European Court of Justice partially annuls the Minimum Wage Directive

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The Minimum Wage Directive: A quick recap

In October 2022, the proposal for a directive on adequate minimum wages for workers in the European Union was finally adopted (the ‘Minimum Wage Directive’). The Directive entered into force on 14 November 2022 and EU member states had until 15 November 2024 to implement it into national law.  

The Minimum Wage Directive does not impose an obligation on Member States to set minimum wages in law and does not aim to harmonise minimum wages across the EU or to introduce a uniform mechanism for setting minimum wages. Instead, it requires Member States with statutory minimum wages to establish the necessary procedures for setting and updating these statutory minimum wages. Prior to the annulment decision, the process of setting and updating was to be based on national criteria that includes a number of elements listed in the Directive.

Member States that – like Denmark – do not have statutory minimum wages are obliged under the Directive to, among other things, promote the development and strengthening of the ability of the social partners to enter into collective bargaining on wage setting.

The action for annulment

From the beginning, the Minimum Wage Directive has been met with significant opposition from the Danish side. This opposition must be viewed in light of the Danish model, which implies that wages and collective agreements are a matter for the social partners. On 18 January 2023, Denmark therefore brought an action for annulment against the European Parliament and the Council, claiming that the Minimum Wage Directive should be annulled.  

Denmark, supported by Sweden, brought an action for annulment of the Minimum Wage Directive in its entirety and, in the alternative, for annulment of certain provisions of the Directive. In support of this, Denmark argued that the Directive exceeded the EU’s Treaty-based competence, as the EU has no competence regarding pay conditions, and that the Directive could not be adopted on the basis of the EU’s ability to take decisions on working conditions.

The European Parliament and the Council, supported by several other Member States, argued that the Directive only aims to improve working conditions through measures on the adequacy of minimum wages, and only lays down procedural obligations through minimum standards. The focus of the Directive, they argued, is on how Member States determine whether statutory minimum wages are adequate, with the Directive promoting negotiations on the setting of these wages rather than prescribing a specific wage level.

The Advocate General's Opinion

On 14 January 2025, the Advocate General, in his Opinion on the annulment action, found that the Directive was not compatible with the EU’s Treaty-based competence on the basis that the EU does not have the competence to adopt directives on “pay conditions”.  

The decision of the Court of Justice of the European Union

The CJEU chose to annul only part of the Minimum Wage Directive and thus found – contrary to the Advocate General – that the Directive in its entirety is not contrary to the Treaty.

Specifically, the CJEU found that the provision of the Directive listing criteria for setting and updating statutory minimum wages should be annulled because this provision (and two clauses derived from it) fall outside the EU’s legislative competence. Specifically:

• Article 5(2) of the Directive was annulled in its entirety. This lists the four mandatory elements that must be taken into account by Member States with statutory minimum wages.

• The rule in Article 5(3) prohibiting any reduction of the statutory minimum wage when using an automatic indexation mechanism was also annulled.

Denmark was thus only partially successful in its action. The European Commission has confirmed that it is analysing the impact of the annulled provisions.

Takeaway for employers

It is unusual for an EU law to be fully or partially rejected by the CJEU, so in that regard the above outcome might be claimed as a victory for the Danish government and the social partners. On the whole though, the ruling is mostly a defeat.

Even so, the result has no concrete significance in the short term for Danish employers. In light of the high degree of coverage of collective agreements in the Danish labour market, no one has believed that Denmark should have an obligation to legislate on minimum wages. Rather, it is in the longer term that the decision may have significance. The Danish government believed that the EU should show a greater degree of respect for the Danish model. The CJEU did not agree with this. How the Danish government, and Member States supportive of its position, decide to react (if at all) remains to be seen.  

Beyond Denmark, and for Member States with statutory minimum wages, the CJEU has confirmed the validity of a large part of the legislation. The Minimum Wage Directive continues to require procedural frameworks aimed at adequacy, periodic updates, and effective consultative bodies, with discretion on national criteria and the possible use of indicative reference values. The Commission has separately stated that the “[…] ruling does not affect the legislation adopted by Member States transposing the Directive.”

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