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Mixed reaction to labour market reform

Slovenia’s new labour market reform bill was enacted by the National Assembly without opposition on 5 March 2013 after five months of negotiations. The bill's reforms ease the rigidity of current permanent labour contracts and simplify administrative procedures for businesses. At the same time, the rules for fixed-term contracts have been tightened to reduce segmentation of the labour market and are intended to encourage employers to give workers permanent contracts.

Background

On 2 September 2012, Angel Gurría, Secretary General of the Organisation for Economic Co-operation and Development (OECD), opened the Network of Ideas Business lunch 2012. In his introductory remarks, he described Slovenia’s labour market as rigid and hampering economic adjustment.

Assessed using the OECD Indicators of Employment Protection, he said that the level of legal protection enjoyed by Slovenian workers was the second-highest on the scale for regular employment. He argued that labour market dualism should be addressed by reducing this level of protection.

A recent OECD report, Economic Policy Reforms 2013: Going for Growth 2013 (107KB PDF), recommended that Slovenia should reduce labour market inequities by reducing notice periods and the administrative burdens of individual dismissals, relaxing the rules covering legitimate individual dismissals and phasing out the preferential tax rates and regulations for student workers.

On 5 March 2013, the National Assembly passed the new Employment Relationships Act (LER), commonly known as the little worker’s constitution, and the amendments to the Labour Market Regulation Act (LLMR) without a single opposing vote. It is one of the government’s most important structural reforms intended to improve the economic and financial situation of the country.

Negotiations to reach a consensus on labour market reform between the government and the social partners lasted for five months, conducted within the framework of the Economic and Social Council of Slovenia (CES), the country's main body for tripartite cooperation. The end result was, as expected, a compromise, with both social partners only partially happy with the solutions.

Key reforms

Easier hiring and firing

Easier and cheaper adaptation of the labour force to the needs of employers is one of the key reforms, since this was one of the main problems for Slovenian employers. The new legislation makes it easier for them to hire and fire by relaxing employment and dismissal procedures. For example, the obligation to register every job vacancy with the Employment Service has been removed, and temporary work for pensioners has been introduced. This will increase the flexibility of the labour market and will contribute to the greater competitiveness of the economy.

Greater employee security and prevention of violations and abuses

The reform introduces redundancy pay for fixed-term contracts and prevents multiplication of fixed-term contracts.

It caps the number of temporary agency workers employed by a company through temporary work agencies at no more 25%, a solution that was hotly contested by employers during negotiations. However, small employers are exempt from this provision.

Employers will be jointly liable for making sure wages are paid with the agency supplying temporary workers, to curtail this form of abuse of temporary workers.

Clearer wording of regulations has been introduced with the intention of preventing employers from rehiring workers on successive fixed-term employment contracts, and to restrict fixed-term employment severance pay to fixed-term employment contracts.

These measures are designed to reduce segmentation in the labour markets. They are intended to make it easier for young workers to get contracts for an indefinite term because recent figures show that over 80% of all new contracts are fixed term.

Other provisions designed to curb abuse have been put in place, including making a pay cheque a legal document enforceable by a court, and allowing employees to leave without incurring any obligation if their employer does not pay social contributions for three consecutive months.

Improved internal flexibility

The reforms strengthen the internal flexibility of a company, making it possible to reassign workers to other suitable posts without their consent. Employers can now temporarily lay off workers, paying them 80% of their usual pay during that period instead of their full wages, as they were previously obliged to do. While laid off in this way, workers are obliged to take part in any training required by their employer.

Reduced labour costs

The maximum notice period has been reduced from 120 to 80 days, a compromise made in exchange for the preservation of unemployment benefits at 80% of basic pay for the first three months, instead of the reduction to 60% that was initially proposed. In the subsequent nine months, the unemployed will receive 60% of their basic pay, and 50% thereafter.

Severance pay is reduced on a graded scale depending on years of service. The retirement allowance, a special payment that employees are entitled to when they retire, is restricted to those who have been employed by a company for at least five years.

Lunch breaks continue to be considered as part of working time, and bonuses for years of service remain in place.

Reaction of the employers

Employers welcomed the new legislation as a real reform, not just a ‘facelift’. The Association of Employers of Slovenia (ZDS) confirmed the reform was agreed among social partners in all key points.

The Chamber of Crafts and Small Business (OZS) criticised the labour market reform. It argued that none of its main demands had been taken into consideration and urged the government to review the two amended laws within the year.

Reaction of the trade unions

Slovenia’s biggest trade union confederation, the Association of Free Trade Unions of Slovenia (ZSSS), has said it believes the labour market reform contains some systemic solutions. However, ZSSS now expects the supervision of breaches of the labour legislation to be reformed. The confederation wants the government and the social partners to begin a review of the work of the Labour Inspectorate of the Republic of Slovenia (LIRS) to ensure employers who breach workers’ rights are prosecuted.

The influence of ZSSS during the reform negotiations played a significant role in preserving some protection for workers. The ZSSS is, however, convinced that the new Labour Relationships Act will not create new businesses and jobs because economic growth will be dependent on the economic situation.

The ZSSS considers the elimination of differences between certain groups of employees in the labour market as very positive, particularly the introduction of redundancy payment for fixed-term work that was fought for by the unions during the negotions. The confederation hopes that this will discourage employers from using fixed term contracts and instead encourage them to employ workers on open-ended contracts.

The situation of economically dependent workers has also been regulated.

Reaction of the IMF

The International Monetary Fund (IMF) made a formal visit to Slovenia in March 2013. In its Concluding Statement of the Mission dated 18 March 2013, the IMF said that the recent labour market reforms in Slovenia were an important step in the right direction.

It observed that the reforms somewhat reduce the rigidity of permanent labour contracts, simplify administrative procedures, and change Slovenia’s place on the OECD's employment protection index to 'average'.

At the same time, the rules on fixed-term contracts have been tightened to limit the segmentation of the labour market and encourage the use of permanent contracts.

An important area not touched by the current reform, however, is the student work programme. For entry-level positions, companies prefer to hire student workers and this leads to increased unemployment among young graduates and extended study periods.

Štefan Skledar, UMAR


Page last updated: 24 May, 2013
About this document
  • ID: SI1302041I
  • Author: Štefan Skledar
  • Institution: UMAR
  • Country: Slovenia
  • Language: EN
  • Publication date: 24-05-2013
  • Sector: None