Background

Member States across the European Union have varying arrangements around minimum wage protection. In most Member States protection stems from statutory minimum wages in addition to any applicable collective agreements. In a minority including Italy, Austria and Sweden, minimum wage protection is provided exclusively through collective agreements. The level of minimum wages and extent of coverage by collective agreements also differs considerably across Member States as this is driven by local factors such as national economic conditions and labour market models.

In 2020, the European Commission proposed legislation to provide more effective minimum wage protection across the EU as part of its commitment to improving living and working conditions. By way of background, some of the issues identified which the Directive seeks to address include the following:

• Statutory minimum wage rates in many Member States are inadequate because they are too low in relation to other wages and do not provide a decent standard of living.
• Whilst minimum wage protection provided for in collective agreements in low-paid occupations is generally adequate, many workers are not covered by collective agreements.
• Even where minimum wage protection exists, non-compliance and lack of enforcement in some Member States means that it is ineffective.
• Low-paid workers are particularly vulnerable during an economic downturn and women, younger workers, migrant workers and people with disabilities are more likely to be disproportionately represented in this group.

Following negotiations between the European Parliament and the Council of the EU, the Directive on adequate minimum wages in the European Union has been adopted and Member States now have to transpose the applicable provisions in domestic legislation by 15 November 2024. 

The key provisions

The Directive does not set a common minimum wage across the EU nor does it require Member States to introduce a statutory minimum wage where this does not already exist. Instead it sets out a framework aimed at improving the adequacy of minimum wages and access of workers across the EU to minimum wage protection. The headline provisions are summarised below:

• Promotion of collective bargaining on wage-setting - Member States are required to take various measures aimed at increasing collective bargaining coverage and facilitating the exercise of the right to collective bargaining on wage-setting; in addition, those Member States that have a collective bargaining coverage of less than 80% must establish, make public and notify to the Commission an action plan to promote collective bargaining and increase coverage. 
• Adequacy of statutory minimum wages - Those Member States with statutory minimum wages must establish procedures for setting and updating the relevant rates.  The adequacy of the proposed rates must be assessed against a clear set of criteria that includes certain prescribed elements; for example, purchasing power taking into account the cost of living, the general level of wages, their distribution and growth rate. Indicative reference values are also to be used to guide the assessment of adequacy.
• Effective access to statutory minimum wage protection - Member States must take measures to enhance the effective access of workers to statutory minimum wage protection including strengthening enforcement where appropriate.  This includes implementing effective controls and field inspections by the relevant bodies such as labour inspectorates, and developing the capability of enforcement authorities to target and pursue non-compliant employers. 

In practice

It remains to be seen how individual Member States will interpret the fairly broad, but for some, potentially far reaching provisions of the Directive in the context of national law. In practice, employers are less likely to be impacted where they operate in Member States where minimum wage protection is exclusively through collective bargaining and coverage is already high.

In those jurisdictions where statutory minimum wage rates do not meet the adequacy requirements of the Directive, employers can expect these to rise as Member States adjust these to comply; an increase in minimum wages may drive up other wages.   

As is already the case, even where pay rates are ostensibly well above statutory minimum wage requirements, employers need to be mindful of situations where worker pay could inadvertently fall below these, for example, where unchecked extended working hours have the effect of lowering hourly wage rates.  Adjusted statutory minimum pay rates could also mean increased liability in cases of worker misclassification where self-employed individuals are found in fact to be 'workers' for the purpose of minimum wage protection and other employment rights.

The longer term impact of the Directive's provisions on the promotion of collective bargaining on wage-setting is more difficult to assess.  This is clearly seen as a key focus for achieving adequate minimum wages across the EU and is set against a background of increasing employee activism and trade union activity, spurred on by the current economic climate and cost of living crisis.