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Minimum wage in the EU: a new milestone reached

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The European Parliament and Council negotiators have agreed on rules to set adequate minimum wages in EU member countries. The new rules will apply to all EU workers who have an employment contract or who are in an employment relationship.

The European Union has reached an agreement on the minimum wage. This was officially announced on 7 June 2022 via the the Social Affairs Committee of the European Parliament Twitter account and by a press release. The proposed new directive on the European minimum wage will now need to be approved at a plenary session of the EU Parliament (which, however, can no longer amend the text) and then ratified by the EU Council. It will then be up to the member states to transpose it.

According to the latest rumours about the agreement reached by the EU, there will be no maximum or minimum wages. Instead, the directive will aim to establish a framework for setting adequate and fair minimum wages. Italy is among the six EU countries without regulation on this subject: the issue is at the centre of a political clash and is the subject of animated debate between politicians and social forces.

The French rotating presidency of the EU has said this is an important step for social Europe, since the measure will promote adequate minimum wages in the EU and the development of collective bargaining, fully respecting differing national circumstances.

The directive will not require changes to existing national systems on the minimum wage to be paid to workers. Instead, while respecting the differences in labour market models between member states, it establishes a procedural framework to promote ‘adequate and fair’ minimum wages throughout the EU. This is also because the treaties do not allow the European Commission to legislate on wages.

According to the agreement, member states will have to assess whether their existing statutory minimum wages (i.e. the lowest wage permitted by law) are adequate to ensure a decent standard of living, taking into account their own socio-economic conditions, purchasing power, and long-term national productivity levels and developments.

The EU negotiators agreed that member states will have to strengthen sectoral and cross- industry collective bargaining, which is considered an essential element for protecting workers by providing them with a minimum wage.

National authorities will have to ensure the right to redress for workers whose rights have been infringed. Authorities must also take the necessary measures to protect workers and trade union representatives.

At the time of writing, 21 EU member states have a legal minimum wage. The exceptions are Italy, Austria, Sweden, Denmark, Finland and Cyprus, where collective bargaining agreements fill the void in the absence of legal provisions (Germany raised its minimum wage to EUR 12 per hour just a few days ago). Despite earlier attempts at harmonisation, the differences between EU countries are still considerable. In fact, the minimum wages range from EUR 332 per month in Bulgaria to more than EUR 2000 in Luxembourg.

According to the Commission, in the majority of member states, the minimum wage is inadequate or there are gaps in the coverage. The directive promotes collective bargaining on wage determination and adequate levels of statutory minimum wages; it also aims to improve effective access to minimum wage protection for all workers and requires reporting on minimum wage coverage and adequacy by member states.

A first area of common ground that has been found between the EU Council and Parliament concerns collective bargaining, which, the Commission notes, is a way to combat in-work poverty and improve working conditions. Member states should therefore promote the ability and right of social partners to participate in collective bargaining. EU countries with a collective bargaining coverage rate of less than 80% will have to develop an action plan to promote it, taking measures to facilitate the involvement of the social partners. (The 80% is a compromise: the Parliament wanted 90%, the Council and the EU Commission had indicated 70%.)

Another central point concerns the assessment of the adequacy of minimum wages: how to evaluate what constitutes an ‘adequate’ and ‘minimum’ wage. Member states should set their legal minimum wages and assess their adequacy according to a set of clear and stable criteria, and the amount should be updated periodically.

A more in-depth analysis will be possible after the directive has been issued, and member states, especially those who do not have a statutory minimum wage, will have to prepare to enforce the new rules.

Please note: this article has been drafted based on the relevant legislation in force on 7 June 2022. Further details on this topic are expected in the next few months.

Ius Laboris

Ius Laboris is a leading international employment law practice combining the world’s leading employment, labour and pension firms. Our role lies in sharing insights and helping clients to navigate the world of labour and employment law successfully.
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