Extension of collective agreements under debate

Following a ruling by the Constitutional Court, since April 2004 the Czech Republic's legislative provisions that allow 'higher-level' (ie multi-employer) collective agreements to be extended to non-signatory employers have been rescinded. In close cooperation with the social partners, the government has drafted an amendment to the relevant legislation, which will create a revised extension scheme, aimed at meeting the Constitutional Court's requirements. 

Based on a petition lodged by 52 members of the Chamber of Deputies (Poslanecká sněmovna Parlamentu) in November 2002, in June 2003 the Constitutional Court (Nejvyšší soud ČR) issued a ruling that rescinded Section 7 of the Act on collective bargaining (no. 2/1991 in the Collection of Laws), which covers the extension of collective agreements to non-signatories, on the grounds of conflict with the Constitution of the Czech Republic. The Constitutional Court ruling took effect on 31 March 2004, since when the extension of collective agreements has lost its legal basis.

Under Section 7 of Act no. 2/1991 (the collective bargaining Act), the Ministry of Labour and Social Affairs may issue a regulation stipulating that a 'higher-level collective agreement' is binding for employers that are not members of the employers' organisation that signed the agreement. The Constitutional Court ruled that extending such agreements is appropriate, but that the relevant provision of the collective bargaining Act does not make extension conditional on the collective bargaining in question being representative and does not satisfy the requirement of 'exceptionality' (ie extension should be exceptional), and is therefore in conflict with the Czech Republic's Charter of Fundamental Rights and Freedoms.

In November 2003, the Ministry of Labour and Social Affairs (Ministerstvo práce a sociálních věcí ČR, MPSV) submitted for review a draft amendment to the collective bargaining Act, which responds to the Constitutional Court ruling and deals with extension in a new way. The proposed solution was drawn up in close connection with the preparation of a new Labour Code and the draft amendment was drawn up in close cooperation with the social partners. At the start of March 2004 (after the review process had been completed but before the Court’s ruling had come into force), the social partners that had taken part in preparing the new legislation with the Ministry sent the government a demand. This document, signed by the chair of the Czech-Moravian Confederation of Trade Unions (Českomoravská konfederace odborových svazů, ČMKOS), Milan Štěch, and the managing director of the Confederation of Industry of the Czech Republic (Svaz průmyslu a dopravy ČR, SP ČR), Zdeněk Liška, asked the government to approve the proposed new section 7 of the collective bargaining Act with the utmost haste and move it to the next stage of the enactment process. At the same time, they warned of the weakening of the significance of higher-level collective agreements and social dialogue in general as a result of the absence of any legislation on extension from April 2004 onwards. In the middle of June 2004, the government approved the draft amendment of the Act and put it before parliament.

Background

The legislation governing collective labour relations in the Czech Republic primarily takes the form of the abovementioned collective bargaining Act, which is procedural in nature and chiefly constitutes the implementation of the relevant provisions of the Labour Code (the fundamental source of labour law) and other labour regulations. First and foremost, the collective bargaining Act lays down binding rules for the conduct of collective bargaining, including the resolution of collective disputes. The contracting parties are obliged to deal with each other, to provide requested cooperation and to start negotiations on new collective agreements a certain amount of time before an existing agreement expires. This makes it possible to compel the other party to conclude a collective agreement and to accept its substantial provisions. Although the collective bargaining procedure may be based on the principle of contractual freedom, the dominant factor behind the law is the 'social interest' in the successful completion of such collective bargaining on grounds of social peace.

In general, collective agreements are concluded as bipartite accords between employers and trade unions. The unions do not negotiate solely on behalf of their members, but also act on behalf of employees who are not trade union members. The Act does not require trade unions or employers' organisations to prove the number of members they possess and does not define any other 'representativeness' criteria for the unions or employers' organisations. The principle of representativeness is not enshrined in the system of collective labour relations in the Czech Republic.

Besides 'enterprise-level collective agreements' (ELCAs) concluded between a trade union organisation and an employer, the collective bargaining Act also recognises 'higher-level collective agreements' (HLCAs) above the enterprise level, concluded for a larger number of employers between the relevant trade union association and an organisation of employers. The legislation does not specifically recognise sectoral collective agreements covering an entire sector or field of economic activity (Czech law contains no definition of economic sectors). If sectoral collective agreements are spoken of in the Czech Republic, in practice these agreements are denoted as HLCAs, regardless of the actual scope of coverage.

From the time the Act came into force, the formation of HLCAs has been plagued by the problem of the legitimacy of the employer party, or the unwillingness of certain employers' organisations to undertake collective bargaining. The result is that HLCAs apply to a limited number of employees. In 2000 and 2001, for example, HLCAs concluded by trade union federations affiliated to the largest confederation, ČMKOS, covered only around 13% of all employees in the civilian part of the economy (17%-18% if those covered by the extension of such agreements are included). In 2002 and 2003, the figure was 16% (22%-23% including extensions). ELCAs concluded by member unions of ČMKOS federation covered roughly 35% of the civilian workforce in 2000 and 29% in 2003.

Given the two-tier nature of collective agreements, the Act also deals with the relationship between ELCAs and HLCAs, favouring the latter. One of the consequences of this relationship between the two tiers of collective agreements is that if, for any reason (including the absence of a trade union partner) there is no ELCA concluded for an enterprise, the provisions of the relevant HLCA are binding for the employers belonging to the employers' organisation concerned. In practice, though, the real possibilities for applying this rule are limited, as HLCAs are not commonly used in enterprises in the Czech Republic (mainly due to the low 'accessibility' of HLCAs for enterprises, and even more so for an ordinary employee). The low level of authority enjoyed by collective agreements in general and HLCAs in particular also hinders their broader use.

Extension of agreements

Under the now rescinded provision of Section 7 of the collective bargaining Act, the Ministry of Labour and Social Affairs could decree that an HLCA is also binding for employers that are not members of the employers' organisation that signed the HLCA. It was possible to extend HLCAs only to employers that were not covered by a different HLCA and that had an equivalent business and equivalent economic and social conditions. However, the legislation did not oblige the Ministry to extend a particular HLCA, and the Ministry’s, or the Minister’s, opinion was decisive (this was most clearly evident from 1996 to 1998, when over 50 HLCAs were signed but not one was extended).

These general principles constituted practically the entire substance of the law’s provisions on HLCA extensions. There is no legislation defining in greater detail the conditions of extension, including procedural particulars. Any degree of 'concretisation' of the goals, the procedure, the content or the set of extension 'beneficiaries' was introduced only by implementation practice, which has been accompanied, from the start of application of the Act in 1991 practically to the present day, by debate between the social partners (the extension of HLCAs was negotiated in a commission composed equally of representatives of the social partners represented on the national tripartite body), and in political and legal circles. Although this is a specialised issue, it was also of interest for the general public and the matter of HLCA extensions also featured in the press from time to time.

Doubts arose as to the meaningfulness, function and purpose of this legislative measure. In practice it is difficult to distinguish the purpose of extension from the criteria used to select the set of entities for which HLCAs should be made binding - eg it is debatable whether the factor of equivalent economic and social conditions that the Act stipulated as one of the extension criteria is not in fact a goal that HLCA extension would help achieve in a particular sector. According to a 'methodological platform' adopted in the national tripartite Council of Economic and Social Agreement (Rada hospodářské a sociální dohody, RHSD) and approved by the plenary session of the RHSD in April 1998, the main objectives in extending HLCAs were to eliminate: the palpably disadvantageous social situation of employees whose employers are not members of an employers' organisation that signed an HLCA; and the economically unequal position of employers that are members of employers' organisations that signed HLCAs compared with employers that are not members and may therefore enjoy more advantageous economic conditions of business.

The content of extension turned out to be another debatable point. The question was whether only HLCAs as a whole unit should be extended, or if only part of the agreement could be proposed for extension. Other points of contention were the Ministry of Labour and Social Affairs’ authority to assess shortcomings in concluded agreements and the extension of HLCAs by means of 'sub-Act norms' (this was related to the question of whether it would involve other obligations over and above those in the Act being imposed). Extending HLCAs by proceeding down the full legislative path through parliament seemed inconceivable in practice, for reasons of time if nothing else, and this is also the reason that the Ministry abandoned its practice of case-by-case discussion of employers’ comments on the proposed extension.

All these problematic issues - and others besides - related to the process of extending HLCAs pointed towards the central problem of the system as a whole, which by all accounts consists in the definition of the set of employers to which HLCAs are to be extended. The collective bargaining Act makes it possible for a whole series of employers that are members of employers' organisations concluding HLCAs to stay outside the extension process, if they so desire. If an employer organisation’s statutes require its members to empower it to negotiate and sign HLCAs, these employers may evade being covered by an HLCA simply by not providing this empowerment, with no risk of expulsion from the employers' organisation.

The impact of HLCA extension, however performed, was devalued by the lack of control over implementation of HLCAs at employers to which they are extended. The Czech state lacks a comprehensive mechanism enabling it to monitor the implementation of collective agreements in general and HLCAs in particular. The need to check that HLCAs are implemented derives from their normative function, which is likely to be considerably reinforced by further legislative development in the Czech Republic. This means that the problem of feedback on implementation of HLCAs at employers to which they are extended, an area where state supervision is seen as undoubtedly necessary, should not be assessed in isolation, but in the entire context of the control of implementation of collective agreements and monitoring thereof in general.

The procedure applicable for HLCA extension, as agreed between the Ministry of Labour and Social Affairs and the social partners, was as follows: the contracting parties presented the Ministry with a list of employers to which they demanded the agreement be extended - extension was not across-the-board for an entire sector, but individual, in the form of a list of employers. The economic and social conditions of these employers were taken into account and no distinction was made as to whether a trade union organisation operated at the employer or not. This method included consideration of the employer’s predominant business and set a certain minimum workforce size, defined separately for employers in different sectors, below which HLCAs could not be extended to an employer.

The means of applying extension without doubt strengthened the role of the social partners in the preparatory (proposal) phase. Their representatives’ view of the business conditions of specific employers was decisive for the extension commission, and the representatives of trade unions and employers thus shouldered a substantial part of the responsibility for the selection of entities to which agreements were to be extended. The appropriate section of the Ministry was responsible for the conditions for the commission's operation, communicating with the employers proposed for coverage by extension and handling the administrative work related to the extension decision.

Proposed legislative solution

As indicated above, from the start of its application in the Czech Republic, HLCA extension has been plagued by a number of problems and points of controversy, linked not only to the applicable legislation but also to the attitudes of the representatives of social partners at national and sectoral level and of the Ministry of Labour and Social Affairs, as reflected in the means by which extensions were prepared and performed. In the justification for its June 203 ruling, the Constitutional Court (which did not reject the institution of HLCA extension itself) set three requirements for legislation on HLCA extension:

  • that the system of collective bargaining be representative;
  • that the application of HLCA extensions be exceptional; and
  • that the fundamental right to 'judicial protection' be assured.

A reformed extension system should mainly ensure that employers that refrain from collective bargaining or practice collective bargaining without any intention of providing their employees with the kind of benefits that are customary and reasonable among equivalent employers do not enjoy an unjustified competitive advantage in the form of cheaper labour and a better market standing, to the detriment of their workers. HLCA extension is also recognised as a state measure to support collective bargaining in line with International Labour Organisation (ILO) Convention No. 98 on of the right to organise and collective bargaining, and ILO Recommendation No. 91 on collective agreements.

With regard to the question of defining the business entities to be covered by an extension, the government's proposed amendment to the collective bargaining Act opts for a general normative designation of the entire set of employers to which an HLCA will be extended under the conditions laid down directly in the Act. This is chiefly a question of ensuring that HLCAs are concluded by organisations of employers that employ the most employees in the sector, or by trade unions that represent the greatest number of workers in the sector.

The draft amendment does not include the possibility of decision-making by a state body over extension and should thus rule out any application of differing attitudes and approaches. Nor does it mention the possibility of administrative action (by contrast, judicial review is possible in the cases indicated by the Constitutional Court). According to the Ministry of Labour and Social Affairs, which submitted the draft legislation, this was the result of an endeavour to avoid inordinate protraction of the extension process as a whole. So, if the conditions laid down by law are satisfied - ie if the parties to the HLCA in question can prove that they are satisfied - the Ministry will promulgate this in the Collection of Laws and the HLCA will thus be extended to cover other employers by law. This choice of procedure should help ensure that the extension process is transparent, relatively fast and independent of the political will of the relevant state body.

Commentary

There is no doubt that one point of view from which the draft amendment of the collective bargaining Act will be assessed will be the extent to which it accommodates the requirements of the Constitutional Court. In fact, from this point of view the amendment arouses certain objections. The most serious reservations that the legislators have failed to resolve concern the concept behind the amendment and were voiced as comments during the previous stages of the legislative process. They include: the allegation that the principle of the contracting parties’ representativeness and the principle of 'exceptionality' in applying extensions were not heeded; the fact that decisions on extension are left to the parties that signed the HLCA; and the fact that employers already covered by another HLCA are not ruled out from being covered by the extension. (Jaroslav Hála and Aleš Kroupa, Research Institute for Labour and Social Affairs)

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