Recent developments in labour law examined

Lithuanian labour law underwent a series of amendments in 2004, mainly bringing national provisions into line with EU law. Areas where the law has changed include the posting of workers, working time, guarantees for employees in the event of their employer's insolvency and employee involvement in multinational companies.

Lithuanian employment and labour law has recently been undergoing a number of changes. The development of the legal regulation of industrial relations has been determined both by day-to-day reality and Lithuania's legal obligations relating to its accession to the European Union in May 2004. In addition, some changes have also been conditioned by new EU regulations, which - though not constituting part of the EU 'acquis communautaire' with which Lithuania had to comply upon accession - have become binding on Lithuania as a new Member State. The coordination of the drafts of the new national regulations with the social partners has been a new experience for Lithuania, requiring greater administrative resources from the state authorities and encouraging organisations representing employers (LT0410102F) and employees (LT0412102F) as well as researchers and academics to share more actively in this process. Some of the main recent changes to labour law are examined below.

Transposition of posted workers Directive

EU Directive 96/71/EC concerning the posting of workers in the framework of the provision of services seeks to avoid 'social dumping' by ensuring that a minimum set of rights is guaranteed for workers posted by their employer to work in another country. The basic principle is that the working conditions and pay in effect in a Member State should be applicable both to workers from that State, and those from other EU countries posted to work there. The Directive covers undertakings established in a Member State, which, in the framework of the transnational provision of services, post workers to the territory of another Member State. The first efforts aimed at transposing the Directive in Lithuania started in summer 2003. Lawyers discussed whether it would be more reasonable to transpose the provisions of the Directive by supplementing the Labour Code (Darbo kodeksas, DK) in force from 1 January 2003, or by adopting a separate law.

After six months’ discussion and consideration, it was decided to choose an 'in-between' route. In June 2004, amendments were adopted to Article 5 and Article 220(4) of the DK with effect from 22 June 2004. Article 5(4) of the DK, which provided that Lithuanian national law shall not be applied to employment relations between foreign employers and employees other than permanent residents of Lithuania, when the employees are posted by the employer in the territory of Lithuania, was nullified. Article 220(4) was amended to take into consideration the provisions of the Directive, inserting a reference stating that guarantees for the posted employees will be defined by a special Lithuanian law and providing that these guarantees will be applied to such employees regardless to the law applicable to their employment relations. The stated aim is to create favourable conditions for the free movement of workers in the EU Member States, as well as in other countries of the European Economic Area (EEA), in order to avoid restrictions on such movement for the sole reason of being unclear what provisions of labour regulations shall be applicable to employees in the host country. Article 220 (4) of the DK defines the dual scope of application of the special law that is to be adopted on the basis of this provision of the DK. On one hand, it will cover cases when Lithuanian employers post their employees for temporary employment in another Member State, and on the other hand it will also cover cases when employers from other countries (not limited to Member States) post their employees for temporary employment in the territory of Lithuania.

Based on these new provisions of the DK and the Directive, a draft law on guarantees for posted workers was drawn up in July 2004. It states that it will apply if an employee is posted for temporary employment in the territory of another country:

• under a service or work performance contract concluded between the employer with a person operating in that Member State;

• in a branch, representative office or group company of the employer; or

• as an employee of a temporary work undertaking.

In these cases the employment relationship with the posting employer will last until the employee is sent to Lithuania or posted from Lithuania to another country, and continues to work in favour of another party.

The draft provides that undertakings established in a non-Member State must not be given more favourable treatment than undertakings established in a Member State. Consequently, it will be obligatory to apply at least minimal guarantees (on pay etc) set out in Lithuanian labour law to employees posted by employers from a 'third' country such as Russia. The government's proposal on this was opposed by a number of association representing employers, but their opposition could not be considered due to the binding nature of EU law.

When the concept of the draft law was considered with other stakeholders, there were many discussions with regard to the meaning of the definition of 'posted worker'. The meaning of this definition is close to a category of a worker who is sent by the employer on a business trip in Lithuania or abroad. However, the provisions of the draft law will not apply to employees sent on business trips. Guarantees for the latter have already been defined by the DK and the government.

There are still some unresolved issues in relation to the practical application of the special law to mobile workers. Lithuania intends to exercise am exception in the Directive allowing it not to apply this law to the seagoing personnel of merchant navy undertakings operating in compliance with the Law on Maritime Shipping of the Republic of Lithuania. When the social partners considered the draft law in the Tripartite Council of the Republic of Lithuania (Lietuvos Respublikos Trišalė taryba, LRTT) (LT0501103F), this provision was not questioned by any party. However, employers’ organisations representing transport interests raised an issue as to application of the law to other mobile employees - n particular, to road hauliers transporting goods from one country to another. They believe that it will cause serious difficulties in practice to make a distinction between when employees engaged in international transport should be simply considered as performing their usual work functions or being sent on a business trip, and when they should be considered as posted employees sent by the employer to another Member State to provide services. Accordingly, it remains unclear, which guarantees - whether provided for by Lithuanian law or by the law of another country - should be applicable to such employees in one or another case. The Directive is not clear regarding these matters and addressing this issue with the social partners is one of the reasons why adoption of this law has been delayed.

The draft law on posted workers provides that Lithuanian regulations, including provisions of extended sectoral and territorial collective agreements, will apply to employees posted to the territory of Lithuania, regardless of the law applicable to their employment contract or relations. The list of guarantees covering such workers includes: maximum work periods and minimum rest periods; minimum paid annual holidays; the minimum rates of pay, including overtime rates; the conditions of hiring-out of workers by temporary work undertakings; protective measures with regard to the terms and conditions of employment of young people, pregnant women or women who have recently given birth or are breastfeeding; health, safety and hygiene at work; and provisions on non-discrimination at work. Taking into consideration this list of guarantees, Lithuanian employers posting employees to the territory of another Member State will be able to assess their opportunities to apply requirements defined by the law of that country.

As mentioned, the valid provisions of expanded sectoral and territorial collective agreements will apply to employees posted to Lithuania. Article 52(2) of the DK states that where the provisions of a sectoral or territorial agreement are important for an appropriate sector of production or occupational, they may be extended if such a request has been submitted by one or several employees' or employers' organisations that are parties to the agreement in question. In compliance with this provision of the DK, a decision to extend the collective agreement may be made by the minister for social security and labour. Despite the existence of this statutory possibility of the the extension of collective agreements, it has not been exercised so far - not least because there is not a single valid sectoral or territorial collective agreement registered in Lithuania.

All the abovementioned provisions of the law of the host country applicable to employees posted by foreign employers will not be binding if the law in the 'posting' country provides for more favourable terms and conditions and guarantees for the employees.

The draft further specifies that the State Labour Inspection (Valstybinė darbo inspekcija, VDI) will give free information to, or will otherwise cooperate with, the competent authorities of other Member States with regard to application of the terms, conditions and guarantees set forth in the Lithuanian law with regard to posted workers, as well as with regard to violation of such guarantees. The VDI will have to ensure access for employers in other countries to information about Lithuanian regulatory provisions. The VDI is given powers to carry out inspections, on its own initiative and at a request of other competent state authorities or posted workers, as to potential violation of the guarantees of these workers.

Increasing flexibility in working time organisation

Issues related to the transposition of the posted workers Directive into Lithuanian law created considerable interest among the social partners and also initiated debate about reviewing the provisions of the Lithuanian labour law in the light of business competitiveness. As a result, some discussions were started as to Lithuania's legal regulation of the duration of work. There were questions as to whether the current maximum permitted working time of 40 hours a week and rules allowing overtime in exceptional cases were reasonable in the framework of the provision of services, and whether they met the needs of all operators on the labour market.

In this light, amendments to the DK were considered to allow the possibility of more flexible organisation of working time through encouraging longer periods of calculating working time in employment contracts, and through liberalisation of the organisation of overtime. Given that the unemployment rate in Lithuania is quite high, it was not easy for trade unions to agree to such provisions.

On 22 June 2004, amendments to Article 146 of the DK were adopted and came into force. They provide for more liberal regulation of part-time work, creating opportunities for the parties to conclude collective agreements that depart from the statutory provisions on the periods of part-time work and restrictions on the duration thereof. These amendments to the DK were discussed at the LRTT on March 2004 and supported by the social partners. Moreover, on 29 November 2004, the government passed Resolution No. 1508 on 'the approval of the schedule of the terms and conditions related to the establishment of part-time work and duration thereof'. The Resolution sets out safeguarding measures for employees to enable them to exercise in practice the opportunities provided by the DK and thus better reconcile their work and family life. In compliance with the Resolution, a part-time covenant must be agreed upon in the employment contract, concurrently establishing time limits by which the employer or its authorised representative must review an employee’s application to work part time. The Resolution leaves unchanged the existing minimum duration of part-time work, but employers and employees are allowed to deviate from this through collective agreements. Yet, regardless of the statutory possibilities and the legislator’s efforts, a significant increase in the number of employees employed on a part-time basis (for an incomplete day or week) has not been observed. Some observers conclude that, regardless of statutory efforts to provide for additional flexibility in employment relationships and security for employees, these measures are not enough and do not work in practice. Relatively low pay is probably one of the major determinants here.

Guarantees for employees in the event of their employer's insolvency

On 29 September 2004, amendments to the Law on the Guarantee Fund (GF) came into force. This law seek to take into consideration the provisions of EU Directive 80/987/EEC on the protection of employees in the event of the insolvency of their employer and to specify the competence of the GF. The law makes a more specific distinction between: employees who were employed by the undertaking before commencement of bankruptcy proceedings and are thus covered by GF guarantees; and employees hired for administration of the undertaking after institution of the bankruptcy proceedings, who are thus paid for their work from the funds of the undertaking assigned for administration and do not qualify for payments from the GF. The employees’ right to payments is established by two basic conditions: the undertaking owning them wages for work; and existence of an employment relationship with the undertaking before commencement of bankruptcy proceedings. However, the law does not specify any additional conditions with regard to the basis and time limits for termination of employment contract (before the commencement or during bankruptcy proceedings). In compliance with the GF law, allocations from this Fund are made for payments to employees of undertakings that are undergoing bankruptcy or bankrupt, who have been employed by the undertaking before adoption of a court ruling to institute bankruptcy proceedings, or adoption of a resolution of the creditors meeting to carry out bankruptcy proceedings in an out-of-court procedure, regardless of the continuing or terminated nature of the employment relationship, as well as to former employees of undertakings liquidated in a result of bankruptcy after the coming into force of this law, if the undertaking is indebted to them, as well as for GF administration costs in the procedure defined by the provisions of the GF.

A standard form of an agreement on the transfer of assets of the GF to an undertaking, as subject to the approval of the Council of the Fund, has been amended by a model form for the transfer of assets from the GF. This amendment was conditioned by earlier amendments of the GF law, which meant that the assets of the GF are currently transferred to undertakings by nine different variants of the agreement. In compliance with the former provision of the law, the Council of the GF had to approve nine standard forms of the agreement on the transfer of Fund assets for different variants of the agreement in use, or one model agreement that would encompass terms and conditions common to all the variants, but not applicable to each of them individually. After adoption of the new law and introduction of the model agreement form, the Council of the GF will approve only basic terms and conditions of the agreements binding for all variants. This is seen as a significant contribution to simplification of the drafting of agreements and attuning the obligations of the parties to agreements on a case-by-case basis.

EU Directive 2002/74/EC amending Directive 80/987/EEC provides for competent authorities to share information about guarantee payments paid to employees of insolvent employers in a particular country, where their employment relations are not limited to one Member State. The Directive thus seeks to avoid cases where employees of insolvent employers receive payments from guarantee institutions in two or more different countries. In this regard, it is planned to oblige the GF's administration to carry out this international function of interdepartmental cooperation and information sharing.

The amended Directive require further review of the provisions of national laws relating to the definition of employer’s insolvency. However, preliminary assessments with regard to this definition led to the conclusion that Lithuanian laws set out more favourable provisions than required by the Directive - payments from the GF are made to a larger number of employees and no amendments are thus needed in this regard. However, a review of Lithuanian company law, also covering the definition of insolvency of an undertaking, should be completed in early 2005. Accordingly, the issue of employer’s insolvency will require additional and consistent analysis in the nearest future, and will have to be agreed upon in the light of other related legislation, coordinated with the social partners and other stakeholders. The need for additional funds and financial potential will have to be analysed as well. This issue should be tackled in the first half of 2005 at the earliest.

Employee participation in transnational enterprises

On 29 April 2004, the Law on European Companies came into force, seeking to apply Regulation (EC) No. 2157/2001 on the Statute for a European Company (EU0206202F). The law regulates the transfer of the registered office, formation, management and restructuring of European Companies. The Regulation stipulates that the law governing public limited-liability companies in the Member State in which the European Company has its registered office shall apply to the European Company, unless this contradicts the Regulation. Yet, in some individual cases the Member State must introduce special provisions applicable to European Companies. The law further defines the procedure for the transfer of the registered office of a European Company to another country, requirements on the publication of a proposal for such a transfer of the registered office, and rights of shareholders that oppose the transfer of the registered office to redeem the shares owned by them. As the Ministry of Justice (Teisingumo ministerija) is the leading authority for the registration of legal entities, this Ministry is obligated to deal with the transfer of the registered offices of the European Companies as well as participation of public limited-liability companies in the formation of a European Company by merger.

The Law on European Companies has not yet taken effect in Lithuania, as legislation has not yet been adopted to transpose the requirements related to employee involvement in decision making, as defined by Directive 2001/86/EC supplementing the Statute for a European Company with regard to the involvement of employees. The Law on European Companies will start functioning only when procedures for employees involvement in the decision-making process are defined. A draft law on employee involvement in European Companies was elaborated in summer 2004, but consultation with the social partners and other stakeholders was delayed, mainly because of the complexity of this legislation and the fact that employee involvement is quite a new and underdeveloped phenomenon in Lithuania. The draft law on was submitted to the government at the end of 2004 and in January 2005 it was approved by the LRTT.

The Law on European Works Councils (EWCs) was adopted in February 2004 (LT0409103F). Such EWCs existed in some multinational companies with operations in Lithuania before this law came into force. There have reportedly been problems where Lithuanian management does not acknowledge the functioning of trade unions in an undertaking or unit and therefore avoids delegating employees’ representatives to EWC meetings.

Commentary

Many issues addressed here relate to the application of individual rather than collective labour law, but consideration thereof in Lithuania raised considerable interest among the social partners and consequently resulted in cooperation between them. Legislation such as the Law on European Works Councils or the forthcoming Law on the Participation of Employees in Decision-Making in European Companies will encourage developments of the social dialogue in Lithuania. Taking into consideration that Lithuanian industrial relations still often faces a problem of parties failing to treat others as an equal partner in negotiations, it should be expected that these laws will have a positive effect on the development of collective legal labour relations. When employers (as a party to collective relations) recognise representatives of employees operating in the undertaking and see a necessity to negotiate with them in transnational processes, they will be encouraged to acknowledge them in collective bargaining concerning corporate, sectoral or other collective agreements. (Ramunė Guobaitė, Mykolas Romeris University)