GMS Flash Alert

On 11 November 2025, Court of Justice of the European Union (“CJEU”) decided¹ that almost all of the EU Pay Directive,² which aims to set adequate minimum wages and promote collective bargaining, will stay in force except for two smaller parts.

The court ruled two items in the EU Pay Directive are direct interference in the wage setting, which is solely under the authority of each member state. First, the court concluded that the EU legislator exceeded the limits of its powers by outlining a list of criteria in the EU Pay Directive that member states must follow when setting and updating minimum wages, such as the growth rate of wages and their purchasing power. Second, the court found that the EU legislator cannot determine that the use of automatic indexation of statutory minimum wages cannot lead to a decrease of those wages.

On all other points, the court found that the EU Pay Directive complies with the overreaching objective of improving working conditions for workers in the EU.

The ruling is remarkable in that the Advocate General had opined that the EU Pay Directive should be annulled as it directly interferes in the sole right of the member states to determine wages. More on the Advocate General’s opinion in KPMG GMS Flash Alert 2025-016 – Advocate General Recommends Annulling Directive on Adequate Minimum Wage.

WHY THIS MATTERS

The case is a landmark in defining the limits of EU legislative action. It sets a precedent for how far the EU can go in making laws on issues that are central to national sovereignty, such as wage setting and the right to association in relation to collective bargaining.

For EU legislators, the ruling clarifies the boundaries within which they can act to promote social convergence, without dictating specific wage levels or interfering with the autonomy of social partners, such as the unions. For member states where wage setting is traditionally managed through collective bargaining agreements between employers and unions, the case affirms the importance of safeguarding national models against overreach from the EU.

The President of the European Commission, Urusla von der Leyen, already welcomed the ruling and called it a milestone for Europeans because the ruling will not affect the implementation of the EU Pay Directive into the national laws of each member state, which has already led to increases in wages in the region.³

Although this ruling protects national wage-setting and collective bargaining traditions, the overall drive for fair minimum wages and better working conditions across the EU will continue, so business should remain proactive in adapting to evolving national requirements both for domestic and posted workers.

Highlights in the CJEU ruling

Background

The case arose after the EU adopted Directive (EU)2022/2041 on adequate minimum wage, also called the EU Pay Directive, with an aim to improve living and working conditions across the region by promoting fair minimum wages and strengthening collective bargaining.

Denmark, along with some other member states objected the EU Pay Directive. Denmark’s wage-setting system is based on collective agreements between employers and unions, without statutory minimum wage. Therefore, Denmark brought the case before the CJEU seeking to annul the directive entirely as it argued that it unlawfully interfered with national wage-setting mechanisms and collective bargaining rights, which are subject solely to national sovereignty.

The case attracted attention from other member states and social partners, as it raised important questions about the balance between EU-wide social policy and the autonomy of national systems, especially in member states with well-established collective bargaining traditions.

Key Highlights

Minimum Wage Setting

Article 5(2) of the EU Pay Directive outlines a list of criteria for the member states to follow when setting and updating minimum wages, such as wage growth and other economic indicators.

The court found that by requiring member states to adhere to specific criteria, the EU legislator exceeded its powers by directly dictating national wage setting, which is not within the EU’s competence.⁴ The EU does not have the authority to legislate directly on pay. Therefore, this part of the provision on wage setting was annulled.

The court also found that the EU legislator exceeded its powers by requiring that the use of indexation (automatic adjustments of minimum wages based on certain indicators) does not lead to a decrease in minimum wages.

The court concluded that the EU cannot dictate that indexation mechanisms must never result in lower minimum wages. As with requiring adherence to specific criteria, such a rule would interfere with the national authority for wage-setting and exceed the EU’s legislative powers.

Collective bargaining

Article 4(2) of the EU Pay Directive stipulates that any member state where the collective bargaining coverage rate is below 80 percent must establish an action plan and provide a framework of enabling conditions for collective bargaining.

KPMG INSIGHTS

As mentioned earlier, the EU Commission is relieved that the CJEU did not annul the EU Pay Directive, but only removed the detailed criteria for wage-setting and indexation of statutory minimum wages. The commission points to rising minimum wages in several member states as evidence of the directive’s positive impact.⁵

On the other hand, Denmark, who brought the case to the court, remains less enthusiastic. Danish news outlets reflect a preference for the directive to be annulled entirely, as the ruling in Denmark’s perspective still allows for indirect EU influence over national wage setting.⁶

For now, the directive has little, if any, practical effect in Denmark, which already meets its goals. However, the case was significant for both Denmark and Sweden, who challenged the EU’s authority to dictate wage-setting in detail.

While the court sided with Denmark on the issue of detail and wage-setting, the overall outcome favours the EU, as reflected in the division of legal costs: Denmark covers two-thirds of the costs, and the EU one-third of the costs.

The EU Pay Directive currently is not implemented in Denmark, and it remains to be seen whether Denmark will transpose it into national law or if further legal challenges will arise.

Wage and working conditions remain central to both domestic and cross-border policies. Remuneration of posted workers is still a complex issue, and differences in wage levels across member states persist. Businesses should be aware of compliance with local working conditions and pay when sending workers abroad.

For tailored advice and assistance with compliance strategies, please reach out to your KPMG advisor.

FOOTNOTES:

1 (In Danish) DOMSTOLENS DOM (Store Afdeling) (Court of Justice of the European Union: Case C-19/23 Denmark v Parliament and Council), dated 11 November 2025.

2 Full text on the EUR-Lex website: “Directive (EU) 2022/2041 of the European Parliament and of the Council of 19 October 2022 on adequate minimum wages in the European Union,” dated 19 October 2022.

3 European Commission press release, “Commission welcomes the judgement of the Court largely confirming the validity of the Directive on adequate minimum wages” dated 10 November 2025.

4 European Union, “The Treaty on the Functioning of the European Union,” Articles 153(1)(b), 153(2)(b) and 153(5).

5 European Commission, “Minimum wage statistics – Statistics Explained – Eurostat,” seen 11 October 2025.

6 For example, (in Danish) Danmarks Radio, “Halv sejr eller ej: Tre ting du skal vide om EU-dom om mindsteløn,” 11 November 2025; Dansk Industri, “DI ærgrer sig: Ingen præcise hegnspæle om den danske model,” 11 October 2025.

Contacts

Daida Hadzic

Director, Washington National Tax – Global Mobility Services

KPMG in the U.S.

mail
call

More Information

Download PDF

Download and save the PDF version of this GMS Flash Alert.

Download

GMS Flash Alert reports on recent global mobility-themed developments from around the world to help you better understand what has changed and what that means for you.

Subscribe now

GMS Flash Alert

Shedding light on evolving policies affecting international assignees and employers, helping make sense of it all.

Visit GMS Flash Alert home

Disclaimer

The above information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.

The information contained in this newsletter was submitted by the KPMG International member firm in the United States.

GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2025 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.