Government withdraws bill to reform Employment Contracts Act

Download article in original language : FI0006151FFI.DOC

In May 2000, a compromise proposal for a bill amending Finland's Employment Contracts Act aroused a severe dispute between the trade union movement and the government. Disagreement was caused by differing views on the definition of the "general validity" of collective agreements. The bill has now been withdrawn for further consideration.

A tripartite committee with the task of reforming the present 1970 Employment Contracts Act was set up in 1995 (FI9706116F). The Act - known as the "working life constitution" - governs such basic issues as drawing up contracts of employment, the rights and duties of employers and employees, the terms and conditions of employment, the grounds for termination of employment, and the procedure to be observed on termination. The committee completed its report in February 2000 (FI0003138F). While the report was submitted with some differences of opinion, the majority of the committee supported the proposal. The committee had to postpone the deadline for producing its report many times (FI9810179F) and in May 2000, when a bill based on the proposals was about to be brought before parliament, a dispute arose concerning the new provisions on the "general validity" of collective agreements (FI9905105N). The dispute is now becoming politicised into a battle between the "rainbow" coalition government's left and right wing, with the entire bill at stake.

The Federation of Finnish Enterprises (Suomen Yrittäjät, SY) - the organisation on the committee representing the interests of enterprises not belonging to main employers' organisations (FI9906108F) - has tried to influence the content of the new legislation within the government. This has not been accepted by the trade union movement, headed by the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK). For this reason, due to pressure from SAK, the government has had to withdraw the proposal for further deliberation, which will postpone the passage of the bill until autumn 2000.

Trade unions have emphasised that the whole reform will be ripped apart if the bill's paragraph on general validity does not remain as the committee proposed. The tension has been so extreme that SAK has announced that it will break away from the next centralised incomes policy bargaining round in the autumn if the government does not act as the unions consider it should. This threat is being taken very seriously, since the government's target for the next bargaining round is a long-term, moderate, centralised incomes policy agreement that would generate economic growth and fit in with the environment of EU Economic and Monetary Union.

General validity

The concept of general validity in the Finnish Employment Contracts Act is very significant in the sense that it includes a definition of how comprehensive the coverage of a collective agreement is. According to the present practice, a sectoral agreement is interpreted as generally valid - ie binding on all employers and employees in a sector, and not just members of the signatory organisations - if its coverage is nationwide and it is seen as applying generally to the sector concerned. The agreement is considered generally applicable within a sector when about half the employees in that sector work for an employer which is bound to that agreement under the terms of the Collective Agreement Act. The proportion of the employers which are organised, and the proportion of the employees in the sector which work for them, are thus crucial issues. The committee wanted to achieve some clarification on this point. In some sectors (eg transport), the question of whether half the employers are organised or not has hung on statistical interpretation. In the committee report, the aim was also to take the employees' level of union membership into consideration. This point is seen by SY as an attempt to extend general validity, and therefore it opposes the change.

The situation is made more complicated by the fact that the committee report was approved by those employer organisations that, unlike SY, do conclude collective agreements.

The trade union movement sees any restriction of general validity as a liberalisation of the labour market at the expense of wage earners' basic security, and for that reason it is strongly opposed to SY's aspirations.

Commentary

The dispute on general validity is becoming so heated that it is approaching the threshold of a government crisis. Until now, the rainbow coalition government - consisting of left- and right-wing parties – the Social Democratic Party (Suomen Sosiaalidemokraattinen Puolue) the conservative National Coalition Party (Kansallinen Kokoomus), the Left-Wing Alliance (Vasemmistoliitto), the Greens (Vihreä Liitto) and the Swedish People's Party (Svenska Folkpartiet) - has been able to agree in a spirit of consensus on labour market issues. However, the conservatives are now appear to be trying, through their uncompromising attitude - with the help of their adamant Minister of Finance, Sauli Niinistö- to show their entrepreneur supporters in SY that they are promoting their cause. The other party to this dispute is the whole trade union movement.

The situation is complicated within the government by the position of the Social Democrats, who were originally close to the trade union movement. However, the Social Democratic Prime Minister, Paavo Lipponen, has declared - a little surprisingly - that even SY has to be heard. This position may be grounded on the fact that the entrepreneurs in question employ the majority of private sector employees, and also that most new jobs are being created in small and medium-sized enterprises.

SAK has reacted very strongly by stating that not a comma of the committee's proposal should be changed. The motivation for the trade union movement's concern is that its power at workplace level is diminishing as local-level agreements increase (FI9812186F). According to one recent research report, market forces are nowadays dictating quite extensively what is agreed within companies in the name of the common good, in order to save jobs. Until now, local agreements have mostly concerned working time, but it appears likely that wage issues and other terms of employment will also be agreed on more extensively at the local level in the future. Further, the study finds that the focus of local agreements is shifting towards team and individual agreements. The researcher concludes that "one can justifiably speak of a growing trend toward employees' independence concerning the terms of employment" (Paikallisen sopimisen käänne, Sakari Timonen, Helsinki, 2000).

In this context, the trade unions see a danger of "dumping" in pay and conditions, a phenomenon which should be prevented by keeping the general validity of collective agreements as extensive as possible. SAK sees SY as posing a threat to general validity, despite the latter's reassurance that a sector's minimum pay norms would be retained regardless of whether or not the enterprise in question is bound by the generally valid collective agreement.

The bill on the Employment Contracts Act has now been withdrawn for further deliberation, and its final content will become clear in autumn 2000. It seems that there are still many bends in the road before a solution can be reached. (Juha Hietanen, Ministry of Labour)