Court rules some austerity measures to be unconstitutional

Parts of Portugal's year-old revised Labour Code have been rejected by Portugal's Constitutional Court, the fourth time the government has had aspects of its austerity legislation challenged since the country’s financial bail-out by the Troika. In September 2013, provisions in the new Code that made it easier for employers to sack workers who could not adapt to new working conditions or to select workers for redundancy were declared by the court to be unconstitutional.

Background

For the fourth time since the bail-out of Portugal by the Troika, the country’s Constitutional Court has rejected austerity measures proposed by the centre-right Government of Portugal.

The court opposed some of the measures on the grounds that they were unconstitutional, but backed other changes introduced by the Labour Code 2012. These changes were brought in as a direct result of the Memorandum of Understanding, agreed with the Troika – the European Central Bank (ECB), European Commission (EC) and International Monetary Fund (IMF).

Changes approved included increasing the flexibility of working time management, and the reduction of severance and overtime payments.

Introduction of the new Labour Code

The Labour Code 2012, Law No. 23/2012 (in Portuguese, 219KB PDF), was drawn up by Portugal’s centre-right coalition government in response to the commitments laid out in the Memorandum of Understanding (214KB PDF) (PT1107039I). It came into force on 1 August 2012, introducing far-reaching changes in employment relations (PT1205019I).

In particular, its provisions have:

  • changed working time flexibility;
  • amended the system by which individual and collective dismissals are made;
  • reduced severance pay;
  • reduced overtime payments;
  • cut paid holiday entitlement;
  • abolished certain public holidays;
  • imposed restrictions on collective bargaining

Trade union confederations were divided by the introduction of the new code (PT1201049I). The General Workers’ Union (UGT) had signed a tripartite agreement with all the employer confederations in January 2012. The resulting Compromise on growth, competitiveness and employment (606KB PDF, in Portuguese) was the basis for the government’s proposals to amend the Labour Code.

The General Confederation of Portuguese Workers (CGTP-IN) was opposed to the agreement. It launched several protests against the proposed package, including holding a general strike on 22 March 2012.

However, the Labour Code won parliamentary approval, backed by the centre-right Social Democratic Party (PSD) and the People’s Party (CDS-PP), while the Socialist Party (PS) abstained from the vote. The parties on the left – the Communist Party (PCP), the Left Bloc, and the Greens – voted against the proposals.

A number of objections were lodged following the approval of the new labour code by parliament. The CGTP, the parliamentary left-wing parties – with the exception of the Socialist Party – and a number of labour law experts claimed the new legislation raised constitutional issues and should be referred to the Constitutional Court.

However, the President of the Republic, Anibal Cavaco Silva, rejected calls for the Constitutional Court to get involved. He confirmed the passing of the new labour code, which was published in June 2012.

Opponents petition Constitutional Court

On 12 July 2012, a group of 24 members of parliament from the Communist Party, Left Bloc and Greens submitted a petition to the Constitutional Court asking it to investigate the ‘constitutionality’ of the new labour code. According to the petition the amendments introduced by the Law no 23/2012:

…did not meet the constitutional purposes, violating several of its principles and rules, including, among others, the principle of human dignity, the principle of the right to work and work stability, the principle of reconciliation of professional life and family life, the principle of freedom of association, and the principle of collective autonomy.

The court ruling in response to the request came on 20 September 2013 one year after the law came into force.

Constitutional Court’s ruling

The court delivered its ruling on 20 September 2013, one year after the law had come into force (Judgment No. 602/2013, in Portuguese).

The Constitutional Court agreed that parts of the code were unconstitutional. It objected to the provisions of Law no 23/2012 set out in article 368, paragraphs 2 and 4, which define the ‘conditions for objective individual dismissals related to the extinction of a job’.

According to the court, the law went against previous legal criteria set up by Labour Code 2009 (Law no 7/2009 (768KB PDF, in Portuguese) setting out how workers were to be selected for redundancy. The criteria given were workers with least seniority in the job, least seniority in the professional category and least seniority in the company. The law provided the employer with a definition of ‘relevant and non-discriminatory criteria vis-à-vis the objectives underlying the extinction of the job’.

The court concluded that paragraph 2 of article 368 of the new law violated the ‘prohibition of dismissals without just cause’ enshrined in article 53 of the Constitution. The court said the new code did not provide:

…the necessary normative indications as to the criteria which must preside over the employer's decision of selecting the job to extinguish, allowing that this choice stays on the employer side, alienating the reasons that should preside over the choice of a concrete job to extinguish (and concrete worker to dismiss).

The court also felt paragraph 4 of article 368 of the new law went against Labour Code 2009. This section stipulated that to make a worker redundant, the company must be able to demonstrate that it did not have another job compatible with the professional category of that worker.

The new code says the employer may choose to make a worker redundant ‘when the employer can demonstrate observance of relevant criteria and non-discrimination vis-à-vis the objectives underlying the extinction of the job’.

The court decided this paragraph ignored the constitutional ruling requiring the employer to offer the worker a compatible job when one was available in the company. The court concluded that this was clearly contrary to the ‘prohibition of dismissal without just cause’ included in article 53 of the Constitution.

The court went on to say that the fact that a job had become redundant, by itself, did not imply ‘the impossibility of subsistence of the employment relationship which determines the dismissal of the worker’.

The court also questioned the provisions of the law on individual dismissals based on ‘failure to adapt’, referred to in article 375. This allows for the dismissal of workers who are considered unable to adapt to changing job skills or requirements. The new law does not require that the employer offer a compatible job before dismissing the worker when there is one available in the company. The Constitutional Court ruled that this condition must be part of the legal framework.

Collective bargaining rights

The court also looked at new rules on collective bargaining, and said provisions set up by paragraphs 2, 3 and 5 of article 7 were unconstitutional. However, the petitioners had objected to all five paragraphs, alleging they violated the constitutional principle of autonomy of collective bargaining. The new provisions on collective bargaining are as follows.

  • Paragraph 1, which says the provisions of collective agreements concluded before the entry into force of this law are null and void when they provide higher severance pay for collective dismissals or termination of employment than the provisions of the Labour Code.
  • Paragraph 2, which makes null and void compensatory rest for overtime work on a business day, on a weekly rest day or during a holiday as set out in provisions of collective agreements concluded before the entry into force of this law.
  • Paragraph 3, which reduces by three days increases in annual leave set out in provisions of collective agreements made after 2003 and before the entry into force of this law.
  • Paragraph 4 suspends parts of some agreements for two years, including increases in overtime payment higher than those established by the Labour Code, and in normal payments or compensatory rest for for working on a holiday when the company is not obliged to suspend operations that day.
  • Paragraph 5 follows on from Paragraph 4, saying that once the two-year suspension on such increases has expired, only half of the increases agreed in collective bargaining will be allowed. However, rates of pay or compensatory rest allowances may not be lower than those established by the labour code.

The court considered paragraph 1 constitutional. It said it was right that the provisions of collective agreements resulting from the previous law should be adapted once the new law came into force.

The court considered paragraphs 2 and 3 unconstitutional saying the Labour Code could not affect agreements on compensatory rest for overtime and increases of annual vacation days.

Paragraph 4 refers to provisions for overtime payment and payment for normal work on holidays or compensatory rest for that work. These were substantially reduced by the Labour Code, in line with Troika Memorandum requirements.

The court ruled the changes set out in paragraph 4 were constitutional, saying:

The said suspension is obviously an interference within the framework of protection of the right to collective bargaining, since, by imposing the prevalence of a legal standard over collective agreements, which reduces the wages and value of work, necessarily interferes with a fundamental right of the workers – the right to remuneration of work, according to the quantity, nature and quality (paragraph 1 of article 59 of the Constitution).

However, such suspension, considering the aim in view and the respective temporary character, also appears appropriate, necessary and balanced in view of safeguarding interests constitutionally relevant as the fulfilment of the goals and commitments made internationally within the framework of the Memorandum of Understanding and the competitiveness of the national economy at a particularly difficult juncture for national companies.

However, the court considered paragraph 5 unconstitutional since it imposes reduction of the relevant provisions of collective agreements even after the temporary period expires.

Commentary

The provisions declared unconstitutional by the court were a response, in the main, to the demands of the Troika Memorandum. However, the court did not consider unconstitutional other measures demanded by the Troika Memorandum and questioned by the petition.

These provisions included increasing working time flexibility management and the use of individual working time banks, and a reduction in severance and overtime payments. Legislation nullifying collective agreements that were in place before the approval of the law was also considered constitutional, including collective agreement provisions for severance pay and the two-year suspension of collective agreement provisions for overtime payments.

Even so, this is the fourth time the court has ruled against aspects of the austerity measures introduced by the centre-right coalition (PT1309019I), and this time the ruling will have a significant impact in the private sector.

Maria da Paz Campos Lima, Dinâmia

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