Living wage requirement would not breach EU rules

7 November 2012

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7 November 2012 | Anna Reynolds

A contract requirement for suppliers to implement a living wage for employees would not be a breach of EU procurement rules, lawyers have told SM.

Mayor of London Boris Johnson has called for central and local government bodies to implement a living wage – a salary drawn up to cover the basic costs of living in the UK as well as enabling people to save for the future - as public bodies in London, such as Transport for London and the Greater London Authority have done. But this has prompted some reports to claim such a commitment would be in breach of EU procurement law. The living wage is £8.55 in London and £7.45 across the rest of the UK.

David Hansom, partner at law firm Veale Wasbrough Vizards told SM: “There is a risk in adding a blanket requirement to all EU procured contracts because there will be contracts where how much the contractor’s staff get paid is not directly relevant.

“This does not mean a minimum wage is always incompatible with EU procurement rules. There are however obligations to treat all bidders equally, fairly and transparently and in a non-discriminatory way in any procurement process.”

Hansom added as long as the measure applies to all bidders for a contract applying the living wage shouldn’t be discriminatory. Under the new Public Services Social Value Act 2012 - which comes into force in January - UK contracting authorities will face a legal obligation to consider what measures they should include in procurements to promote the economic, social and environmental wellbeing of the relevant area.

Richard Tinham, procurement law specialist and partner at law firm Winckworth Sherwood also told SM: “One needs to exercise caution in the detail, you must notify those parties interested in the tender in advance of what you are doing.”

The European Commission provided clarification on the issue in 2009, stating that 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”.

On Monday, Labour leader Ed Miliband called on companies to adopt the living wage as a requirement in contracts. Some organisations, such as Barclays, have already done so. He said there were corporate benefits, such as reduced turnover of staff and lower sickness absence, to paying a living wage.

“We should seek to learn from the local government experience with procurement to see whether central government can use its power to insist that large firms that get major government contracts commit to being living wage employers.”

Also as part of living wage week anti-poverty charity War on Want has called on British firms to commit to paying a living wage not just in the UK but throughout their supply chain overseas.

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