Many changes flow from revised Labour Code

Slovakia’s revised Labour Code took effect on September 1, 2011 with the stated goals to bring more flexibility in employment relationships, to create more new jobs and to better protect the most vulnerable employees in the labour market. But the brief time since the changes took effect, the deteriorating economic environment and the possibility that the code may be revised again after the March 10 parliamentary elections, makes it nearly impossible to assess whether the revised code will accomplish its stated objectives.Based on a survey among CEOs and HR managers of more than 50 major companies operating in Slovakia conducted by Accace, a company providing accounting and tax advisory services, the elimination of employees’ parallel entitlement to layoff notice and subsequent severance pay is seen as one of the most important changes.

The Labour Ministry, which proposed the amendment to the Labour Code, said the changes would make the labour market more flexible and build a better environment for job creation and believes that the revised code has already met these goals. Business groups say last year’s changes could have been more extensive while trade unions have not hidden their disapproval of the revisions, stating that employers are using provisions of the law to more easily terminate employees rather than hiring new staff.

The amended Labour Code, which the government said was one of the most important pieces of legislation it pursued in 2011, was adopted by Slovakia’s parliament on July 13 with an effective date of September 1. It introduced multiple changes to the Labour Code that had been last modified by the previous government of Robert Fico.

The changes introduced by the amendment to the Labour Code include: cancellation of employees’ parallel entitlement to a layoff notice period as well as severance pay; a longer time period for fixed-term employment contracts, which can now be renewed annually for up to three years; a longer layoff notice period for employees with long service in the same job; and greater protection for new mothers and pregnant women.

The amendment also restricts the negotiating rights of a trade union with few members in a particular workplace and establishes a 3-percent limit in the profit margin of companies that sell meal vouchers to employers for their employees’ use. Additionally, the new Labour Code removed an earlier restriction on certain overtime hours, makes it easier for employees to draw compensatory leave, sets lower premium payments for overtime work and permits employers to more easily schedule night shifts.

The amendment also requires newly-hired managers to serve a longer probationary period than previously and initiates a so-called non-compete clause for certain employees; mandates five weeks of annual holiday for employees who are age 33 and older; eliminates special advantages previously available to managers working for the state; and allows employers to share a single work position between two or more employees. The new Labour Code retains six different minimum wage levels based on the nature of a job and its qualifications. An employer is required to negotiate with a trade union only if it represents at least 30 percent of the employees at a particular firm.

“The Labour Code is an important aspect in the labour market but since it cannot create new work positions on its own it is not the only important factor,” Michal Páleník, the head of the Employment Institute, an economics think tank, told The Slovak Spectator. “It can facilitate job creation and can simplify the administrative issues faced by entrepreneurs when opening new jobs but it cannot create new jobs if the economy is not moving forward.”

Two employers’ associations, the Federation of Employers’ Associations (AZZZ) and the National Union of Employers (RÚZ), as well as Slovakia’s trade union confederation, also share the opinion that the revamped Labour Code itself cannot generate new jobs and is only one of several necessary steps needed for job creation.

“The Labour Code can only create a suitable legislative framework for creation of new jobs,” Martin Hošták of RÚZ told The Slovak Spectator. “If it is too rigid, then new job positions are not created. Thus it makes no sense, even for people looking for a job, to have a strict Labour Code – because then they have much more difficulty in their job search.”

Hošták added that Slovakia’s high unemployment is particularly the result of externally-produced shocks such as the sovereign debt crisis in Europe and its knock-on effects, but welcomes the legislated changes that took effect last September.

“I’m convinced that if the Labour Code had not been changed, unemployment would be much higher now,” Hošták stated.

Páleník believes that some job positions were terminated because of the changes in the Labour Code while some new jobs were created but that it is much too early to fully assess the success of the amended code in this area.

“The new language [of the Labour Code] has been valid for only a few months and the current uncertainty regarding future economic developments as well as the forthcoming general election on March 10 makes employers afraid,” Páleník stated.

The Ministry of Labour, Social Affairs and Family agreed that it has only been a short time since the amendment took effect, but believes some first fruits have been harvested.

Daniela Šulcová from the ministry’s press department told The Slovak Spectator in mid January that 35,528 job seekers were removed from the country’s unemployment registers last September and that 20,818 of these people had found appropriate employment, a 41-percent increase compared to August. She also cited figures from Slovakia’s social security provider, Sociálna Poisťovňa, that 17,000 job positions had been created since the amendment became effective.

Rastislav Machunka, vice-president of AZZZ, also believes that the revised Labour Code has generated new jobs.

“Over the course of 2011, when employers knew approximately which changes would be adopted in the code as well as because of the improving economic environment abroad – valid only for the first half of the year – the economy generated 32,000 new jobs and employment grew by 1.7 percent during the third quarter of 2011, year-on-year,” Machunka told The Slovak Spectator, adding that the number of unemployed had decreased by only 21,000 over the first six months of 2011.

The Labour Ministry believes that certain parts of the revised Labour Code are particularly important during times of economic crisis if employers use these possibilities.

Šulcová noted that the revised code now permits employers to initiate so-called working time accounts (known as flexikonto in Slovak) for their employees during periods of fluctuating work orders. While this was available in the past it could only be used on a temporary basis. By using working time accounts an employer can schedule working hours based on business conditions, ordering overtime when workload is heavy and reducing employees’ work hours or cancelling work weeks when the workload is light.

Employers’ opinions

“This is a forward step for employers,” Zuzana Chmeľová stated in a summary of the results from the Accace’s survey, noting that this reduces a company’s separation costs for an unproductive or redundant employee. “Of course, an employee does not perceive this change positively because he or she is losing a job as well as the severance ‘addition’ for some months after termination of his or her employment contract.”

The summary also noted that around 50 percent of the respondents in the Accace survey reported that they had already used or plan to use the option to extend the probationary period for newly-hired managers, as it is seen to reduce employers’ risks in hiring management personnel. The summary also noted that the surveyed companies welcomed the longer overtime work hours for managers as well as making working time accounts a standard, rather than temporary, option for employers. Manufacturing companies particularly welcomed this change in working time accounts.

The companies in the survey reported that they viewed the so-called non-compete requirement introduced by the amended Labour Code as somewhat vague in its impact. B&S Legal, a law firm, wrote that this concept was not previously recognised under Slovak law even though non-compete clauses were part of some employment contracts, with uncertain enforceability. An employer and employee may now sign a non-compete clause in an employment contract under which the employee agrees not to perform any competing work for a maximum period of one year after separation from employment. The employer is obligated to pay the separated employee compensation equal to at least 50 percent of the employee’s previous salary for the duration of the non-compete period, B&S Legal wrote.

“Time will show how this non-compete clause will be used in practice and whether it will meet its objectives,” Chmeľová wrote in the summary.

“Employers evaluate the new Labour Code positively,” Hošták of the RÚZ told The Slovak Spectator, stating that ending an employer’s obligation to pay severance and also provide notice while introducing the possibility to pay only severance rather than giving notice, the ability to sign longer fixed-term employment contracts, and standardising the use of working time accounts are clear steps to make employment relationships more flexible.

Machunka of the AZZZ said employers who are members of his association also have positive opinions about the revised Labour Code and see more labour market flexibility as a key way of reducing unemployment.

“We positively assess particularly those changes which have made the Labour Code more flexible and have reduced costs when terminating an employee,” Machunka told The Slovak Spectator.

Trade union reactions

Slovakia’s trade unions have been against any changes in the Labour Code ever since the government initially proposed revisions.

Miroslav Gazdík, president of the Confederation of Trade Unions (KOZ), said the previous Labour Code was comparable with labour laws in other European countries and properly balanced the position of the employee vis-à-vis an employer under the law, when without the law an employee is in a weaker position.

“No Labour Code generates and secures creation of new jobs,” Gazdík told The Slovak Spectator. “Other significant factors, for example enforceability of laws, financial ability and others, must act hand in hand with the Labour Code. But these other factors are not working in Slovakia as they should be and one cannot expect any new work positions coming just from the revised code.”

Gazdík takes his argument further and believes that the revised Labour Code has had an opposite result than what was promised regarding increased employment.

“Many companies right now are announcing layoffs, also mass layoffs,” Gazdík stated. “The new code just enables employers to more easily manipulate the labour force, including making it easier to get rid of employees.”

KOZ has challenged the revised code before Slovakia’s Constitutional Court with the assistance of MPs from the Smer party, arguing that many requirements of the code are unconstitutional. It has also asked for assistance from the International Labour Organisation and the European Trade Union Confederation and it is expecting to hear their positions on the revised code in the near future.
Gazdík told The Slovak Spectator that after KOZ studies the comments from those two organisations and receives a decision from the Constitutional Court, the confederation will decide on its next steps, adding that a possible change in the government after the March general election could also have an impact.

Upon adoption of the changes to the Labour Code, Smer leader Robert Fico criticised the new legislation, stating that it weakened legal protections for working people “at a time when they need them most”. Because Smer is showing strong popular support in polls in the lead up to the parliamentary elections, it is possible that the Labour Code could be modified again after a new government takes power.

Because nearly every new government seeks to make changes in the Labour Code, the AZZZ is suggesting that this particular law be made more difficult to change. Tomáš Malatinský, the president of the AZZZ, said on January 25 while presenting his association’s goals for the next government, that it would be good if the Labour Code was made a constitutional law, the TASR newswire reported.

For more information about the Slovak labour market, HR sector and career issues in Slovakia please see our Career & Employment Guide.