Government Watch: On the New Lithuanian Labour Code

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After having examined the draft Labour Code and submitting comments and proposals to relevant decision-making bodies, LFMI has concluded that the project is a huge step towards flexible labour relations and will significantly contribute to advancing job creation in Lithuania.1 While LFMI supports the main thrust of the draft, it notes that the document stipulates certain provisions that are inefficient, redundant and incompatible with the principle of partnership in labour relations.

2.1 On the obligation to establish a wage system

Article 156(3) of the draft law stipulates that workplaces with 50 or more employees must establish a wage system and inform employees of it. At present, only a small number of such Lithuanian companies have clear and fixed wage systems and, , such an obligation is an additional administrative burden on business. For enterprises with slightly over 50 employees many positions require only one worker and the requirement to inform about wages based on the position would disclose personal information about the wage of each individual worker.

It should be noted that the establishment of a uniform system that would reflect unique aspects of different specialities is hardly possible. It will result in different and incompatible systems of different branches, departments or even individual employees of the same company. Such a proposal serves little purpose and consequently would only create an administrative burden.

What is more, if wages are to be changed under specified systems, it will decrease the flexibility of remuneration and undermine the possibilities of employees and employers to adapt to changing circumstances.

LFMI calls for withdrawing the requirement since anti-discriminatory measures already set out provisions of the draft law and additional obligations would imply a major administrative burden on business as well as infringe onthe privacy rights of wage-related personal data.

2.2 On the minimum wage

The provision of the draft law which stipulates that the minimum wage shall only be paid for unqualified work (Article 157(2)) ignores possible situations when a surplusamount of certain workers decreases the price of their work to the level of unqualified labour. The prohibition to work on a price sset by market conditions would only result in higher unemployment.

Linking minimum wage with unqualified labour has no theoretical, legal, or any practical basis. There are no methods to define positions as “qualified” or “unqualified” labour. If such a determination is to be based on a job description (assuming that all companies have detailed job descriptions), it would only create an administrative burden which would force companies to reclassify job descriptions (classifying positions as “unqualified” labour and alike.)

If “qualified” labour is to be based on a documented qualification of the worker, not the real, informal one obtained through work experience, such individuals will be disregarded. In a rapidly changing market environment formal education loses its formal meaning. Therefore, it is inappropriate to include it into the new Labour Code.

Also, as suggested before, setting the minimum wage is harmful. Prohibitions on working for less than the minimum wage condemns many to unemployment – those who would like to and would be able to work for less, including the most vulnerable persons whose work value is very low due to other reasons. The minimum wage distorts the structure of the market, because the price of the bottom value labour is artificially brought closer to the wage of qualified labour.2

LFMI proposes to reject the minimum wage regulation or, if it is upheld, reject its application to unqualified labour only.

2.3 On the composition of the tripartite council

Article 206(6) of the draft law stipulates that new trade unions and employer organizations shall only be included into the tripartite council after receiving majority support of the present members of the council and Government representatives. This provision transforms the council into an exclusive club which may only be entered in case of the majority support, possibly shutting out minority and dissident voices. Since the council is not a club, but an institution with special powers under the law, it should be compiled according to objective criteria (e.g. according to the number of employees and employers represented) rather than sympathies and wishes of the present members.

LFMI suggests establishing objective criteria for the selection of employer organisations and labour unions that have the right to delegate its representatives to the tripartite council.

2.4 On the ambiguity of the concepts of trade unions and trade union organisations3

The draft law employs the concepts of trade unions and trade union organisations which cause confusion.

Under Articles 196(1), 196(3)(1) and 196(6)(3), trade unions may be established and act not only in enterprises, but on the national, territorial and professional level. However, the number of founders is set out at the enterprise level and for trade unions working on the professional basis (Articles 197(1) and 198(1)) only and for trade union organisations working on the national and territorial level, but not trade unions (Article 198(2-5)). Without a definite number of founders for territorial and national trade unions, they could not be established, because they will not meet the conditions laid down in Article 196(3)(1). This will infringe on Article 50 of the Constitution which stipulates that trade unions may be freely established.

In other places of the project text, both notions are synonymous. For example, Section IV of Chapter II of Part III is called “Trade Unions” and the majority of titles in this section use the notion of trade unions though the content is frequently about both trade unions and trade union organisations, Judging from Article 196(10), these notions are different.

Under the draft law, the right to conclude collective agreements is vested in trade unions only (Articles 180(2), 180(3), 209(1)). But elsewhere trade union organisations are mentioned as parties to collective agreements (e.g. Articles 211,213(2-4)).

In order to avoid such ambiguity and contradiction between the notions, LFMI suggests using a single definition of trade unions providing that not only natural persons, but other trade unions may be the members of territorial or professional trade unions.

2.5 On collective agreements in the public sector

Public sector expenses which relate to worker-related expenditure are borne by taxpayers. The conditions governing the costs related to public expenditure such as the wage system of the public sector, the conditions of concluding and cancelling contracts and others are set out by laws passed by the national legislative body. Granting the right to the executive government bodies to conclude collective agreements with workers of the public sector would enable the introduction of changes in the labour conditions of the public sector and related expenditure bypassing the elected legislature.

The concept of a trade union in the public sector is problematic in general. A trade union is vested more rights than other groups in order to balance an alleged imbalance in negotiating positions between employees and employers. However, the State (taxpayers) is the employer in the public sector. Vesting it with the equal rights to the private sector presupposes that as an employer, the State has the same incentives as the private sector.

However, the real situation is different. In comparison to the private sector in which enterprises manage their own money and seek maximum efficiency, administrators of the government spend taxpayers’ money not their own. Therefore, the incentives to seek maximum efficiency are incomparable to those of the private sector and as a result, the pressure to cut salaries in the public sector is nothing compared to private business.

If collective agreements in the public sector provide higher wages that those laid down in legislation, it may become an unjustified burden on the budget and the taxpayers. LFMI suggests introducing provisions that do not allow collective agreements in the public sector or, at least, provide that the collective agreements in the public sector shall not include provisions that will require additional funds.

2.6 On the extension of the scope of collective agreements (Article 219)

One of the novelties of the proposed regulation is the right of the Minister of Social Security and Labour to extend the validity of a collective agreement to employers that are not parties to the contract. Such a provision infringes on the essence of a contract and unreasonably extends the powers of the Minister in labour relationship regulation.

A contract arises from the consensus of the contracting parties and reflects the common will of the parties on the contract. If a document has power over parties that did not express their will on its conclusions, it cannot be regarded as a contract.

Collective agreements may regulate any issues agreed to by the parties to the contract even throughderogation from peremptory norms of law (Article 214(3)). The right to make collective agreements binding to others as well (to empower them as laws) would empower the Minister of Social Security and Labour to regulate labour relations by means of bylaws. In its decision of 26 March 1995 the Constitutional Court of the Republic of Lithuania stated that “each public body is granted competences in accordance with its mission and their content is dependent on its place between other public bodies and its powers in comparison to those of other authorities. Articles 61(1) and 61(2) of the Constitution stipulate that laws shall be passed by the Parliament. Law is the primary source in the country’s legislation which has the supreme legal power and this is based on the fact that the elected Parliament expresses the will of the people on key social issues. Laws provide general rules that may be specified and regulated by bylaws. <…> the Constitution does not provide legislative delegation thus the Government shall only pass bylaws. <…> certain matters of public priority shall be regulated only by laws. In a democratic society priority is given to a man and everything that is related to the fundamental human rights and freedoms shall be regulated by law.”

LFMI is of opinion that Article 219 of the proposed regulation would distort the nature of collective agreements as well as infringe on the Constitution and, therefore, calls to refuse it.

2.7 On going on strike

The project stipulates a drastic reduction in the number of employees who have to agree in order to go on strike: from one half of a total number of workers (under Article 77(1)(1) of the current regulation) to a quarter of a total number of trade union members (Article 197(1) of the proposed regulation). To add, under Article 197(1) a trade union may be established by 20 workers and, therefore, even in the biggest companies that have 1,000 workers, for example, a mere number of 5 workers that represents 0.5% of the total may go on strike. Since under Article 278(2) employers are prohibited from taking on new workers instead of those on strike, even 5 employees whose work is essential to the daily functioning of the company4 could paralyse its activities to the detriment of the employer and 95.5% of the remaining workers.

In order to maintain the balance between those in favour and against going on strike, LFMI calls for upholding the current regulation which requires the approval of one half of a total number of workers.

2.8 On the management of a company (Section IV, Chapter III, Part III of the Project)

The shareholders’ right to appoint members of management arises from property rights, because an investor is entitled to influence the management of a legal entity in proportion to his or her shares. By granting the right to participate in the management of a legal entity to others, the law would restrict private ownership rights thus possibly infringing on the constitutional principle of the inviolability of ownership.

National law of some EU countries provide the participation of workers’ representatives in the management of a legal entity. However, in the majority of countries, such requirements are applicable to the public sector only or to big enterprises exclusively5. Such provisions are the result of unique historical, cultural and other factors of those countries, the spread of communism (or its threat) in the 1950s being one of them.

Several times back in 1972, 1983, 1990 and 1991, the European Commission has submitted draft laws on the fifth Directive on Company Law which provided participation of workers in the management of a company. However, the project has never been approved and, the Commission eventually withdrew this proposal in 20016. This is also reflected in the preamble to the Directive 2001/86/EC: “The great diversity of rules and practices existing in the Member States as regards the manner in which employees’ representatives are involved in decision-making within companies makes it inadvisable to set up a single European model of employee involvement applicable to the SE.”

It should be noted that some countries, e.g. Czech Republic, are refusing the requirement to involve the employees in the management of private enterprises. To add, there are no such requirements in the neighbouring Latvia and Estonia and similar obligations are imposed solely on public companies in Poland.7

The proposed provisions may infringe on the constitutional principle of inviolability of ownership and are not required under EU law. To add, similar provisions exist in certain EU countries due to distinctive historical and other circumstances that are not present in Lithuania. Adoption of the proposed regulation would worsen Lithuania’s attractiveness for investment compared to other EU countries and neighbouring Latvia, Estonia and Poland, LFMI calls for the removal of Section IV of Chapter III of Part III of the Project.

2.9 On project work contracts (Section VI, Chapter VI and Part II of the Project)

The main criterion that makes employment contracts different from civil agreements (contract work, providing services, etc.): employment contracts are concluded for performing certain functions and civil contracts are concluded for a certain outcome. Under an employment contract, the employee assumes an obligation to perform job functions and the outcome-related risk is borne by the employer. Logically, it puts workers under the employer’s authority.8;9 In civil agreements the responsibility of the agreed outcome is borne by the contractor or the service provider and there are no power relationships between the parties to the contract.

The new type of employment contract provided in Section VI of Chapter VI of Part II of the Project is essentially a contract work/services agreement, because the contract focuses on, and money is paid for, a specific outcome rather than working time (risks of achieving the outcome are borne by the employee) and the workers remains independent from the employer, work according to their own schedule, and outside the workplace. Since Article 32(5) prohibits civil agreements, a consistent application of the Project provisions and the introduction of a new type of employment contract would mean a prohibition of civil work agreements in which the contractor or the service provider is a natural person.

LFMI calls for improvement of Section VI of Chapter VI of Part II of the Project so that it does not restrict the possibility to conclude civil contracts in which the contractor or the service provider is a natural person.

2.10 On the expansion to other areas of law

Certain provisions regulated by the Project fall within the scope of other areas of law: tax legislation (Articles 82(3), 100(2), 100(3), 155(3)), laws on the protection of personal data (Articles 26, 50(6), 51(6), 78(2)(2), 78(2)(3), 164(2)), company law (Articles 102, 103, 104(2), 105(2-6), 107), civil proceedings (Articles 166(4-6), 252, 253(3), 254), intellectual property (Article 30(4)), civil/succession law (Article 162(2)(2)) and bankruptcy (Article 165(2)).

Some of the aforesaid provisions are unnecessary since they stipulate new, duplicate or elaborate on legal norms that already exist in other areas of law. The repetitive norms laid down in the Labour Code would aggravate the practical application of other areas of law and distort the entirety and consistency of the corresponding areas.

LFMI calls for rejecting the overlapping regulation in the Labour Code and transferring new and specified provisions into the regulation of the corresponding areas.

1  E.g.: Articles 25(2), 28(2), 30(4), 34(6) and other.

2  E.g.: Article 33(3): “parties may agree <…> “, Article 62(3): “parties may conclude an agreement between employer and the labour council”,  Article 142(4): “Labour and collective contracts may provide longer vacations, Articles 154(2), 157(6), 182(2), 183(7) and 188(5): “if necessary, the labour council may invite relevant experts to its meetings, Articles 190(1), 199(4), 204(1)(6-9), 214(4), 214(5) and 227(3): “Employer and the labour council may conclude an agreement on the employer’s decisions enumerated in paragraph 1 of the present Article, Articles 233(1), 241(3), 258(3), 272(3), 273(3) and 273(4)

3  E.g. Article 35(1): “<…> parties may agree on a test period.” (In the absence of this provision, probationary period allowing a simplified procedure to terminate employment contracts would be illegal)

4 E.g. employees of IT departments who ensure the functioning of company’s production, sales, financial and other systems or employees of logistics departments who manage the delivery of raw materials to the company or out of it.

5  http://www.worker-participation.eu/National-Industrial-Relations/Across-Europe/Board-level-Representation2

6  http://eur-lex.europa.eu/procedure/LT/11260?rid=8&qid=1427624948546

7  http://www.worker-participation.eu/National-Industrial-Relations/Across-Europe/Board-level-Representation2

8   See the Constitutional Court resolution of 26 October 1995.

9   This is fully reflected in Article 31 of the draft law.

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