevented an outright rejection of the LLW by the Coalition government.
On the basis that the government had instructed the OGC to find a way to adopt the living
wage policy, it was expected that an OGC opinion that would confirm the legality of the
LLW would set a precedent supporting the wider dissemination of the campaign (Unison,
interview notes). But developments within the government led later to the adoption of a
radically different approach. In 2010, the Cabinet Office initiated the so-called Lean Review,
which was a streamlining exercise of the procurement process. The intention was to increase
efficiency, simplification, better value for money in terms of outcomes and increase of the
small providers in the supply chain. At the same time, it was agreed that there should be a
move away from delivering wider policy objectives through procurement. This was on the
basis of the Cabinet’s understanding that ‘if procurement can be left alone to achieve the
efficiency savings it should be achieving, we can invest in directly agreeing these policy
objectives’ (Cabinet Office, interview notes).
While it was accepted that it is possible taking into account policy-related considerations
in the process of procurement, the key consideration in all of this was the relevance to the
subject matter of the contract. According to the Cabinet Office, this clearly excludes the
possibility of requesting compliance to living wage as an award criterion but also, following
Rüffert, as a contract condition relevant to the performance of the contract (Cabinet Office,
interview notes).32 Consequently, the best way for social clauses to be included in
procurement is through voluntary agreements: ‘They [contracting authorities] think that the
only way to address these things is through the procurement programme. I would say it’s not
and actually the suppliers will follow a government lead on a voluntary basis and if a supplier
is encouraged to pay the LLW on a voluntary basis then that’s fair enough and I don’t think
that would carry a risk of legal challenge’ (Cabinet Office, interview notes). In light of this, a
potential solution in the UK would be the universal applicability of the living wage through
national legislation, as this would ensure that it would be in line with the PWD requirements.
However, this is not seen as a government policy, as it is believed that the NMW achieves so
30
This is a decision based on an interpretation of the Posted Workers Directive so would be of equal application
to contracts falling in “part B” or below threshold procurements. A different view holds that the restrictions
arising from public procurement law generally only apply to those contracts which are regulated by the Public
Contract Regulations 2006. Small-scale contracts (i.e. contracts for services with a value of less than £173k) are
not subject to the same restrictions and so there could potentially be more scope for imposing a living wage
requirement in such contracts. However, there will be practical and policy considerations as to the feasibility of
applying a living wage requirement in such limited circumstances.
31
It is important to add here that the three largest parties had committed before the election to the support of the
LLW (Fair Pay Network, 2009).
32
But see s 3.2.3.
10
far the objectives of the governmental policy (Cabinet Office, interview notes). The lack of
support for the LWC at central level was also illustrated in late 2012. In response to the
Mayor of London call’s for central and local government bodies to implement a living wage,
Cameron’s spokesman stressed that ‘it would not be possible for government to impose the
living wage as a condition of giving business to government contractors since its legal advice
is that this would breach EU’s procurement laws (Cleaning Matters, 2012).
Against this context, it is important to examine the reaction of suppliers concerning the
legality of the LLW. There is evidence to suggest that the nature of their reaction depends, as
perhaps anticipated, on market considerations. Established contractors, who are taking
advantage of the expansion of privatization currently taking place in the UK, have expressed
significant support for the LLW. The preference for regulation is interpreted as being in line
with their need to protect their market position and ensure a level-playing field in terms of
competition. However, there is less support among smaller contractors, as further
deregulation would facilitate their access into the market (Unison, interview notes). On the
part of established contractors, economic efficiency and legal arguments have been used in
order to challenge the interpretation of Rüffert by the Cabinet Office. This is the case, for
instance, with the CSSA. According to the CSSA interviewee, the introduction of a LLW in
the cleaning sector has led to the professionalization of the industry, which then results in
better recruitment, retention and performance rates (CSSA, interview notes).33 On the basis of
these economic efficiency arguments, the CSSA suggests that a living wage clause can be
introduced legally on the basis of the MEAT test. The latter is seen as allowing business case
arguments in favour of the LLW, including reducing recruitment and training costs and
improving services to be considered by the client: ‘…Provided the public client can make a
case that a living wage is the economically most advantageous tender, then there is no reason
why these cannot be the criteria. You will only get into problems if the criteria were not
uniformly applied across the bidders’ (CSSA interview notes). The requirements of the
Acquired Rights Directive provides, according to the CSSA, another ground for adopting the
MEAT test, as it militates against the adoption of the lowest price as the basis for the
selection of contractors (CSSA interview notes). But both interpretations were rejected by the
Cabinet Office: ‘I don’t see a demonstrable link, not an academically vigorous anyway
between the inclusion of living wage in the contract and improving the quality of the
outcome’ (Cabinet Office, interview notes).
On the side of the local authorities, while the Local Government Association (LGA) has
developed certain principles around best practice, its policy on the issue of social
consideration in procurement has been formulated on the basis of the government guidance
(LGA interview notes). With respect to the incorporation of the LLW in procurement, the
official position is that local authorities should decide independently how to approach the
issues. However, it was also recognised that it would be still worth exploring the possibilities
for the inclusion of such a clause at the tender stage: ‘You’ve certainly got to try and put it
[the living wage clause] into the tender…However, we would not be in a position to
nationally encourage or otherwise a living wage and certainly whether or not it applies to the
outside workforce as well as the internal one, I am not sure’ (LGA, interview notes).
33
Joint research by the Resolution Foundation and the Institute for Public Policy Research has found that gross
earnings would rise by £6.5bn if employees were paid a living wage. It also showed that paying UK workers a
living wage would save the Treasury more than £2bn a year by boosting income tax receipts and reducing
welfare spending; this would be mainly owing to the fact that if employers do not pay a living wage the state has
to make up the difference through tax credits (Lawton and Pennycook, 2013).
11
While these developments took place at UK level, at EU level there has been some
evidence of a reactive approach by the Commission concerning the compatibility of the LLW
with EU law. Soon after the decision in Rüffert was issued (March 2009), in its response to a
question submitted by Jean Lambert, Green MEP for London, it was stated that ‘living-wage
conditions may be included in the contract performance clauses of a public procurement
contract provided they are not directly or indirectly discriminatory and are indicated in the
contract notice or in the contract documents. In addition, they must be related to the
execution of the contract. In order to comply with this last condition, contract performance
clauses including living-wage conditions must concern only the employees involved in the
execution of the relevant contract, and may not be extended to the other employees of the
contractor’ (European Parliament, 2010).34
3.2.2 The implementation of the LLW post-Rüffert and the issue of legal challenges
Although the position of the Cabinet Office was clear on the issue of the incompatibility of
the living wage with EU law, no specific mandates concerning the consideration of social
issues at local level have originated from central government. As such, the decision for a
contracting authority to include considerations of wider policy is still a matter left to them.
The Cabinet Office interviewee explained: ‘I can’t stop Hackney requiring the London Living
wage but I will tell them if they pick up the phone and ring me that I think there are serious
risks’ (Cabinet Office, interview notes). At present, the London Living Wage continues to be
included in all GLA group contracts as part of responsible procurement practices. For
instance, Transport for London (TfL) has applied London Living Wage (LLW) to a number
of contracts, including facilities management area, which has a prevalence of low pay
operatives such as cleaning and catering and highway maintenance contracts (see, for
example, TfL 2013). The LGA representative explained: ‘so, the people who are operating
the contracts essentially are being told ‘do what you can and it will get tested out by the Court
at the end of the day. So to an extent, people are just sort of ignoring the problem and hoping
that they won’t get picked on’ (LGA interview notes).
At the level of individual local councils, Metcalf and Dhudwar (2010) reported that
‘whilst some Local Authorities wanted to require contractors to pay the living wage, they
questioned the legality of this under EU procurement law [following Laval and Rüffert].’
Another survey, carried out in May 2011, found that only six councils had taken steps to pay
the London Living Wage to all its workers including subcontracted ones. They were: Ealing,
Lewisham, Tower Hamlets (all now paying the living wage on some contracts); Islington
(who brought cleaning in house to pay the living wage); Southwark and Haringey (who have
adopted a policy but not yet changed any contracts).35 Importantly, with the exception of the
endorsement of the LLW by the Mayor of London, no Conservative-controlled councils in
London have yet been accredited while there is only one Liberal-Democrat-run district
council that has committed to the LLW.36 More recently, a number of councils across Greater
Manchester have agreed to pay the living wage; again all but one (Trafford, which is run by
the Conservatives) are run by Labour (House of Commons, 2013). In Scotland, seven local
When Rüffert was later used by the PM’s office to challenge the LLW (see below), Jean Lambert stated: ‘In
response to my question on the inclusion of living wage conditions in procurement processes, the [European]
Commission clearly states that living wage conditions can be included in public sector contracts, provided they
are not discriminatory (Cleaning Matters, 2012).
35
A very similar approach is followed in Hackney.
36
Outside of London, Labour-led councils that have adopted the Living Wage include Oxford, Preston,
Birmingham, Newcastle and more recently a number of councils in Greater Manchester and Scotland.
34
12
authorities have adopted the living wage.37 Interestingly, there is greater variation in terms of
the political orientation of the councils: two (Glasgow and West Dunbartonshire) are
controlled by the Scottish Labour Party, one (North Ayshire) by the SNP and independent,
one (Dumfries and Galloway Council) by the Conservatives and SNP, and in three (East
Renfrewshire, Scottish Borders Council and South Lancashire Council) there is no overall
control). This provides some evidence that the LLW is gaining progressively more and more
support from across the political spectrum.
In light of the CJEU decisions and the EU acquis in this area more generally, the methods
for the incorporation of living wage clauses in procurement are crucial for determining the
risk of a legal challenge. None of the local authorities that has implemented the living wage
so far, nor the GLA and ODA, have attempted to impose such conditions at the stage of the
contract award.38 Similar to the situation pre-Rüffert, the GLA bodies ask bidders to indicate
whether they would be willing to apply the LLW to their staff. However, it does not seem to
form part of the formal evaluation process (i.e. a bidder who refused to pay the LLW would
not be scored less as a consequence than a bidder who agreed to do so). If a bidder who has
indicated they would be willing to accept the LLW commitment is eventually appointed, then
GLA will generally seek to include appropriate clauses in the final contract. The bidder has
then the right to reject these clauses, but, if it does accept them, then they will become part of
the contract and binding on the contractor. The adoption of this ‘voluntary’ approach is seen
by many as a legally defensible way for promoting a living wage policy. Clearly, it is
important that the GLA is careful to ensure that the evaluation process is not influenced (or
perceived to be influenced) by a bidder’s willingness to commit to a living wage (Newcastle,
2012).39
At the local authority level, the practical application of a living wage policy is also
premised on a case-by-case approach that rejects an a priori recognition of the business case
arguments in favour of the living wage. For instance, North Ayrshire Council indicated that
that it would introduce, as part of its contracts, a standard question that would ask contractors
whether they were living-wage employers. Glasgow City Council asks whether organisations
pay the living wage, but does not use the question as part of the evaluation of the tender bid
(Scottish Parliament, 2011b). There is evidence to suggest that some city councils ask the
main contractors to price with and without living wage (Lewisham City Council, 2009). The
practice of submitting two bids is deemed problematic from the suppliers’ point of view, as it
involves doubling of costs for the preparation of the offers by the bidders and an increased
risk of challenges by the bidders that were unsuccessful (CSSA interview notes) and councils
have been warned off only accepting bids that offer a LLW (Walker, 2011). However, there
has been no legal challenge so far in cases where authorities require the submission of two
bids (Scottish Parliament, 2011a).
37
Glasgow City Council, West Dunbartonshire Council, East Renfrewshire Council, North Ayrshire Council,
South Lanarkshire Council, Scottish Borders Council and Dumfries and Galloway Council. It is understood that
two other councils have adopted the living wage and would begin to implement this.
38
The experience with the London Olympic Games is also illustrative in this respect. The 2007 Procurement
Policy of the Olympic Delivery Authority (ODA) stated: ‘The ODA will ask its contractors if they would be
prepared to adopt fair employment measures including the London Living Wage…[and this] will be taken into
account when the ODA advertises contracts and considers tenders’. But, as Barnard stresses (2011: 271), Lord
Coe told the London Assembly that ‘any of the issues about a living wage is a consideration, not a condition’,
implying thus that compliance with living wage clauses is only of voluntary nature.
39
Similarly, the TfL's approach has been to include the LLW as a contract performance condition requiring
compliance, with the LLW requirement clearly set out in the invitation to tender documents and in the terms and
conditions of relevant contracts.
13
Post-Rüffert, the risk of legally challenging the incorporation of living wage clauses in the
procurement process has increased. While this is true where an attempt is made to impose a
living wage on foreign contractors that post workers, it remains to be seen to what extent a
challenge by a domestic contractor could be brought using other EU law principles (Ewing,
2009). At present, there is no evidence of a legal challenge in either of these circumstances so
far. With respect to the first case, i.e. legal challenge by foreign contractors, the lack of
challenges is related to the fact there are no foreign companies incorporated outside the UK
that offer public services on the basis of long-term contracts. According to Unison, the
temporary nature of the work offered by companies engaged in exercising the freedom of
services and posting of workers is not amenable to the majority of the public services. 40 For
instance, there is no evidence of posting of workers in the cleaning industry in the UK.
Reasons for this include the greater use of free movement of workers from the CEE states,
the existence of the NMW in the UK, which acts as a deterrent for the undercutting of pay in
the sector, and the desire of migrant workers to get work experience in the UK (CSSA,
interview notes). In contrast, short-term deliverables in the public sector may still involve the
posting of workers. However, the lack of close geographical proximity with other states is
seen as a factor hindering potentially the posting of workers (LGA, interview notes). But in
cases where the provision of public services would take place through the posting of workers,
the risk that the case law would impact on terms and conditions of employment was
perceived as substantial by all social actors.
With respect to the second risk, i.e. legal challenge brought by domestic contractors, there
are indications that employers’ organisations have raised such issues at policy level. For
instance, CBI Scotland has argued publicly that the introduction of a universal application of
a living wage would be discriminatory on the basis of the adverse effect it would have on the
ability of local businesses to have the freedom to be suppliers to the public sector and that it
would have a disproportionately negative effect on young people (Scottish Parliament,
2012).41 Overall, the lack of legal challenges can be attributed to the risk-averse approach of
UK actors (as contrasted with the approach of German and French actors). But the Cabinet
Office expected that the expansion of the campaign to other areas of the UK, such as Oxford,
could precipitate the development of a more litigious approach by unsuccessful bidders
(Cabinet Office, interview notes). In addition, the lack of economic impact for the
unsuccessful bidders was reported as a factor by both Citizens UK and the CSSA for the
absence of legal challenges: ‘For cleaning services, I can’t see why a contractor would want
to issue a legal challenge to a client who had given a contract to a different contractor
because it is genuinely no difference to the contractor’s point of view whether the cleaners
get paid the LLW or not because any money that comes in from the client gets passed on
straight out to the cleaners’ (CSSA, interview notes).42 The relatively low wages in the sector
may have also attributed to the lack of challenges, as the NMW acts as a barrier to downward
pressures to wage levels.
Interestingly, the GLA representative has acknowledged that: ‘There have been some
contractual and legal difficulties about whether it is possible to specify the living wage in
tender documentation. The office of Government Commerce has been particularly concerned
with a European Court case about whether it is legal for us to specify the living wage. I think
40
This may be true in the case of posting through sub-contracting, but perhaps posting at intra-company level
may be easier to be provided in public services.
41
For a general reaction of businesses against the living wage, see Groom and Kuchler (2012).
42
However, it is unclear whether this will be the case if a living wage clause is introduced at no increased cost
to the councils as a result of assertive negotiation by council representatives (Hull, 2013).
14
that the law is still a bit uncertain on that point, but in practice we have had two fairly bullish
mayors who have championed the living wage irrespective of that. As far as I am aware, no
employer has ever taken any part of the GLA group to court, and we do not anticipate that
anyone will do so. In that regard, the roll-out will continue’ (The Scottish Parliament, 2011b).
3.2.3 Further developments
While the LLW has been gaining momentum in England, the Scottish Parliament’s Local
Government and Regeneration Committee undertook an inquiry in December 2011 into the
living wage in Scotland, part of which looked at using public procurement as a means of
delivering a living wage (Scottish Parliament, 2012). The legal opinion that was sought
suggested that it is possible to introduce a living wage conditions in the procurement process,
provided that it is done in a specific way and is introduced at a specific point in the
procurement process (McGuire, 2011). Building on art 26 of the PPD, the contact
performance clause could contain a stipulation that all workers on the contract are paid a
living wage provided: (a) the condition applied only to that contract and not to all workers
employed by the successful tenderer; (b) the condition was set out in the call for tenders; and
(c) that the condition complied with EU law. In order to be protected under the PWD,
existing legislation43 would need to be amended to require a living wage to be provided in
government contracts and it would be necessary for any amendment to specify the applicable
wage rate itself (or empower secondary legislation to do so).44
Due to the potentially serious challenges associated with attempts to include the living
wage as a condition of the award of public contracts, the Scottish government wrote to the
Commission seeking its view. While the clarification received by the Commission in 2012
repeated points made in the March 2011 statement,45 it also stated: ‘In terms of other relevant
EU legislation, it would have to comply inter alia with the Posting of Workers Directive. The
‘living wage’ to staff involved in the performance of the contract would have to be set in
accordance with one of the procedures laid down by Article 3 of the Directive...In addition,
the Court held in the Laval case that requirements regarding the level of wage payable to
posted workers may not go beyond the mandatory rules for minimum protection provided for
by the Directive. A ‘living wage’ set at a higher level than the UK’s minimum wage is
unlikely to meet this requirement’ (Scottish Parliament, 2011c, emphasis added). As a result
of the Commission’s response, the consultation document for the Public Reform Bill stressed
that ‘it is therefore not possible to use the Bill to mandate payment of the living wage through
procurement activity. If public bodies wish to encourage contractors to pay their employees a
living wage through procurement processes, this is still possible. However, they cannot treat
suppliers who say that they will pay employees engaged in the delivery of the contract a
living wage any more favourably than those suppliers that say that they will not; public
bodies also have no means of enforcing payment of a living wage’ (Scottish Government,
2012, emphasis in original). Separately, a Member’s Bill, which was lodged by John Park
MSP, advocated the introduction of a requirement that private sector employees working on
public sector contracts be paid the living wage but it was withdrawn in December 2012.
43
Section 39 of the Public Contracts (Scotland) Regulations 2006.
In terms of its compatibility with the Treaty provisions and the issue of justification, the legislation should
clarify that the issue of the living wage is a matter of ‘human dignity’, should make clear the reasons why the
procurement approach has been adopted, thus limiting the coverage of a living wage requirement to a particular
subset of employees and should provide a rationale for setting the wage at a certain level, so as to avoid any
sense that the rate chosen was intended to, or was known to, exclude or make more difficult the participation of
non-UK contractors (McGuire, 2011).
45
See above s. 3.2.1.
44
15
Apart from Scotland, the Welsh government has also expressed an interest in promoting
legislation that would make community benefit clauses mandatory above a certain level,
including mainstreaming the living wage (National Assembly for Wales, 2012b). In May
2012, the Minister for Local Government and Communities announced the decision to
convene a policy group made up of stakeholders with an interest in a living wage for Wales
to explore the issue (Welsh Government, 2012). However, during the deliberations for a
petition in favour of the living wage in June 2012, it was recognised that the Welsh
government had ‘no control over the private sector, other than to encourage it, and maybe it
would see the value of getting more out of its people’ (National Assembly for Wales, 2012b).
Despite this, the National Assembly announced that in the future any contractor bidding for
an Assembly contract would have to guarantee their staff earn the Living Wage; interestingly,
it was stated that the ‘the Assembly Commission is of the view that a Living Wage should be
a basic human right’ (National Assembly for Wales, 2012c).
Similar efforts for the amendment of legislation in order to explicitly promote the
incorporation of living wage clauses in procurement have been made more recently at central
level as well. During 2010, the Islington London Borough Council tabled a proposal to the
Department for Communities and Local Government for the amendment of the legislation,
which restricts the freedom of councils to require their contractors to pay the LLW. In
response, the Department made reference to the opinion of the Cabinet Office and held that if
councils were to implement the proposal they could be open to legal challenge on the basis of
the Rüffert judgment (Department for Communities and Local Government, 2010). But, a
change of direction has been observed more recently. In December 2012, it was reported that
the Department for Work and Pensions would introduce the living wage with respect to its
external contractors (Roberts, and Helms, 2013).46 More importantly, the Public Services
(Social Value) Act 2012 which received Royal Assent in March 2012, requires local
authorities, when entering into public procurement contracts, to give greater consideration to
economic, social or environmental wellbeing. The Act, which interestingly was introduced by
Conservative Chris White MP as a Private Member’s Bill, imposes a duty on contracting
authorities to consider at the pre-procurement stage of any relevant services contract or any
services framework contract: first, how what is being procured may improve the economic,
social and environmental well-being of its area; and secondly, how the authority can carry out
the procurement process with a view to securing the improvement.
This legislation made further amendments to sections 17 and 19 of the LGA 1988 and
provided in effect a power to public authorities to take into account non-commercial matters,
such as the terms and conditions of employees, when exercising procurement functions but
only to the extent that they consider it necessary and expedient to do so in order to comply
with section 1 of the Act. Of course, this does not preclude the requirement to comply with
the EU procurement law. However, it has been argued that it provides an opportunity for
public authorities to emphasise the local economic benefits of a Living Wage in their
procurement (Newcastle, 2012). Still, a ‘blanket approach’ requiring all contractors to pay the
living wage is not advised. Instead, local authorities should carry out a consideration of social
value at the pre-procurement stage; this would also provide an opportunity for considering
whether the living wage would be a relevant and proportionate matter for the contract under
consideration. Under the new Act, it will still be less risky to include the living wage as a
46
It was also reported that the Cabinet Office itself and Ministry of Justice might soon follow suit. A Ministry of
Justice spokesperson said: ‘Where possible, we will be encouraging the payment of the living wage when
agreeing future contracts, subject to this being the best value for money for the taxpayer’ (Roberts and Helm,
2012).
16
contract performance condition rather than use it as a contract reward criterion. In line with
the 2009 guidance by the Commission, a living wage contract condition must be relevant and
proportionate in respect of the contract and should not apply to any employees that are not
engaged in the contract. Finally, the authority will need to pay attention to the issue of
transparency, by making the requirement for a living wage performance condition clear on
the Official Journal of the European Union and/or the tender documents (Ramshaw, 2013).
4. Discussion and conclusion
The decisions of the Court of Justice of the European Union in the Laval quartet disturbed its
long-standing respect to labour law rules and industrial relations systems at national level and
brought the issue of the interaction between economic freedoms and social rights in the EU
into sharp – and unequivocally political – focus. The decision in Rüffert signalled not only a
change in the interpretation of the PWD but provided also evidence of some reconsideration
by the Court of the incorporation of social clauses in public procurement. In that respect, the
Court’s interpretation of the legality of social clauses is in conflict with the conclusion of the
European Commission (2011: ix) that in practice public procurement is increasingly used to
support the achievement of other policy objectives. But there are concerns that the scope for
the incorporation of social issues in procurement has been also limited by the Commission
itself. For instance, the 2010 Commission guide has taken a more restrictive approach to the
scope for the incorporation of social clauses in public procurement and instead is more
supportive of the incorporation of clauses related to environmental issues.
While the implications of Rüffert have been felt primarily in Germany (see, for
instance, Sack, 2012 and Blauberger, 2012) the paper highlighted the far-reaching
implications of the decision for the LLW in the UK. The LLW is not just about what people
earn. It has resonance for individuals and families as they assess the costs of goods and
services that they need and want to buy. As such, the arguments for the support of the LLW
are not only related to issues of economic efficiency but also to social and human rights,
including solidarity and decent work. Against this context, Rüffert had the potential to
unsettle the support for the LLW by a wide spectrum of stakeholders. The findings indicate
that the degree of legal uncertainty concerning the compatibility of the LLW with EU law
increased significantly in the aftermath of Rüffert. As a number of stakeholders are involved
in the process of public procurement, the potential for different interpretations of the
regulatory framework is generally greater than in private procurement. At the same time, the
extent of legal uncertainty was exacerbated by the absence of any coordinated effort at UK
central level; as shown, the issue of the living wage has become a matter for dispute within
the Conservative party itself between the Prime Minister and the Mayor of London.
Of course, as Ewing (2009) rightly observes, Rüffert does not impact upon the legality
of promotional activity and corporate campaigning for the adoption of living wage
arrangements. Indeed and perhaps even more as a result of the decision, Citizens UK has
been engaged in a more sustained attempt to promote the issue not only at local government
level, but also at central government level and, as seen, in devolved government level in
Scotland and Wales. However, it is questionable whether such activity can provide an
adequate alternative to the advancement of the living wage via harder forms of regulation. As
it stands, problems of monitoring and enforcing the living wage are apparent. These include
employers’ attempts to consolidate their profits by cutting the hours of other workers and
delaying payments of the increase of the wage (House of Commons, 2013). The legal
recognition of the right of public authorities to include living wage clauses in procurement
could potentially have positive effects in terms of ensuring better results in these areas.
17
In this respect, the issue of the legality of the living wage for all parties involved in
the process, i.e. public authorities, suppliers, civil society organisations and trade unions, is
crucial. While clarification on the issue by the EU and UK authorities would ensure a level of
legal certainty, it is also true that a negative interpretation would put additional pressure on
the campaign. In the words of the Citizens UK representative: ‘Clarity is useful so let’s take
clarity as a good idea. If clarity comes out in our favour, fantastic, problem solved, done. If
clarity comes out and they say no, this is an issue then I suppose what we would be looking
for is for a brave public sector organisation probably to say no, we are going to violate this
and make it an issue’ (Citizens UK, interview notes). As seen, this was confirmed in the
consultation process in Scotland. Once the European Commission indicated that public
bodies cannot require contractors to pay their employees a living wage as a condition of
participating in a tendering exercise or through a contract performance clause, the Scottish
government decided that it would not be possible to mandate payment of the living wage
through procurement.
In the absence of a supportive reading of EU law for the legality of the living wage,
different legal avenues have been explored for responding to the challenge. One is the
introduction of statutory regulation. During the consultations held by the Scottish
Parliament’s Local Government and Regeneration Committee, it was submitted that in order
for procurement legislation to require a living wage, amendments could be made to the
legislation to specify the applicable wage rate itself (McGuire, 2011). This proposal shares
some common characteristics with the legal responses of several German states to Rüffert that
introduced specific minimum wages for public procurement (Sack, 2012). Interestingly, the
IPPR suggests that there are clear reasons not to legislate for a statutory living wage; this
includes the fact that the living wage should not be seen as a replacement for the minimum
wage. Instead, the living wage requires an incremental approach, as it can also promote the
mobilisation of low-paid workers, who often lack access to traditional means of
representation (Pennycook and Lawton, 2013). The institute suggests that the UK
government should amend the corporate governance code to require listed companies to
publish the proportion and number of their staff paid below the living wage, and legislate for
this, if necessary. Listed companies who do not pay the living wage could be ‘named and
shamed’ and central government contracts could be limited to firms that pay the living wage.
The proposal is in line with the policy of ‘predistribution’, currently favoured by the Labour
Party, i.e. seeking to raise income at source effectively ensuring workers retain more of the
value of their own labour and hence less subsidy and redistribution is needed from the state or
for workers to fall into poverty (Hacker, 2011). However, at present there is limited evidence
of support for such changes.
The second avenue is the approach taken currently by GLA and councils, which wish
to promote the living wage through their procurement policy. As seen, most (if not all) are
stopping short of actually including a commitment to pay a living wage as an element of their
evaluation criteria. But, on the basis of their exploration of the space for manoeuvre within
the boundaries of EU and UK law, different means for the promotion of living wage clauses
have been used, including the submission of two bids and the development of relational
contracting between the parties. More recent developments at UK level, including most
notably the coming into force of the Public Services (Social Value) Act 2012 and the
endorsement of the LWC by central government departments (including the Cabinet Office),
have the potential to strengthen further the legal and political framework for the promotion of
the LWC. Overall, while Rüffert and the absence more generally of a more favourable
framework at EU level could have led to a retraction from the support of the campaign, there
18
is evidence of consolidation and further development of the LLW with the support of major
stakeholders.
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