The European minimum wage directive will go ahead. The Court of Justice of the European Union (CJEU) ruled this on Tuesday in a ruling upholding much of this regulation, which was in doubt after being challenged by Denmark and Sweden when they believed it constituted an interference with their labor laws. However, the ruling reduces the scope of the directive by annulling the provision listing the criteria that Member States with legal minimum wages must take into account when setting and updating such wages. According to this Court, the rule that prevents their reduction when they are subject to automatic indexation is also eliminated.
These guidelines on what an adequate minimum wage should be, which have now been rescinded, were staunchly defended by the Second Vice President and Minister of Labor, Yolanda Díaz, and her team in negotiations with unions and employers to transpose this EU directive into the Spanish legal system.
The Adequate Minimum Wage Directive, its official name, was passed at the end of 2022 and was challenged by Denmark just a few weeks later. Sweden has joined the call. Both Nordic countries have questioned whether the EU can pass regulations of any kind that set some kind of conditions on workers’ pay. They are based on the fact that the Treaty on the Functioning of the Union, in its Article 153, expressly excludes this possibility.
Aware that core EU rules significantly limit the powers of the European institutions in regulating working conditions, the European Commission and the co-legislators (European Parliament and Council of the EU) agreed on a text that remains, rather, within the scope of recommendations. And, for example, we inform you that the minimum wage tends to be 50% of the average salary in each Member State and 60% of the average salary.
This principle of prudence was not enough for the two Nordic countries who turned to the CJEU to challenge the rule. There they found support from the Attorney General, who completely sided with Copenhagen’s complaint, issuing an opinion last January in which he stated that “the directive should be annulled in its entirety.” The Cypriot Nicholas Emiliou concluded that the rule “directly interferes with the exclusion relating to ‘remuneration’ provided for by the Treaty. It follows that the Union legislator was not competent to adopt this instrument and that it acted, thereby, in violation of the principle of attribution of powers.” While the ruling need not necessarily reproduce this argument, the truth is that the vast majority of final CJEU rulings go in the same direction as the Advocate General’s statement in the case.
In Scandinavian countries, the model of labor relations is based on bilateral negotiation between unions and employers with minimal interference from the authorities. However, this does not translate into worse working conditions and wages; high union density, with widespread membership among employees, means their wages are high. On the other hand, there is no legally regulated minimum wage, as there is a fear that it will be seen as a downward target.
But this situation is truly exceptional. Apart from the two complainants, only Finland, Austria and Italy do not have a legal provision setting a minimum threshold for salaries. Until 2015, Germany was also part of this group, but then a government coalition between Christian Democrats and Social Democrats established a minimum wage.
Although the directive has remained within the scope of recommendations, several investigations are starting to show that it is having an impact in Central and Eastern European countries. There the unions have a limited presence and, therefore, a lower negotiating capacity. On the other hand, this EU standard has influenced governments’ political decisions and collective bargaining in recent years, which has resulted in significant wage increases in recent years.
The Spanish case
Spain has been no exception in this wave of minimum wage improvements. Since 2018, the year in which the president of the government, Pedro Sánchez, arrived in La Moncloa, this income has increased by 61%, going from 736 to 1,184 euros per month in 14 payments. In fact, the negotiation and increase of the SMI is one of the measures carried out by the current second vice president and Minister of Labor, Yolanda Díaz, who year after year, although the law does not oblige the Executive to negotiate the increase of the SMI with social agents, opens a negotiating table with employers and unions to try to reach an agreement with both.
Currently the Ministry of Labor has opened a table with employers and unions to negotiate the transposition of the European minimum wage directive. At that table some issues are discussed which, for the most part, have been agreed in advance between the Government and the unions and which the employers do not agree with from the beginning.
The measures adopted, in any case, require different ways to be addressed and their success will depend on this. Therefore, of all the initiatives with which Labor wants to implement this directive, only one could be achieved with relative ease, since it can be approved by regulatory decree: the protection of future increases in this income, prohibiting companies from compensating or absorbing each of the increases in the SMI with wage supplements or bonuses.
To carry forward the rest of the issues under negotiation for the transposition of the community directive, the Government would need the difficult consensus of the parliamentary majority. This would be the change necessary for the law to establish that “the amount of the SMI will in any case be equal to or greater than 60% of the average net salary in Spain”, as stated in one of the latest drafts. Or the inclusion of new criteria to establish the amount of such income and the attribution of greater weight and legal coverage to the preventive report of the commission of experts, as well as to its composition. For all the latter, a legal change is necessary which can only take place with a parliamentary majority.
In any case, it has not always been possible to reach a tripartite agreement between government, employers and unions. The last time there was an agreement of these characteristics with all the agents involved to increase the SMI was in January 2020, shortly before the covid-19 crisis broke out, when Díaz agreed with employers and unions a 5.5% increase to 950 euros per month. On that occasion, the employers opted for the lesser evil, fearing that the increase would reach 1,000 euros that year, because it was the amount agreed in the government agreement.
