Cyprus: Settlement of dispute over pay increases in the public sector

A bitter pay dispute has been settled by negotiations between the Minister of Finance and two peak-level trade union confederations, PEO and SEK. The ‘complementary framework agreement’ enables the negotiation of pay increases or of reduction in pay cuts for 2017 and 2018, and covers 24,000 employees in the broader public sector (excluding public servants).

Background

In 2013, measures affecting pay and employment in the public sector were implemented to consolidate public finances in the wake of the financial and economic crisis, and also because of the Memorandum of Understanding which the Cyprus government signed with its creditors (European Commission, European Central Bank and International Monetary Fund).

Some of the measures were permanent, as part of a reform programme of public services. More information on these measures can be found in the following Eurofound publications:

Other measures, primarily aiming at a short-term reduction in the government’s wages bill, had a time-limited validity. The freeze on the Cost of Living Allowance (COLA), the last of these time-limited measures, was set to expire at the end of 2016. By spring 2016, however, when the Cyprus economy had made its unexpected early return to growth, and with public finances having shown a primary surplus in 2015, public sector trade unions began negotiations with the Minister of Finance, Harris Georgiades, over long-term pay increases and the recovery of benefits.

The moderate demands of the trade unions, as well as the readiness of the government to discuss some pay increases and/or review the reinstitution of benefits for the first time since 2010, facilitated a relatively smooth bargaining process. In summer 2016, a framework agreement was brokered setting upper thresholds for pay increases in line with the development of a nominal gross domestic product (GDP).

Nevertheless, formal confirmation of the agreement was put on hold, as the Minister of Finance waited to see the outcome of a draft law submitted to the House of Representatives which set out permanent upper thresholds of the government’s pay roll linked to the development of nominal GDP. However, the House of Representatives rejected the bill and, in the face of fierce opposition from the unions, the government was forced to withdraw. The unions’ opposition and the rejection of the bill were based on the fact that the Industrial Relations Code provides for collective bargaining between the social partners.

The Minister of Finance then invited the country’s two major trade unions, the Pancyprian Federation of Labour (PEO) and the Cyprus Workers’ Confederation (SEK) to formally confirm the 2016 framework agreement. The agreement was counter-signed on 4 January 2017 and runs from 1 January 2015 to 31 December 2018.

Framework agreement of January 2017

The framework agreement applies to 24,000 employees in the broader public sector (not civil servants), such as:

  • employees of local authorities;
  • employees of state-owned enterprises;
  • hourly-paid employees;
  • employees of public non-profit organisations.

It offered no wage increases for 2015 and 2016 but, from 2017 and 2018, it provides for the introduction of a mechanism to determine upper thresholds of the payroll increase equal to the growth rate of nominal GDP. To calculate these upper thresholds, reference periods have been agreed applying for both the payroll and the growth rate of nominal GDP. Any changes in the level of employment will not be taken into consideration in the calculation. In practical terms, the framework agreement paved the way for collective agreements to be negotiated in the broader public sector. Negotiating parties would be obliged to adhere to the limits set by the framework agreement.

The Minister of Finance negotiated and concluded a similar framework agreement on the 6 February 2017 with the Pancyprian Trade Union of Public Servants (PASYDY) covering around 18,000 public servants. However, PASYDY did not ask for wage increases other than the COLA and increases due to pay scales.

Dispute over implementation of framework agreement

Soon after the conclusion of the 2017 framework agreement, a bipartite technical committee set up to calculate the upper thresholds recommended a total threshold of 2.4% for both 2017 and 2018. The unions then asked for negotiations to begin on the renewal of the collective agreements and set, as a baseline, the threshold of pay increases or reduction of pay cuts imposed during the crisis at 2%. However, the Minister rejected the demands for pay increases or reduction in pay cuts, arguing the state budget had to be kept in balance. A meeting between the leaders of PEO and SEK and the Minister failed to break the deadlock.

The trade unions considered the Minister’s stance as a breach of the framework agreement, and in October 2017, called for warning strikes. This led to the Minister signalling his readiness to talk. In renewed negotiations, held in October 2017, a new ‘Complementary Framework Agreement 2015–2018’ was concluded.

The complementary agreement provides for the negotiation of pay increases, or of a reduction in pay cuts, of up to a cumulative 2% for 2017 and 2018. The negotiations are to be completed by 31 May 2018. All other issues affecting the employees in state-owned enterprises, local administration, hourly-paid workers and the school commissions will be addressed separately with their respective organisation or service. The parties also agreed that pay cuts imposed during the crisis would be gradually repealed with the target of fully recovering wages, and they reaffirmed an earlier agreement providing for the establishment of a providence fund for new entrants from October 2011.

Significance of the dispute’s settlement

The complementary agreement settled a severe dispute that could have escalated into extended industrial action in the broader public sector. The settlement of the dispute is of great significance, as extended industrial action could have had a negative impact on the Greek economy at this particularly sensitive time. The framework agreement concluded in January 2017, as well as the complementary framework agreement concluded in October 2017, satisfies both parties. The government has managed, at least for 2017 and 2018, to control the growth of the wages bill, as was the intention of the failed draft law.

The trade unions have also defended their right to collective bargaining on wage increases in the broader public sector, as well as ensuring the adherence of the government to the Industrial Relations Code. Furthermore, the trade unions can, with these agreements, initiate the gradual restoration of wages in the broader public sector, which have been heavily hit during the economic crisis and by the austerity policies. In the short and medium term, trade unions are expecting these developments to have a positive impact on their struggle to also reverse the decline in wages in the private sector.

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