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Revised Labour Code gets mixed receptionDismissing workers is still cheaper here than in western Europe
25 Feb 2013 Jana Liptáková Career and HR
Slovakia has a new Labour Code, again. Robert Fico’s second government moved to revise Slovakia’s most significant employment law soon after taking power following its landslide election victory in March 2012. While trade unions have welcomed the revision and, like the Labour Ministry, regard it as an improvement in employee protection, the business sector blames it, along with the fiscal consolidation measures passed at around the same time, for prompting an increase in unemployment, worsening conditions for the creation of new jobs and for creating more red tape for businesses. Nevertheless, dismissing workers in Slovakia remains significantly cheaper than in western Europe, a recent study suggests.
“The development of the economy, not the Labour Code, determines employment,” Labour Minister Ján Richter said in response to criticism that the revised Labour Code would lead to job losses.
But economic analysts and employers expressed disagreement, arguing that the current unfavourable economic situation is not the only factor contributing to growing joblessness and that the government does, in fact, have an important role to play in supporting employment.
“It is not possible to blame the crisis forever,” Ján Dinga from the Institute of Economic and Social Studies (INESS), a think tank, told The Slovak Spectator. “It is not just the crisis but, in particular, high costs in the form of taxes and compulsory contributions, which the government increased as of the beginning of 2013, that are behind the insufficient creation of jobs by employers.”
According to Dinga, administrative barriers, along with the revised Labour Code and the minimum wage, are reducing the opportunity to hire people, especially those with lower qualifications.
“The removal of administrative barriers and a reduction in the burden of income and payroll taxes on labour is fully within the power of the government and there is no reason why the government could not support creation of jobs,” said Dinga.
The revamped Labour Code
The Fico government produced a revision to the Labour Code that it claimed would redress the balance in the relationship between employees and employers, which it believes was significantly harmed to the detriment of employees by the previous government, led by Iveta Radičová. The latest revision sailed through parliament on October 25, 2012, thanks to the ruling Smer party’s solid majority, meaning that the Labour Code changes passed by the Radičová government, which had been valid only since September 2011, were largely reversed as of the end of 2012.
“This revision secures… the setting of such equilibrium as well as puts into balance the rights as well as duties of the employer as well as employees,” Minister Richter said, as quoted by the TASR newswire, after the revision was adopted. He added that Slovakia now has what he called a modern and balanced Labour Code.
But employers and opposition MPs attacked the changes, saying they are the opposite to what Slovakia’s economy, affected by the economic crisis and suffering from high unemployment, needs. They argued that it will increase the costs of employment, slow creation of new jobs and reduce Slovakia’s growth prospects and competitiveness.
“It is bewildering that the government, which is carrying on its shoulders the burden of 398,000 jobless people, adopts such legislation, which makes solving this problem even more difficult and simultaneously endangers the jobs of thousands of other employees,” Martin Hošták, secretary of the National Union of Employers (RÚZ), told The Slovak Spectator when commenting on the adoption of the revision.
Radovan Ďurana of INESS said that Slovakia is afflicted not by a lack of protection for employees but by high unemployment.
“The changes in the Labour Code are supposed to protect employees, but [before the change they were] not going onto the streets to strike against draconian conditions at work,” Ďurana told The Slovak Spectator. “The problem of Slovakia is the more-than-13-percent jobless rate. The revision to the Labour Code closes the door on this group of people.”
It may be several months before the effects of this latest revision to the code become clear.
“We will see the development in the jobless rate mirroring the impact of the new Labour Code and higher income and payroll taxes only after the unemployment figures for the first months of 2013 are revealed,” said Dinga, adding that the employment rate reflects reality only after a certain delay, since an employee dismissed one month is not added to the unemployment register at the labour office until the following month.
Meanwhile, the Confederation of Trade Unions (KOZ) has hailed the revision as the welcome fulfilment of a pre-election promise by the ruling Smer party – but also the result of an initiative by representatives of KOZ itself.
“KOZ considers the adopted revision to be a more balanced code of work-legal relations between employer and employee than the previous one elaborated by [ex-]minister Jozef Mihál,” KOZ spokesperson Otto Ewiak told The Slovak Spectator. “It is at the level of the European work-legal standard.”
The revision reintroduces the entitlement to a layoff notice period as well as to severance pay. An employee who has worked for an employer for at least two years now also has the right, apart from period of notice, to receive a severance payment. Employees who have worked for an employer for between two and five years are be entitled to severance pay of one month’s wages. After working for the same employer for five to 10 years, they are entitled to two months’ wages; for between 10 and 20 years they get three months’ wages; and for more than 20 years they receive four months’ wages.
The new code shifts the status of people working under “na dohodu” work contracts closer to that of regular employees in terms of working hours and minimum wages. It also curbs the ‘chaining’ of fixed-term employment contracts, whereby it was possible to extend a fixed-term employment contract three times over three years. As of January 2013 it is possible to do this only twice over a 24-month period.
The revision also changes the definition of dependent work (i.e. permanent employment). The objective of this redefinition is to specify which work should be carried out under a standard employment contract, thus providing an employee with full rights and protection, rather than via self-employment, for instance. The Labour Ministry believes that the former definition of dependent work enabled employers to push employees into less advantageous work contracts, including so-called false self-employment contracts, and it has sought to simplify the definition to prevent employers from doing this.
Employers have criticised the capping and limiting of fixed-term employment contracts and “na dohodu” work contracts, changes to the definition of dependent work, conditions placed on flexi-accounts requiring the agreement of trade unions and the omission of the condition of ‘representativeness’ of trade unions in a company.
Rastislav Machunka, president of the Federation of Employers’ Associations (AZZZ), listed the limitation on ‘chaining’ of fixed-term employment contracts as one of the most negative changes.
“The [current] crisis is characterised by unstable and short-term orders, which forces us not to accept and carry out some orders,” Machunka told The Slovak Spectator, explaining that if employers took on employees to perform such orders they would have to cover the higher costs of their later dismissal, and would not be allowed to terminate a fixed-term employment contract more than twice. In this context, AZZZ said it also regards the introduction of entitlement to a layoff notice period as well as severance pay as a negative change in the code.
According to Hošták, these changes reduce employment flexibility, something which is particularly necessary during a period of economic crisis, and which will reduce the chances of finding work for many jobless people.
On the other hand, trade unions have welcomed changes in the definition of dependent work, work-time accounts, overtime work, chaining of fixed-term employment contracts, severance payments and the setting of a minimum notice period.
“The Labour Code is a code for labour legislation for the 21st century,” KOZ spokesperson Otto Ewiak told The Slovak Spectator. “Human dignity is also in the European context the biggest value in employee-employer relations which the Labour Code should protect. The flexibility rate, which some atypical forms of employment, so-called precarious work, enable ... is so high that it directly conflicts with dignity of work and, by contrast, brings into employee-employer relations elements of imbalance and wilfulness because such relations are not so rigidly regulated.”
KOZ disagrees with the argument that the revised Labour Code has caused an increase in unemployment.
“If employers laid off workers shortly before the revised Labour Code became effective to avoid the increased cost of severance payments, that is only a question of timing,” said Ewiak, adding that these workers would have lost their jobs sooner or later – not because of the changes to the Labour Code, but because of the decline in demand and reduction in production.
KOZ points out that the Labour Code is neither the sole, nor the most significant tool affecting employment and the creation of new jobs, estimating its share of all factors to be only one fifth. It also cites a study by Deloitte surveying the costs of dismissing employees across Europe, which it says shows that firing staff is far cheaper in Slovakia than it is in western Europe.
The study, which Deloitte in Slovakia released on January 9, 2013, states that the costs of dismissing an employee in Slovakia, as in other post-communist countries in central and eastern Europe, is still, on average, at least half that in the West, with the costs on average 2.3- to 2.7-times lower, according to income and number of years worked. The most expensive dismissals are in Italy, Belgium and Spain. But as the study by the Deloitte Legal European network of law firms, which monitors labour law conditions in 25 European countries, points out, labour legislation in these countries is being changed to reduce the costs of dismissal and thus make labour markets there more flexible.
“With regards to dismissal costs in Slovakia, these are lower than in western European countries, but the conditions for dismissing people are tighter,” Miroslava Terem Greštiaková said, as quoted in a press release from Deloitte.
According to the study, in approximately four out of five countries (81.5 percent), there is a minimal difference between the costs of dismissing an employee and the costs of termination of employment for economic reasons or for reasons related to the employee (e.g. health reasons, misconduct, or unsatisfactory performance).
In Bulgaria, Denmark, Poland, the Czech Republic and Slovakia this is not the case; indeed, the difference is the largest between the monitored countries.
“There are only a few countries in Europe that admit severance pay for the employee in the event of the termination of the work relationship due to reasons on the side of the employee,” Jan Procházka from Ambruz&Dark/Deloitte Legal in the Czech Republic said, as quoted in the Deloitte press release. “In a large number of western European countries, there is not even a legal right for an employee to obtain severance pay when he/she is dismissed for economic reasons. The high costs of dismissal for employees in these countries are caused mostly by long notice periods or by complicated employment and collective contracts, which require the assistance of lawyers.”
Terem Greštiaková points out that the Slovak Labour Code’s precise definition of reasons for dismissal is uncommon compared to most other post-communist countries and that even elsewhere in the EU it is unusual.
Regarding severance pay, the most generous labour codes from an employee’s point of view are in Spain, Italy and Sweden. The strictest labour codes from an employee’s point of view are seen in some western European and Scandinavian countries (including Germany, the Netherlands, Belgium, Norway and Finland), where employees have no right to a severance payment. This is paid out only if it has been previously agreed in the employment or collective contract, or if it is set out in the notice of termination itself, according to the survey.
For more information about the Slovak labour market, HR sector and career issues in Slovakia please see our Career & Employment Guide.More from Career and HR
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