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Case C-260/17, Anodiki Services EPE: interpreting the scope of the “employment contracts” exemption under EU procurement legislation

  • United Kingdom
  • Competition, EU and Trade
  • Procurement strategies

05-03-2019

Case C-260/17, Anodiki Services EPE1: interpreting the scope of the “employment contracts” exemption under EU procurement legislation

Introduction

The judgment relates to a request for a preliminary ruling made by Greece’s Council of State, the supreme administrative court of the country, in relation to two sets of proceedings involving public hospitals. The hospitals in question had granted a number of fixed-term employment contracts relating to the provision of catering and cleaning services. The decision to do so without carrying out regulated procurement procedures was challenged by a supplier in the local courts. In its ruling, the Court provides some useful clarifications as regards the scope of the “employment contracts” exemption under the 2014 Public Sector Directive (the “Directive”)2.

Relevant facts and law

Greek law prohibits the appointment of civil servants other than in relation to posts specifically provided for by legislation. As an exemption to this general rule, it is permissible for public bodies to conclude fixed term employment contracts so as to recruit additional staff for up to 24 months in the event of unforeseen or urgent circumstances which render such recruitment necessary.

In carrying out such recruitment the law requires that a provisional ranking list is drawn up on the basis of points awarded to each individual by reference to the length of their unemployment, work experience and whether they have dependant children.

The hospitals of Agioi Anargyroi and Evangelismos, relied on these provisions in concluding various fixed-term employment contracts for the purposes of the provision of catering and cleaning services. Anodiki Services EPE (“Anodiki”), a supplier of cleaning and other facility management services, challenged the decisions to do so, arguing that the value of the contracts concluded by each hospital, exceeded the value thresholds which triggered competitive tendering obligations for public services contracts under the Directive.

The Council of State stayed proceedings and asked the Court for a preliminary ruling in relation to whether:

(a) the “employment contracts” exemption in Article 10(g) of the Directive should be interpreted as applying also to fixed-term labour contracts which are concluded with persons selected on the basis of objective criteria, such as the duration of unemployment, their work experience and number of dependant children;

(b) the Directive, Articles 49 and 56 TFEU3, the principles of equal treatment, transparency and proportionality, among others4, precluded a public authority from making use of employment contracts, such as those at issue in the main proceedings, for the purposes of performing certain tasks falling within its public interest obligations; and

(c) Article 1(1) of Directive 89/6655 (the “Remedies Directive”) should be interpreted as permitting an economic operator with an interest in participating in a public procurement procedure for the award of contracts with the same purpose as contracts which a contracting authority has awarded without a procurement procedure on the grounds that, in its opinion, those contracts fall outside the scope of the Directive, to challenge the contracting authority’s decision to proceed in this way6.

The Court’s decision

The scope of the “employment contracts” exemption

One of the issues which the referring court had raised in this context was whether, for the employment contracts exemption to apply, it was sufficient that the contract in question constituted an arrangement between an employer and an (individual) employee such that labour laws applied or whether other issues were also relevant and had to be considered, such as the way in which an employee was selected. If so, did employee selection have to be based on the subjective assessment of an individual’s personal qualities or would the exemption still apply where, as in the current case, employees were chosen by reference to objective criteria such as the length of time of unemployment and previous work experience?

In considering this issue, the Court observed that the Directive did not define “employment contracts” and that, in the absence of a specific reference in the Directive to the law of Member States, the concept had to be given an independent and uniform interpretation throughout the European Union.

In this regard, it was also relevant that, as Recital 57 of the preamble to the Directive clarified, the Directive did not oblige Member States to externalise the provision of services which they wished to provide themselves or organise by means other than the award of public contracts. In that context, Recital 5 also referred to examples of certain types of employment contracts which could fall outside the scope of the Directive. However, that list was not exhaustive. Separately, EU case law had already established8 that the essential feature of an employment relationship was that, for a certain period of time a person performed services for and under the direction of another in return for remuneration.

In the light of the above considerations, the Court concluded that:

• the concept of “employment contracts” had to be interpreted as including all contracts by which a public authority employed natural persons in order to provide services itself, and which gave rise to an employment relationship by which those persons, for a certain period of time, performed services for and under the direction of that public authority in return for remuneration;

• the basis on which the employees were selected was irrelevant. For example, the fact that (as in the current case) selection was based on objective criteria, did not render the employment contracts exemption inapplicable;

• equally, the fact that an employment contract was of a fixed term, and thereby of a limited duration, did not bring it outside the scope of “employment contracts”.

Finally, it was necessary for the referring court to determine whether the arrangements at issue in the main proceedings were genuine individual employment contracts between the hospitals in question and the persons that had been recruited.

Whether the decision to perform public interest obligations by means of employment contracts instead of the award of public contracts, breached certain EU law obligations

In considering this matter, the Court considered relevant that the Directive did not apply to employment contracts such as those at issue in the main proceedings. Also, although the principles of equal treatment and the prohibition of discrimination of nationality applied in cases where a public authority entrusted the supply of economic activities to a third party, it was inappropriate to apply “EU law on public procurement” in a case where the public authority carried out its public interest obligations itself, without recourse to third parties.

On that basis, the Court concluded that the provisions of the Directive, Articles 49 and 56 TFEU, and the principles of equal treatment, transparency and proportionality, did not apply to a public authority’s decision to make use of employment contracts, such as those at issue in the main proceedings, in order to perform certain tasks falling within its public interest obligations.

Whether the decision not to use a public procurement procedure was judicially reviewable

The Court considered that a contracting authority decision not to initiate a public procurement procedure because it considered that the contracts in question did not fall within the scope of the Directive, could be challenged by an economic operator with an interest in participating in a public procurement procedure for the award of public contracts with the same purpose.

The Court reached this conclusion partly by reference to the wording of Article 1(1) which, among other things, requires Member States to ensure that decisions taken by contracting authorities, as regards contracts falling within the scope of the Directive, can be reviewed effectively. The Court considered relevant that that provision referred generally to the “decisions” of a contracting authority, without distinguishing them according to their content or time of adoption or by laying down any restrictions as regards their nature.

Also, according to the Court, a narrower interpretation of the concept of “decision” would have been incompatible with Article 2(1)(a) of the Remedies Directive. That required Member States to make provision for interim relief procedures in relation to the implementation of “any decision” taken by a contracting authority.

Separately, the Court’s jurisprudence had already established that any act of a contracting authority adopted in relation to a public service contract within the material scope of the Directive and capable of producing legal effects constituted a decision amenable to review within the meaning of Article 1(1) of the Remedies Directive, irrespective of whether that act was adopted outside a formal award procedure or as part of such a procedure9.

Ultimately, an approach whereby the Remedies Directive did not require judicial protection other than in circumstances were a formal award procedure was carried out, would have had the effect of making the application of the relevant EU rules optional, at the option of every contracting authority.

Comment

The case provides some useful clarifications as to the scope of the “employment contracts” exemption under the Directive, and indeed, the Utilities Directive10, which contains the same exemption. One of the referring court’s key concerns here was whether the contracts that had been awarded without applying procurement legislation (on the basis of objective criteria and for a fixed term) were in substance public services contracts.

In its decision the Court makes it clear that, issues such as the way in which an employment contract is awarded or the fact that it is of a fixed term, are not relevant to the application of the exemption. Instead, what is key, is that the arrangements give rise to an “employment relationship”, as defined under EU law. If that is the case, then the employment contracts exemption will apply.

Separately, the Court was equally clear that public authorities are not obliged by EU law to “externalise” the performance of tasks for which they are responsible by awarding public contracts. A contracting authority had the choice to perform those tasks itself, by means of the award of employment contracts, for example.

It is worth noting that this issue of choice, and the fact that public bodies are not required by EU law to award public contracts for the performance of certain tasks but may instead, choose to enter into some other form of arrangement which might not trigger procurement law obligations, was key in the recent Faraday case11 in the English courts.

That case related to the conclusion of a land development agreement between a local authority and a developer, without the carrying out of a regulated procurement process, on the basis that the arrangement was “an exempt land transaction”. The High Court’s decision12, concluding that that was indeed, the case was subsequently reversed by the Court of Appeal which (correctly in the author’s view) concluded that, in substance, the arrangement was not a land transaction but a public works contract:

“The principal purpose of the development agreement, essential to all the obligations in it, is plainly to bring about the execution of the works, and thus to implement the development that will result from them. The obligations are all directed to that ultimate objective.13

That is ultimately, the key difference between the current case and Faraday: in Anodiki the type of arrangements at issue were, in principle, correctly classified as exempt employment contracts, whereas in Faraday14, the arrangement in question was not an exempt land transaction but, in substance, a public works contract.

Finally, as to the question of whether the Remedies Directive should be applicable to contracting authorities’ decisions to award contracts without applying procurement legislation, that issue is surely uncontroversial and the Court’s conclusion on this point, in line with previous judicial authorities.


1 - Judgment of 25 October 2018, Anodiki Services EPE, C-260/17, EU:C:2018:864

2 - Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (OJ 2014 L 94, p.65), as amended by Commission Delegated Regulation (EU) 2015/2017 of 24 November 2015 (OJ 2015 L 307, p.5)

3 - Providing for the freedom of establishment and the freedom to provide services, respectively.

4 - The referring court also asked the Court to consider whether certain articles of the Charter of Fundamental Rights of the European Union (the “Charter”) might create relevant obligations in this context. However, the Court considered the Charter irrelevant on the basis that it does not extend the scope of EU law beyond the powers of the Union, and does not establish any new power or task for the Union, or modify powers and tasks as defined in the Treaties. This issue is not considered further in this note.

5 - Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts (OJ 1989 L 395, p.33), as amended by Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 (OJ 2014 L 94, p.1)

6 - Article 1(1) of the Remedies Directive provides, among other things, that the Remedies Directive applies to contracts referred to in the Directive, with the exception of those contracts specifically excluded in accordance with Article 10 of the Directive.

7 - Recital 5 clarifies that “nothing in this Directive obliges Member States to contract out or externalise the provision of services that they wish to provide themselves or to organise by means other than public contracts within the meaning of this Directive. The provision of services based on laws, regulations or employment contracts should not be covered. In some Member States, this might for example be the case for certain administrative and government services such as executive and legislative services or the provision of certain services to the community, such as foreign affairs services or justice services or compulsory social security services.”

8 - The Court referred, by way of examples, to the judgments of 3 July 1986, Lawrie-Blum, 66/85, EU:C:1986:284, paragraph 17, and of 19 July 2017, Abercrombie & Fitch Italia, C 143/16, EU:C:2017:566, paragraph 19

9 - At [ 44] and [45] and by reference to Stadt Halle and RPL Lochau, C‑26/03, EU:C:2005:5, at [33] and [34].

10 - Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC, OJ L 94, 28.3.2014, p. 243–374.

11 - Faraday Development Ltd v West Berkshire Council [2018] EWCA Civ 2532

12 - R (Faraday Development Ltd) v West Berkshire Council and another [2016] EWHC 2166 (Admin)

13 - Faraday Development Ltd v West Berkshire Council [2018] EWCA Civ 2532 at [76].

14 - For an analysis of the Court of Appeal’s Faraday decision, refer to the author’s note: “Land development agreements and public procurement regulation: Faraday Development Ltd v West Berkshire Council [2018] EWCA Civ 2532” at https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Competition_EU_and_Regulatory/faraday-development-101218

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