Works councils examined

Works councils were introduced in Hungary by the 1992 Labour Code. This article reviews the introduction of works councils, the most recent empirical studies on their operation and the ongoing political debate.

This article examines the introduction of works councils in Hungary in the early 1990s and their development since. It is based on a wider analysis of information and consultation institutions in the EU accession and candidate countries, entitled 'The challenge of institutional harmonisation: does the institution of works councils offer a solution for accession countries in building a European-style social model?' by András Tóth and Youcef Ghellab. The paper was presented at a tripartite conference on 'The right to information and consultation in practice in an enlarged Europe' held in Warsaw in December 2003; the conference was organised by the International Labour Organisation, the Polish Ministry of Economy, Labour and Social Policy and the European Foundation for the Improvement of Living and Working Conditions.

Introduction of works councils

Following Hungary's democratic transition of 1989-90, a highly fragmented trade union movement, with six national confederations, was consolidated, including the reformed successor-organisations of the former socialist trade union confederation and new grassroots unions set up by pro-democratic activists. A fierce struggle developed between the newly established union confederations and the reformed ones. The new unions played an active political role during the democratic transition, but had only limited success in attracting members. Following the first free elections, the new trade unions demanded legislative measures from the governing right-wing coalition to break the organisational strength of the former socialist unions. At the same time, the National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ), the largest reformed former socialist union, campaigned against the government’s economic reform programme and argued that the burden of 'marketisation' should be eased by a strengthening of the welfare state.

In 1991, MSZOSZ threatened the government with a general strike. The new unions, in turn, argued that this call was motivated mainly by government measures to redistribute trade union assets. Whatever the real reasons, the importance of the struggle between the confederations went far beyond industrial relations. The internal crisis of the trade unions was accompanied by a decline in trade union coverage (HU0206102N). Socialist-period labour legislation, which granted fairly strong co-decision-making and participation rights to workplace trade unions, came under heavy criticism as not being compatible with the rule of law or a free market economy. Key decisions of the Constitutional Court (Alkotmánybíróság, AB) took the view that trade unions represented the interests of their members, not those of all employees. Moreover, competing trade unions in the workplace heightened the need for a legal solution to the problem of trade unions claiming to represent the same group of employees. The apparent crisis in the national industrial relations system coincided with debates on the establishment of a new system appropriate to a market economy, and one which would facilitate Hungary’s eventual EU accession.

In these debates, the German 'dual system' of industrial relations had a major impact. The establishment of works councils seemed a good solution to the trade union fragmentation and representation crisis and seemed to offer representation to all employees, in accordance with the legal principles established by the Constitutional Court. At the end of 1990, the Ministry of Labour (Munkaügyi Minisztérium, MÜM) issued the first draft of a new Labour Code. This draft envisaged a remodelling of Hungarian industrial relations along the lines of the German dual model. According to the draft, statutory works councils at enterprise level should be established, with the authorisation to conclude workplace-level works agreements to regulate terms and conditions of employment within the framework provided by the law and sectoral-level collective agreements, and with the right to consultation by the employer on a wide range of issues. Workplace trade unions would retain representation of their members only in relation to individual grievances, while the focus of union activity would be multi-employer bargaining at sectoral or regional level. The draft sought to overcome union pluralism by proposing that the largest union should acquire bargaining rights.

The bill was then debated in the tripartite National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) (HU0209101N). The trade unions feared that the revocation of workplace bargaining rights would undermine enterprise unions. The reformed unions wanted to grant all union rights to the largest workplace trade union, while the new unions fought to secure a voice for minor union organisations. Nonetheless, they accepted the idea of works councils and the fact that works council elections should be a measure of union representativeness. The government insisted on institutionalising works councils and establishing criteria determining trade union representativeness. The employers sought to curtail the rights and prerogatives of unions and works councils, seeking as high a trade union representativeness threshold as possible. In the course of negotiations, the original conception of the first draft was 'harmonised' to meet the expectations of the social partners.

The new Labour Code (Act 22 of 1992) institutionalised a 'dual-channel' model in which workplace-level union organisations coexist with works councils, reflecting the compromises between government, employers’ associations and trade unions. Workplace trade unions retained their exclusive bargaining rights at that level, but subject to works council election results. As a consequence of retaining workplace-level collective bargaining, the law also partly restored the information and consultation rights of local trade unions, although the bulk of such rights passed to works councils. This is a 'horizontal' dual-channel model in that local trade unions and works councils exist in parallel with to some extent overlapping information and consultation rights.

Works councils in practice

The new Labour Code came into effect in July 1992 and the first works council elections were held in summer 1993. In the early 1990s, although no systematic data were available, it was widely accepted that works councils operated only in larger companies where there was a workplace trade union organisation. Recent surveys have largely confirmed this. Based on a survey (published in 2003) of 5,700 companies employing 50 or more employees, of which 2,600 responded, Béla Benyó discovered that 49% of workplaces in the competitive sector had set up works councils. While only 27% of companies employing fewer than 100 people had established works councils, the figure in companies with 100-250 employees stood at 52%, and in companies with more than 250 employees as high as 84%. As for the overall 'coverage' of works councils, in the 2001 Labour Force Survey only 32% of those working at establishments with more than 50 employees said that a works council had been elected at their workplace.

The Benyó survey also found that there is a highly significant relationship between the existence of works councils and the presence of a local trade union organisation. Only 9% of works councils functioned at workplaces without trade union representation. This confirms the widely held assumption that works councils, by and large, do not function as an institutionalised channel of employee representation at non-unionised firms.

Significantly, according to Benyó’s findings, there was no difference in this respect between Hungarian and foreign-owned enterprises. There was a difference, however, in relation to date of establishment of the company: only 31% of newly established or greenfield enterprises had works councils, contrasting with 58% of former state-owned companies and as much as 85% of the remaining state-owned enterprises. The data also suggest that works councils were almost universally present at public utility companies, but somewhat less so in private manufacturing and services, especially those dominated by small and medium-sized companies.

There was a widespread belief in the early 1990s that the trade unions had 'taken over' works councils, as mostly trade union candidates were elected to the latter. Consequently, in many workplaces the works council exists only formally, and the trade union is the employer’s real partner. However, this overlapping of institutions makes it difficult to distinguish between works councils as 'partners in cooperation' and 'adversarial' trade unions.

Benyó’s survey partly confirmed this: 30% of respondents claimed that their works councils were entirely made up of trade union members, while another 40% said that the vast majority of works council members were trade union delegates. Consequently, almost three-quarters of functioning works councils were dominated by union activists. Nonetheless, 10% of works councils considered themselves to be mostly independent, and 11% claimed to be fully independent of trade unions.

The survey results partly confirm earlier claims by other researchers based on case studies that the duplication of employee representation in the workplace changes relations between the actors, giving them a new dynamic. First, the parallel existence of unions and works councils could lead to competition rather than mutual support. Second, the existence of two parallel institutions can easily lead to the development of separate interest representation channels for different groups of workers. Third, parallel and somewhat overlapping institutions of employee representation can easily be manipulated by management, by accepting one of them as its main partner, so delegitimising the other. Finally, works council elections might enable management to avoid negotiations with unions which do not reach the required threshold of support. Nonetheless, according to the survey conducted by Benyó, only 4% of responding works council chairs reported that the employer had attempted to manipulate works council elections and 3% of respondents claimed that the employer had promoted the establishment of works councils in order to undermine the trade union position. At the same time, 42% of responding employers stated that they preferred works councils to trade unions as consultation partners.

The introduction of works councils probably at least slowed down de-unionisation by strengthening some workplace trade union organisations. The most active MSZOSZ member organisations, such as the Metalworkers’ Union (Vasasszakszervezet), the Garment Industry Workers’ Union (Ruhaipari Dolgozók Szakszervezete, RDSZ) and the Commercial Employees’ Union (Kereskedelmi Alkalmazottak Szakszervezete, KASZ) used the 1993 and 1995 works council election campaigns to penetrate greenfield companies, with varying degrees of success. However, these successes have done little to balance severe membership losses.

As far as information and consultation in practice are concerned, Benyó’s survey found that, by and large, in one third of cases the employer promptly provides all necessary information, while in one quarter of cases it completely fails to do so. With regard to the content of the documentation provided, more than 50% of works council chairs said that it was inadequate as background material for meetings. Additionally, only one fifth (21%) of works councils meet each month or bi-monthly. The majority meet only occasionally or even infrequently. The survey also highlighted the fact that works councils' usual means of maintaining relations with employees was verbal communication - 46% of cases - followed by sharing of information via personal relations; information disseminated through trade union channels was ranked third. According to Benyó, this means that employees’ information on works council activities is haphazard; there are no institutional forms of dialogue.

Political debates after 1992

Over the years, the institution of works councils has become part of an intense political debate concerning the role and functions of trade unions. In Hungary, trade union misgivings about works councils have always been strong. On the one hand, union activists have increasingly come to regard works councils as superfluous institutions which replicate union structures at unionised enterprises, or as a tool for undermining trade union influence in the workplace. On the other hand, these same activists must be well aware that works councils are almost non-existent in non-unionised workplaces. These trade union suspicions were also highlighted by the Benyó survey. A significant number of trade union respondents were convinced that works councils were introduced in order to weaken the position of unions, or even to dislodge them from the workplace.

Trade union concerns about works councils intensified in the late 1990s due to legislative changes in 1998. The right-wing government initiated an amendment of the Labour Code to grant works councils the right to conclude workplace agreements with employers to regulate terms and conditions of employment, provided there is no union at the enterprise. Unions unsuccessfully protested against this measure. In the parliamentary debate on the bill, the left-wing opposition promised to revoke the amendment when it next formed a government (HU0206101F). Although there was a heated debate on the amendment, the impact of the new legislation on the national industrial relations system was minimal. Workplace agreements regulating terms and conditions of employment have been concluded with works councils at only a handful of non-unionised companies. Matters changed in 2002 when the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) formed the new government and, as promised ,initiated revocation of the Labour Code amendment strengthening the rights of works councils. However, the relevant new Act went beyond repealing the amendment, by extending the obligation of employers to inform and consult to include the trade unions. In this way the distinction between trade unions and works councils was further confused (HU0210101F). Unsurprisingly, the wrangling over works councils continues unabated. Reportedly, one trade union confederation is currently preparing a further proposed amendment to the Labour Code in order to convert statutory works councils into voluntary bodies.

Commentary

As in other candidate countries, in Hungary the prospect of EU accession involved enormous harmonisation efforts in relation to the institutions and practices of current Member States. On the one hand, harmonisation of legal systems with the 'acquis communautaire' (the body of EU law) was a prerequisite of accession. On the other hand, there has also been 'deliberative' institutional harmonisation by nation states in order to build a 'European-style' social market economy, partly following historical patterns and partly by the selective employment of best practices, as was the case in the creation of works councils in 1992, well before Hungary’s formal EU candidacy was filed.

Hungary was one of the first accession countries to introduce a statutory secondary channel for information and consultation to complement trade union representation. In recent years, across central and eastern Europe there has been renewed interest in introducing similar arrangements to complement union representation in a context of a weakening trade union presence, particularly in the private sector. Indeed, the European Commission’s report Industrial Relations in Europe in 2002 urges accession countries to do more in the field of information and consultation to fill the representation gap.

The Hungarian experience, however, is controversial. In fact, works councils are rarely benefited by a situation in which employees lack union representation. On the other hand, the institution of works councils and their legal empowerment became a hostage to political conflicts among social partners and the government. Whether it aimed to undermine or strengthen the unions’ position at workplaces, politically influenced legislation undermined their credibility rather than facilitated effective representation and did not help to achieve wider societal acceptance of works councils. (András Tóth and László Neumann, Institute of Political Science, and Youcef Ghellab, ILO-SRO, Budapest)

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