The introduction of a single status for all workers in the private sector in Luxembourg in January 2009 has had direct consequences on labour law and social security legislation. The financing of work accident insurance is one of the collateral questions that the legislator has had to address following the merging of blue and white-collar workers. A reform of the current framework is underway and bill 6177 was submitted for the first vote in parliament on 15 December 2010.
Overview of the context of reform
The forthcoming reform (LU0702069I) will revolutionise the century-old logic of work insurance financing. Since the law of 5 April 1902 on compulsory insurance for workers against work accidents (see article 42 (in French and Luxembourgish, 2.6Mb PDF) of the abrogated law), activity sectors are divided into 21 classes of risk (in French) as determined by the Accident Insurance Association.
The risk level of each class is defined by the ratio between its effective expenses in relation to occupational accidents and contribution incomes, across a seven-year monitoring period. Thus, the more work accidents that occur within a risk class, the higher is the rate contributors have to pay.
The social partners have realised that the profound economic transformation experienced by Luxembourg over the past decade has rendered this system obsolete. With the development of financial and services activities and the decline of the industrial sector – notably the dying mining industry – huge gaps have developed between Luxembourg’s employers. The range of contribution rates for 2010 illustrates the extent of these differentials: the contribution rate for the contributory basis applicable to banks and insurance companies was 0.45%, while that payable by employers in the roofing sector was 6%.
Balance between solidarity and individual responsibility
To ensure a better sharing of labour costs throughout the economy, bill 6177 (in French) contemplates introducing a single rate of 1.25% applicable to all contributors. This harmonisation would have extensive repercussions in practice. Indeed, the Chamber of Employees (CSL) estimated that 11 of the 21 risk classes would benefit from a significant fall in costs linked to work accident insurance. Moreover, for four of them – construction, roofing, manufacturing of cement product and temporary work – this decrease could even equal the cost of salary indexation (CSL’s opinion of 18 October 2010, Document 6177/01 (in French, 535Kb PDF), p.3).
Nonetheless, the legislator is intent on maintaining a link between employers’ contributions and the actual risk levels of their activities. This link would be enforced through a no-claims discount system intended to reward or punish enterprises for their achievements in the domain of security (see article 1 of bill 6177 on the new article 154 of the Social Security Code, CSS). Consequently, an enterprise could see its basic contribution rate of 1.25% increased or decreased by 50% depending on the number, frequency and seriousness of work accidents.
Advocates of the reform see it as a step forward for financing transparency and solidarity in the economic sector, and emphasise the fairness of the bonus system which would – despite the principle of solidarity – reward or punish the actual performance of employers in work accident risk management.
However, although all actors agree with the principle of solidarity between employers, they have different views on how to achieve it.
What future for the risk classes?
The Chamber of Commerce and the Chamber of Trade argue for the adoption of a dualist rating system that would preserve the classification of employers into different risk classes.
Within that system, risk levels for each class would be assessed based on an average rate, but would be further differentiated within the classes based on each company’s profile. The contributing rate applicable to each company would be calculated as a function of these two risk levels. The Chambers believe that this system would fulfil the legislator’s intention to encourage employers to invest in prevention and promote best practices regarding health and safety at work (Chambers’ joint opinion (in French, 424Kb PDF) of 26 November 2010).
The Council of State accepts this interpretation of the legislator’s will, but believes that the classification of activities into risk groups could spread confusion in a bill that claims to ensure solidarity among employers regardless of the risks inherent to their activity (Council’s complementary opinion (in French) of 7 December 2010). Hence, the Council recommends suppressing all reference to risk classes in the amended bill issued by the Commission for Health and Social Security just after the Chambers’ joint opinion release (see Commission’s report (in French, 428Kb PDF) of 9 December 2010). Surprisingly, however, the Council still proposes a wording of article 158 CSS which includes ‘risk inherent to the activity’ among the criteria for the increase or decrease of company contribution rate.
Finally, the Commission confirmed its view on the necessity of having the risks assessed at peer group level to ensure better performance and fairness of the bonus/penalty scheme. Lastly, the Commission proposes to allow employers the right to contest their placement in a particular risk group.
Commentary
Integration of activity-based risk groups into the new legislation now appears definite, despite the reservations of the Council of State. The Commission for Health and Social Security had already submitted its amended bill for the first vote in parliament on 15 December 2010, and even requested an exemption from the second vote. In any case, the reform will definitely upset the philosophy and mechanism of work insurance financing. Pursuant to this new system, the actual exposure to risks would cease to be a factor in the general financing regime, and only remain as a barometer to determine the reward or punishment for individual employers based on their performance in the field of health and security.
The law was expected to come into force on 1 January 2011.
Guy Castegnaro and Ariane Claverie, Castegnaro Cabinet d'avocats