Controversy over length-of-service allowances

In early 2006, relations between trade unions and employers in Bulgaria have been strained by the issue of statutory length-of-service allowances, which employers are obliged to pay workers. The International Monetary Fund (IMF) has called on the government to abolish the allowances, a position supported by employers' organisations but fiercely opposed by unions.

According to Bulgaria labour law, employers are obliged to pay employees a monthly length-of-service allowance, calculated as a percentage of the basic wage and representing at least 0.6% for each year of service (BG0410201N). For more than 10 years, International Monetary Fund (IMF) and World Bank experts have argued that this regulation contradicts the freedom of collective bargaining between employers and trade unions, as well as being proof of the insufficient flexibility of Bulgarian labour legislation (BG0412203F). On the basis of these arguments, at the end of 2005 the IMF mission to Bulgaria again called on the government to amend the relevant legislation and revoke the compulsory character of this additional payment.

Trade union reactions

Bulgaria's two nationally representative trade union confederations - the Confederation of Independent Trade Unions in Bulgaria (CITUB) and the Confederation of Labour Podkrepa (CL Podkrepa) - reacted immediately to the IMF call. The unions want to retain the length-of-service allowance because it:

• corresponds to the generally higher skills and qualifications of workers with longer service; and

• takes into account the longer contribution of such workers to the business success of the employer.

The unions accused the government of having a 'patchwork' decision-making policy in the labour sphere, referring to the Ministry of Labour and Social Policy calling into question the length-of-service allowance and its recent unilateral decision to end the system of compensation for hazardous working conditions (BG0501202F), at a time when it has not yet resolved issues related to investments in the working environment and overall wage determination policy. The trade unions argue that social dialogue principles are being attacked and that an attempt is being made unilaterally to impose IMF-proposed solutions that may be beneficial to the government and the employers but affect issues that are vital for workers.

The CITUB coordination council unanimously appealed to its main member unions in the various industries and branches to prepare a campaign of protests and strike action against the government’s incomes policy and its possible intentions to deprive workers of existing benefits. The council also decided, depending on the course of negotiations on the issue, to commence national protest actions. At the end of January 2006, an emergency meeting was convened of the joint CITUB-CL Podkrepa consultation council, with participants including the chairs of both confederations' national strike committees.

Employers' views

All six nationally representative employers' associations unanimously support the IMF’s view on length-of-service allowance and describe the trade unions’ position as unreasonable.

With regard to the union's view that the allowance corresponds to the generally higher skills and qualifications of workers with longer service, the employers respond that:

• there is no direct relation between vocational qualifications and overall length of service (the total years of service of a certain worker), and it is possible that a person with shorter service is more qualified, even only on the basis of personal qualities;

• total length of service may include periods during which workers have been in occupations which have nothing to do with their present job. Moreover, according to the legislation, length of service includes periods of regular army service and maternity leave, during which workers will not have improved their vocational qualifications; and

• last but not least, higher vocational qualifications are taken into account in determining the basic wage and it is not necessary to include this consideration once again through the length-of-service allowance.

As for the union's view that the allowance takes into account the longer contribution of longer-serving workers to the business success of the employer, the employers respond that total length of service taken into account for the allowance includes not only the contribution to the current employer but also to all previous employers, plus periods of regular army service and maternity leave, during which workers have not contributed to the business of any particular employer.

The employers’ associations also refer practices in developed democratic countries, which in many cases have similar systems of 'seniority' pay. However, these differ from the scheme imposed by the Bulgarian legislation, in that they:

• have not been imposed by a law but on the basis of collective agreements and internal company rules;

• aim to act as an incentive to retain long-serving qualified workers and limit staff turnover; and

• are based only on service with the current employer.

The employers also argue that there is a contradiction between the length-of-service allowance and the Law on Protection Against Discrimination. This law requires that employers provide equal pay for identical or equivalent work and this rule must be applied to all remuneration, whether directly or indirectly paid, in money or in kind. The criteria used for determination of wages and performance appraisal must be the same for all workers and employees, including in terms of age. Article 4, paragraph 1 of the Law on Protection Against Discrimination prohibits any practice or indirect discrimination based on age. Paragraph 3 of the same article defines indirect discrimination as 'placing of a person in a less favourable position as compared with other persons by means of an ostensibly neutral provision, criterion or practice, unless this provision, criterion or practice is objectively justified in view of a legal objective, and the means of achieving the objective are appropriate and necessary'.

According to the employers, the rules on length-of-service allowances contradict these legal anti-discrimination provisions, since:

• they provide for unequal pay for equal work in terms of quantity and complexity, if the various workers performing the work have a different length of service;

• the allowance constitutes indirect discrimination based on age, since longer working experience supposes greater age; and

• this indirect discrimination based on age is not objectively justified in view of a legal objective, since there is no law setting such an objective. Higher remuneration for workers with longer working experience and higher qualifications can be provided through their basic wage and not through additional payments. Moreover, longer service does not always mean better qualifications and experience.

Government stance

The government has found itself in the centre of the imminent conflict between the employers and trade unions over length-of-service allowance, mainly because:

• the allowance is regulated by a cabinet order; and

• the majority of social partners, due to decades of tradition, still expect the executive power in Bulgaria to intervene in industrial relations.

Despite its formal position that it is only the arbitrator in this argument, commentators claim that the government clearly supports the employers’ views. The Minister of Labour and Social Policy has announced that the issue must be resolved conclusively by the end of 2006.

Commentary

The trade unions argue that employers’ associations insist on cancelling various items of legislation on pay but are not ready themselves to engage in regulating such issues through the collective bargaining process and to undertake greater responsibilities and commitments. The argument on this issue adds to public concern about an emerging trend of liberalisation of labour law, and especially in the direction of cutting workers’ rights.

Labour Inspectorate data show that one of the most frequent labour law violations (in nearly a third of inspected companies) is failure to pay the length-of-service allowance. This increasing practice of de facto abolition of an existing regulation, as well as the stark standpoint of IMF on the issue, are acting as a catalyst in renewed tension in the relations between trade unions and employers. (Ivan Neykov, Balkan Institute for Labour and Social Policy)