On 31 August 2022, a new decree on minimum wages was published in Cyprus after a long and arduous process of negotiations and social dialogue. The ministerial decree, which came into effect on 1 January 2023, established a national minimum wage in Cyprus for the first time, a groundbreaking and controversial development that drew a multitude of reactions from social partners on both sides of industry.
Industrial relations context
The decision to introduce a national statutory minimum wage, as well as both its provisions and the various reactions to it, cannot be properly understood without a basic knowledge of how industrial relations are approached in Cyprus. The republic was established in 1960 after decades of British colonial rule, a period that was rife with conflict and industrial action against national and international employers and the colonial establishment that backed them. Both in the years before and especially during the armed struggle against the British, a great number of trade unions were formed and consolidated their power and influence. It was impossible to ignore these important organisations when planning the way forward for the newly founded Republic of Cyprus. As a result, the right to collective bargaining and the right to strike were guaranteed not only by Articles 26 and 27 of Cyprus’s Constitution but also by the colonial decree on the establishment of trade unions and employer organisations; the incorporation of the latter into new legislation laid the groundwork for the pivotal role played by the social partners in regulating industrial relations in the republic.
For decades, legislation has played a secondary role in industrial relations. Collective agreements in the private and semi-public sectors are not legally binding but more of a nonformal agreement: collective bargaining negotiations in the public sector result in changes to legislation. The vast majority of collective agreements are single-employer agreements, and what pass for sectoral agreements in Cyprus are in fact multi-employer collective agreements; they are signed between trade unions and employer organisations in certain sectors but directly concern only the members of the employer organisations and not the entire sector. Despite the significant difference in their number, the multi-employer collective agreements are considered to be equally important to the single-employer collective agreements, if not more so, when it comes to coverage. Regardless of the kind of collective agreement, for decades industrial relations and all issues concerning working conditions and terms of employment were primarily matters for bipartite negotiation and tripartite cooperation, with both the level of trade union membership and the coverage of collective agreements being very high in Cyprus.
Statutory wage setting
The process of Cyprus’s accession to the EU had radical ramifications for industrial relations and led to the relevant legislation having increased importance. In fact, the majority of labour laws in Cyprus were introduced around that period, in an effort to harmonise Cyprus’s legislation with EU legislation; however, because Article 153(5) of the Treaty on the Functioning of the European Union excludes pay from the legal competences of the EU, wage setting was generally unaffected by this development. Cyprus’s accession to the EU in 2004 brought a significant number of companies to the island – these did not necessarily share the established collective bargaining traditions of Cyprus. This factor, in combination with an influx of unorganised labour from other Member States and other significant structural changes in the labour market, caused a substantial drop in the level of trade union membership, and therefore in the coverage of collective agreements, especially in certain sectors. This situation was made even worse a few years later as the effects of the global financial crisis in 2009 hit hard. In this context, trade unions increasingly began to favour government and legal intervention, especially in sectors where the level of organisation among the workforce was quite low.
In accordance with the Minimum Wage Law of 1941, the government can issue decrees setting a minimum wage for any occupation affected by unreasonably low salaries. While many such decrees have been issued since the 1970s, by 2010 the number of these occupations had risen to a high level: these included sales assistants in shops, general office clerks, childcare assistants both in nurseries and in kindergartens, teachers’ aides, healthcare assistants, cleaners, caregivers to patients in private clinics and hospitals, and security staff. It was deemed that employees in these nine occupations were difficult to organise, and thus difficult to reach through collective agreements. The minimum wages for these occupations were set annually (until 2012) by governmental decree, after consultation with the social partners; for some of the occupations, the decree provided for minimum hourly wages, while for others, including those for whom working time is defined by legislation, it provided for a minimum monthly wage of €870 upon hire and €924 after six months of employment.
The last relevant decree was issued in 2012, during a period of significant developments in working conditions in Cyprus. Between 2012 and 2016, there was a wave of general wage cuts due to the financial crisis. In addition, the Cost of Living Allowance indexation was suspended (in 2011 for the public sector and in 2013 for the private sector); the indexation system was only partially reinstituted with an agreement made in 2017, which was put into effect in 2018. These developments, which kept wages at a low level, gave rise to an assumption among legislators that the minimum wages set by decree remained above 50% of the median wage even if they were not increased. This assumption in turn led the government to make a unilateral decision to keep these minimum wages frozen for over a decade.
There was another occupation for which a minimum wage was de facto provided: domestic workers from non-EU countries. Based on the relevant regulation, both the employer and the employee must sign a fixed contract providing for a minimum wage of €460 per month for a six-day working week.
Finally, in 2020, the minimum wage provisions of the hotel industry’s multi-employer collective agreements became legally binding. They specify minimum wages for 13 distinct professions in the hotel industry, depending on tenure and on working time.
Towards a national minimum wage
Social dialogue on the introduction of a national statutory minimum wage officially began in November 2018. Following a statement by the then President, who expressed his willingness to consider the introduction of a national statutory minimum wage when the unemployment rate fell below 5%, the Labour Committee of the House of Representatives held a hearing in relation to three proposed minimum wage bills. During the hearing, representatives of the Ministry of Labour asserted that the government had already commissioned related studies and had submitted requests for support to both the European Commission and the International Labour Organization.
This announcement elicited opposing reactions from the social partners. Trade unions welcomed the fact that steps had been taken towards the establishment of a statutory minimum wage. However, they also expressed both criticism of the unilateral character of the decision to initiate the process and their strong opinion that the national minimum wage should be extended only to employees not covered by collective agreements, while legal measures should be taken to transform multi-employer collective agreements into genuine sectoral agreements and to make collective agreements, and the minimum wages they provide for, legally binding. It was their firm belief that the introduction of a sector-by-sector statutory minimum wage, instead of a universal flat rate, would be the best way forward. Employer organisations, on the other hand, expressed their opposition, as a matter of principle, to the introduction of a national minimum wage, while also indicating their willingness to take part in the related social dialogue, after completion of the relevant studies and before any final decision was made by the government.
The debate continued into 2019, but it was decelerated by the COVID-19 pandemic. It was then officially paused in early January 2021, when the government decided to suspend the process, given that the target of the unemployment rate falling below 5% could not possibly be reached during the pandemic. In August 2021, the suspension was ended by an invitation from the then Minister for Labour to the social partners to participate in intensive social dialogue on various significant labour issues, including the minimum wage. Although the Ministry of Labour stated its intention to finalise the reform by the end of 2021, and put up for discussion the various options regarding, among other things, the coverage of the statutory minimum wage, the exceptions and targets, and the combination of a statutory minimum wage scheme with collectively agreed sectoral minimum wages, it refrained for many months from presenting a concrete proposal. At that point, the primary points of contention between the trade unions and the employer organisations were the following: whether the minimum wage should be a percentage of the median wage; whether the method of the Cypriot Statistical Service (favoured by the employers) or the European Union Statistics on Income and Living Conditions method (favoured by the trade unions) should be applied to calculate the median wage; and which percentage – between 50% and 60% – of the median wage the minimum wage should be.
The sudden death of the then Minister for Labour put the process on hold once more. But by the end of June 2022, the new minister had vowed to continue from where the late minister had left off. However, to the disappointment of the trade unions, that did not happen; issues considered closed – for example, the consideration of working hours in wage setting – were reopened. As a result, in the following two months, intense negotiations between the Ministry of Labour and the social partners took place. Finally, on 31 August 2022, the national statutory minimum wage decree was issued.
Provisions of the new decree
The decree provides that every employee who works full time must receive, on being hired, a monthly gross salary of at least €885, increasing to €940 after six months’ service. The provisions of the decree do not apply to domestic, agricultural or shipping workers, or to workers to whom the minimum wages in the Hotel Industry Decree of 2020 applies or to those in training or internships. The minimum wage is reduced by up to 25% if the employer provides the employee with food and housing – up to 10% for housing and up to 15% for food. The minimum wage can also be reduced by 25% if the employee is under 18 years old and is employed occasionally for a period of no more than two months. The two aforementioned reductions are mutually exclusive.
Social partners’ reactions
According to the trade unions, the government sided completely with the employer organisations. Apparently, although no official explanation for the figure arrived at was provided by the government, the minimum wage was based on the Cypriot Statistical Service’s method of calculating the median wage, with the entry wage being 56% of the median wage. Reportedly, it was generally felt among trade union representatives that raising the minimum wage by a mere €15 after 10 years was a travesty, especially considering the high cost of living in this period. Furthermore, the exclusion of some categories of workers was heavily criticised, both for being unreasonable (the reason given was that in certain professions food and housing is usually provided by the employer, but the decree included provisions covering this exact situation) and for being racially motivated, as the overwhelming majority of both domestic workers and agricultural workers in Cyprus are migrants from non-EU countries. Moreover, it was thought that the lack of connection between minimum wage and working time would introduce the possibility that wages would be reduced in those professions that previous decrees had provided with an hourly minimum wage.
The position of the trade unions described above was expressed and supported by the Cyprus Labour Institute’s Economy and employment report 2022 . According to the report, the decree fails on multiple fronts, both regarding the establishment of a statutory minimum wage as a socially beneficial measure and as regards the European Commission’s comments on an adequate minimum wage. Specifically, the Commission had recently stated that, according to a recent study by the Joint Research Centre, setting a minimum monthly wage of €1,000 in Cyprus would significantly reduce the risk of poverty (by 10%) and especially the poverty of workers (by 22%). The Commission highlighted that this would mainly benefit young workers and working women. It added that implementing a minimum wage at this level would improve the state’s budget, increasing taxes and social security contributions while reducing spending on social benefits. Moreover, the government seemed to disregard the recent declarations by the Commission regarding the strengthening of social dialogue and collective bargaining in Member States, illustrated by including in the Directive on Adequate Minimum Wages an obligation for every Member State to aim to achieve collective bargaining coverage of 80%. According to both the Cyprus Labour Institute’s report and the trade unions, the decree fails to facilitate collective agreements on the basis of what was discussed during negotiations and therefore functions essentially as an escape clause for employers seeking to avoid adhering to them.
The government defended the decree as a groundbreaking, labour-friendly measure and outright rejected the idea that the decision was not a product of fair social dialogue and compromise. The government argued that the level of the minimum wage can be considered favourable compared with the minimum wages of other Member States and that collective agreements are protected by the inclusion of the provision stating that the decree cannot affect any laws, agreements or traditions that provide more favourable conditions. Furthermore, it argued that the provision on the formation of a tripartite readjustment committee, composed in equal parts of trade unionists, employer representatives and academics, will ensure that the amount will be fairly adjusted and that any issues regarding the minimum wage will be addressed in time and after the measure has been experienced in action.
The employer organisations, on the other hand, expressed their opinion that the establishment of a minimum wage during the period of financial instability brought about by the pandemic and the war in Ukraine was a major compromise in itself; while they were firmly against the measure as a whole, they chose to accept the government’s decision despite considering the amount too high.
Despite the heavy criticisms by most trade unions on the island, only the Pancyprian Federation of Labour organised any sort of mass protest against the decree; specifically, they organised a massive pan-Cyprian demonstration in Nicosia on 15 October 2022. The issue in general was put on the back burner, overshadowed by the presidential elections of February 2023, as well as the labour conflict regarding the complete reinstitution or abolition of the Cost of Living Allowance. At the time of writing, the approach to advocating for improvements to the minimum wage decree is reportedly moving away from industrial action and towards social dialogue.
Image ©littlewolf1989/Adobe Stock
Footnotes
