More flexible Labour Code comes into force

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In late November 2002, a revised and more flexible Labour Code came into force in Poland. The single most important change is the introduction of a new possibility of concluding agreements to suspend temporarily the application of collective agreements and similar provisions at companies and other employing entities faced with financial difficulties. This change, which presupposes the existence of employee representatives to sign such 'suspension agreements', has highlighted a number of shortcomings in Polish labour law, in that there is no statutory form of workforce representation in employing entities at which no trade unions are present.

According to the Ministry of Labour and Social Policy (Ministerstwo Pracy i Polityki Społecznej, MPiPS), there were 10 amendments of the Labour Code in Poland between 1945 and 1989, while the period from 1990 to 2002 brought no fewer than 20 such amendments. These constant modifications in recent years have arisen from the search for a compromise between three forces – the successive governments of the country, the trade unions and the European Union. The amendments to Poland’s labour law occurring since 1989 can be divided into three distinct periods, as follows:

  • the first period, lasting for approximately two years (1989-91), was dominated by the necessity of rapidly adapting the law to the realities of the market economy, in order to regulate phenomena such as mass redundancies;
  • the next period, which lasted much longer (1991-2001), was marked by the activity of trade unions which, at that time, exerted considerable influence on the work of parliament. A number of parliamentary commissions involved in the shaping of labour laws included trade union activists-cum-deputies, some of them holding prominent positions in the largest union organisations. As a result of their contributions, the Labour Code came to include provisions which significantly increased the duties of employers towards their employees. The owners of small and medium-sized enterprises (SMEs) became subject to legal duties which translated into higher costs of managing their businesses (such as the requirement of formulating detailed company 'bylaws' or of establishing social funds). The owners of SMEs, assembled in the Confederation of Private Employers (Konfederacja Pracodawców Prywatnych, KPP), constantly criticised these various encumbrances, arguing that they brought about a paradoxical situation whereby the owner of a small business is subject to the same requirements as the board of directors of a major company. At the same time, research conducted by Polish sociologists indicates that the stringent requirements set down by the labour laws are frequently breached by many employers with the tacit consent of their employees (PL0206102F); and
  • the third period began following the parliamentary election of 2001 and the replacement of the Solidarity Electoral Action (Akcja Wyborcza Solidarność, AWS) government by a left-wing coalition of the Democratic Left Alliance (Sojusz Lewicy Demokratycznej, SLD), Polish Peasants Party (Polskie Stronnictwo Ludowe, PSL) and Labour Union (Unia Pracy, UP). A significant shift in the situation ensued. First, the unions lost what had previously been a very strong position in parliamentary circles. Second, the new coalition, its ostensibly left-wing pedigree notwithstanding, appeared to opt to cast its lot in with private business rather than with the employees. Third, there appeared in parliament a group of deputies representing private business, who are to be found within the governing coalition itself as well as in the ranks of other political parties with parliamentary seats, including Self-Defence (Samoobrona), the most populist of the parties.

The left-wing government and new labour law flexibility

Work on revision of the Labour Code so as to render it more flexible commenced in 2001 when Jacek Piechota, a member of the 'post-communist' SLD party, assumed the portfolio of Minister of the Economy. In the previous parliament, Mr Piechota had chaired the SMEs commission. Once he was installed in his ministerial post, his office proceeded to draw up a list of demands from the SME community. This was distributed to a number of appropriate parties, the Ministry of Labour and Social Policy included, and provided the basis for some preliminary proposals as to how Polish labour law could be made less rigid, and general debate ensued (PL0206101N).

In the initial stages of the debate, the unions affiliated to the All-Poland Alliance of Trade Unions (Ogólnopolskie Porozumienie Związków Zawodowych, OPZZ) were much better disposed towards the government’s proposals than was the Independent and Self-Governing Trade Union Solidarnosc (Niezależny Samorządny Związek Zawodowy Solidarność, NSZZ Solidarność). Statements by the Minister of Labour and Social Policy, soon followed by similar ones by the Prime Minister, to the effect that a more flexible Labour Code would soon bring about more jobs and less unemployment sparked a controversy, with union activists and independent experts both in Poland and abroad stating that reducing unemployment depends first and foremost on increasing demand, reducing the high tax burden on labour and similar factors - meaning that it must be a long-lasting process and that no 'quick fix' is possible. That said, it was generally acknowledged, even in union trade circles, that the inflexible rules put in place by the Labour Code must be amended. However, the unions – most notably NSZZ Solidarność – took issue with most of the specific amendments proposed.

Minister successful in securing change

The Minister of Labour and Social Policy, Jerzy Hausner, succeeded, against the objections of the trade unions, in securing in July 2002 the passage through parliament of an entire legislative package amending the labour laws, the Labour Code included (PL0209107F). These changes were generally well received by economists and 'opinion leaders', though private sector employers initially viewed them with some misgivings. This particular group consistently demands better financial conditions for the pursuit of business activity and, first and foremost, this is up to the Ministry of Finance (Ministerstwo Finansów, MF) (eg through lower taxes), with anything that the Ministry of Labour and Social Policy might do being of secondary importance at best. The new flexibility of labour law is taken by many owners of SMEs to be a reversion to the state of affairs of the early 1990s, rather than representing any substantively new change in the conditions for doing business. It should be borne in mind in this context that private businesses arguably dispose of considerable possibilities as regards circumventing the law, particularly given the comparatively toothless nature of monitoring by the State Labour Inspection (Państwowa Inspekcja Pracy, PIP). Some private sector employers are nonetheless coming to appreciate the efforts of the government, with the view that the new regulations are in fact designed 'to ease the lot of the entrepreneur and to stimulate entrepreneurship' (according to the Rzeczpospolita newspaper on 4 December 2002) slowly taking hold. This is worth bearing in mind, given that earlier surveys carried out by labour sociologists indicated that businesspeople tend to view the government as an institution which pays absolutely no heed to their interests.

For achievements such as having pushed through the amendment of the Labour Code, engaged in social dialogue at central level and initiated such dialogue in the regions, Mr Hausner, the Minister of Labour and Social Policy, has been lauded by the influential Gazeta Wyborcza daily newspaper (18 October 2002) as 'the best since Kuroń' (the highly popular Jacek Kuroń was the Minister of Labour in the government of Prime Minister Tadeusz Mazowiecki, post-communist Poland's first cabinet). Gazeta Wyborcza continued that, 'rather than endlessly reminding all and sundry about social justice, Minister Hausner has created a language in which he combines economic slogans with ones about the building of civil society, with academic knowledge thrown in for good measure. In spite of the lack of support structures within the SLD apparatus and of many unpopular decisions, he has gained standing (if not necessarily affinity) among trade union people.'

Following the legislative Act of 26 July 2002 amending the previous Labour Code and certain other statutes pertaining to labour law, the new Labour Code started to come into force on 29 November 2002. The main changes are highlighted in PL0209107F, and here we examine in more detail arguably the most important of them - the possibility of suspending the application of certain provisions regulating employment conditions in companies in financial difficulties. Its significance lies in the fact that it has brought to light gaps in the existing labour laws.

Temporary suspension of non-Labour Code employment law provisions

According to the new Labour Code, 'where justifified by the financial situation of the employer, an understanding may be executed concerning suspending the application, in whole or in part, of the provisions of labour law which define the rights and obligations of the parties to an employment relationship; this shall not apply to provisions of the Labour Code and to provisions of other legislative acts and of executory instruments.' Thus, the new Code allows for agreements to be concluded in companies in financial difficulties which suspend temporarily the application of the provisions of 'in-house' instruments such as collective agreements, remuneration rules, or work bylaws (all of which are considered to be 'labour law instruments').

This possibility of temporary suspension does not apply to the provisions of the Labour Code. The original proposal made by the employers, embodied in the preliminary draft of the new Labour Code and considered by the unions, had aimed further and provided that, in the event of financial problems in a firm, the suspension could also extend to some provisions of the Labour Code itself. A provision was proposed whereby, by way of a collective agreement, exceptions to the disadvantage of employees could be introduced with regard to the remuneration guarantees provided for in certain provisions of the Labour Code. In the wake of consultations with the social partners (ie the trade unions) and with one of SLD’s coalition partners (UP), however, it was decided that the possibility of suspension could apply only to such provisions as provide employees with privileges beyond what is required by the Labour Code and what arises from the relevant collective agreements and/or employment contracts. In other words, while the original plans for modification of the Labour Code in this area were amended, the new Code, as adopted, has still created leeway for temporarily reducing, by agreement between the parties, the wages paid out to workers. This new provision is of value not only to large employing operations in which collective agreements accord to employees privileges far greater than the Labour Code minimum, but also to small enterprises where no collective agreements have been concluded (in this latter case, an agreement which temporarily reduces the pay agreed in workers' employment contracts may be resorted to). The Act makes it clear, however, that such an agreement may not reduce pay below the minimum wage, and that it may not modify the rates for additional remuneration (eg for overtime work) set by the Labour Code. The new Code institutes a limit of three years for the period of time during which employee rights may be suspended.

The principle of equality between the parties dictates than any change in the terms and conditions of the labour relationship may not flow solely from the will of the employer. Accordingly, any suspension of the labour law regulations can be effected only with the approval of employee representatives. In some employing operations, there are trade union organisations which are a 'natural' representative of employee interests. However, a major problem arises in workplaces where there are no trade unions - a state of affairs which, with trade union density at around 14%, persists in most Polish business operations (PL0208105F) - and no other form of employee representation, as is again commonly the case (PL0208106F).

To deal with this problem, the legislator has introduce 'via the back door' a new industrial relations institution, providing that, in non-unionised employing operations, any agreement concerning the suspension of collective agreements and other labour law rules can be made with an 'employee representation convened in accordance with procedures in force within that employing entity'. This is the only place in the Labour Code where the need to convene such an 'employee representation' is provided for, although the Code does not make any specific provisions as to how this representation might be established. Aware of the somewhat dubious legitimacy of such ad hoc representation, the legislation provides that an agreement thus reached must be endorsed by the relevant 'district commission for social dialogue', whose members include union representatives. As one union expert, Jerzy Rel, writes: 'considering that the Labour Code does not regulate the means of appointing workforce representatives or the procedures for the passing of their decisions (resolutions), there will be a special duty incumbent upon the commissions for social dialogue as regards ruling on the propriety (democratic nature) of appointing such representation as well as on the propriety of the agreement’s execution.' The district commissions for social dialogue will thus play a pivotal role in any agreements to suspend labour law provisions concluded at employing entities which do not have trade union representation.

The trade unions have voiced additional reservations concerning the new provisions. First, they are worried by the fact that the Code makes no provisions as regards the procedures and scope of verifying agreements for the suspension of labour law provisions by the district commissions for social dialogue. In particular, union experts have dwelt on the fact that, as the law now stands, there is no way of knowing whether or not the commissions or the State Labour Inspection may appraise the financial situation of the employer in question and ascertain whether it is in fact so dire as to warrant temporary suspension.

Another doubt has to do the practical operation of labour law in Poland. Labour laws are routinely violated by many businesses and trade unions, appreciative of the difficulties of employers, often accede to sacrifices which go far beyond anything countenanced by the Labour Code. Many of the strikes in Polish industry over the past two or three years have been caused by the fact that the workers have had to go without their wages for months on end (the record being six) or, alternately, have received only half the minimum wage (PL0210105N). It was circumstances of this sort which have led to much-publicised strikes at the Odra textile works or in the shipyards. In these circumstances, it might be wondered whether employers, especially in the SMEs sector, will be likely at any time in the near future to bother with formal agreements on suspending labour law provisions with the trade unions, or to appoint employee representation and then register the relevant agreements with the State Labour Inspection and with the district commissions for social dialogue.

Commentary

Irrespective of the present significance of the new legal provision providing for agreements which temporarily limit the application of labour laws, it may well play an important role in blazing the trail for institutionalised workforce representation, including in those employing organisations in which no unions operate. One can assume that, if the 'suspension agreements' prove to be helpful to Polish employers and they are willing to use them, practice may lead to the entrenchment in Poland of forms of employee representation such as exist in some other countries of the former eastern bloc. Under this type of solution, an institutionalised representation of the workforce is appointed in entities at which no trade unions operate and is subsequently dissolved if a trade union comes into being. (Juliusz Gardawski, Institute of Public Affairs (Instytut Spraw Publicznych, ISP) and Warsaw School of Economy (Szkoła Główna Handlowa, SGH)).

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