Definitive Report - Report No 262, March 1989

Case No 1458 (Iceland) - Complaint date: 14-JUN-88 - Closed

1. 124. In a communication dated 14 June 1988 the Icelandic Federation of Labour presented a complaint of violations of freedom of association against the Government of Iceland. The Government sent its comments and observations in a communication dated 12 December 1988.
2. 125. Iceland has ratified the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87) and the Right to Organise and Collective Bargaining Convention, 1949 (No. 98).

A. The complainant's allegations

1. 126. The complainant alleges that the Provisory Act respecting Economic Measures, which was adopted by the Icelandic Parliament (the Althing) in May 1988, is incompatible with the principles of freedom of association.
2. 127. Article 1 of the Act provided that "wage tariffs" set out in all collective agreements which were current as of 20 May 1988 were to be increased on 1 June 1988, 1 September 1988, 1 December 1988 and 1 March 1989 by reference to a fixed percentage measured against wage rates as at 31 December 1987. Agreements which provided for a lesser increase were to be amended so as to bring them into line with the prescribed percentage. Existing agreements which provided for increases greater than the prescribed levels were not affected by article 1. With the appropriate amendments, all current agreements were to remain operative until 10 April 1989, and "lock-outs, strikes, including sympathy stoppage of work, or other acts intended to force an alternative order of wages and terms affairs to that stipulated in the present Act are forbidden" (article 4). Other provisions of the Act tied increases in the price of agricultural products and in the tariffs charged by "independently functioning specialists" to the scale set out in article 1 (articles 2 and 3), and also sought to control interest rates on short-term loans (article 8).
3. 128. The complainant states that this was the ninth occasion in the last ten years that general legislation of this kind had been introduced in Iceland, "not including Acts to prevent a trade union within a specific region from achieving amendments of wages and terms agreements (collective agreements) by means of strikes". The last occasion on which legislation of a general character had been introduced prior to 1988 was in 1983. The complainant also points out that since 1978 six of the nine legislative interventions had been introduced in reliance upon article 28 of the Constitution. This means that they were "provisory" laws issued by the President "in the event of extreme urgency" in the interval between sittings of the Parliament. All such laws have to be confirmed by the Parliament when it next meets.
4. 129. The complainant alleges that the Act of 20 May 1988 is incompatible with Articles 3 and 8 of Convention No. 87 and with Articles 3 and 4 of Convention No. 98.
5. 130. In support of this assertion, the complainant states that the repeated use of legislation to amend existing collective agreements serves to undermine wage earners' belief in the value of trade union membership. This is because there may appear to be little point in joining and supporting an organisation the principal purpose of which is to represent its members in collective negotiations with employers, if the outcomes of those negotiations are repeatedly set aside by legislative decree. In the long term this erosion of confidence could lead to the dissolution of trade unions.
6. 131. The complainant also states that it was prepared to discuss the state of the country's economy with the Government prior to the introduction of the Act of 20 May 1988. However, they claim that the Government regarded the provisions of the proposed legislation relating to wage rates as non-negotiable, and that when it saw that the unions were not prepared to accept unilateral action of this kind the Government broke off the discussions.
7. 132. Finally, the complainant expresses concern at the possibility that repeated interference by the State with voluntarily concluded agreements without reaction "may lead to Governments believing that the abolition of wages and terms agreements and of the right to negotiate be legitimate activities".

B. The Government's reply

1. 133. The Government points out that the Icelandic economy is heavily dependent upon the fishing industry. This has helped to make Iceland one of the richest countries in the world in terms of per capita GDP. At the same time, the cyclical nature of the industry also means that the economy is subject to greater fluctuation in terms of levels of GDP, inflation, etc. than in most other countries. Economic circumstances in the period 1985-87 were particularly favourable, and were reflected in substantial growth in GDP and in disposable incomes. However, the outlook for 1988 was much less promising. Fish catches were due to be reduced, and fish prices fell markedly. Estimates by the National Economic Institute suggested that in the previous winter the fisheries sector had operated at a loss equivalent to 10 per cent of revenues, and that there would be an even greater loss unless corrective measures were adopted as a matter of urgency. The Institute also suggested that the budget deficit was approaching 5.5 per cent of GDP, as compared with 3.5 per cent of GDP in 1987, and with a small surplus in 1986.
2. 134. In order to avoid further losses, and to ensure security of employment, the currency was devalued by 6 per cent at the end of February 1988. A continued deterioration in the operational position of the export industries and an increased current account deficit led to a further devaluation of 10 per cent on 16 May 1988.
3. 135. In the midst of these difficulties, employers and the unions affiliated to the ASI were engaged in a major round of wage bargaining. By the end of March most of the major unions had reached agreements with the relevant employers or employer organisations. Most of these provided for immediate increases of between 10 and 14 per cent and further increases in June, September and December 1988 and in March 1989. By 20 May agreement had been reached in respect of all but 2 to 2.5 per cent of the workforce.
4. 136. The Government states that over the period January-May 1988, it held several meetings with the social partners concerning the overall economic situation and negotiations on wages and salaries in particular. The Government refers especially to meetings with the ASI on 17 and 18 May. At the second of these, it transpired that the ASI was not prepared to take part in the defence of the wages policy which had been adopted by many of its constituent federations. Consequently, the Government did not engage in any further consultations with the complainant prior to the adoption of the Provisory Act.
5. 137. According to the Government the legislation was necessary in order to reap the full benefits of the devaluation of 16 May and to create satisfactory operational conditions for the key sectors of the economy. These objectives were to be achieved by: a) ensuring that wage increases conformed to the terms already agreed in the major employment sectors (which were, in turn, reflected in the percentages set out in article 1); b) protecting the purchasing power of the low-paid; and c) reducing the inflationary effects of the devaluation.
6. 138. The Act of 20 May was subsequently amended by Provisory Acts of 31 May, 26 August and 28 September 1988. The last of these measures: a) provided that normal collective bargaining could resume on 15 February 1989, rather than 10 April as originally envisaged; b) froze the price of certain goods and services until 1 March 1989; and c)stipulated that the 2.5 per cent increase which was due to be paid from 1 September 1988 should not be implemented during the life-time of the Act.
7. 139. The Government states that the price-freeze succeeded in reducing inflation to 1 per cent in the period August-October 1988 (as against a forecast of 4 per cent).
8. 140. The Government strenuously denies the suggestion that the Act of 20 May 1988 is incompatible with the principles of freedom of association.
9. 141. According to the Government the Act in no way interfered with the rights of workers' and employers' organisations to draw up their constitutions and rules, to elect their representatives in full freedom, to organise their administration and activities and to formulate their programmes as set out in Article 3 of Convention No. 87. Similarly, the Act cannot be regarded as incompatible with either Article 3 or Article 4 of Convention No. 98. The Act in no way interferes with the right to organise as defined in Article 2 of the Convention, and cannot, therefore, be regarded as contrary to Article 3. As to Article 4, each State is empowered to decide what measures are to be adopted in order to encourage and promote independent agreements between the social partners. There had been full discussion with the unions prior to the introduction of the Act of 20 May and consequently there could be no question of an infringement of Article 4.
10. 142. The Government also points out that Article 73 of the Constitution of Iceland protects the right to form societies for any lawful purpose without previous authorisation. If the ASI truly felt that the Act of 20 May constituted an unwarranted interference with freedom of association they should have brought the matter before the courts in Iceland. They had not done so because, according to the Government, "the ASI considered that there was no hope of such an action being won".

C. The Committee's conclusions

1. 143. The preliminary work for the adoption of Convention No. 87 clearly indicates that "one of the main objects of the guarantee of freedom of association is to enable employers and workers to combine to form organisations independent of the public authorities and capable of determining wages and other conditions of work by means of freely concluded collective agreements" . (Freedom of Association and Industrial Relations, Report VII, International Labour Conference, 30th Session, Geneva, 1947, p.52). This strongly suggests that Article 3 of Convention No. 87 is intended to protect, inter alia, the right to engage in free collective bargaining. This view is clearly reflected in the jurisprudence of the Committee (Digest of Decisions and Principles of the Freedom of Association Committee of the Governing Body, 3rd edition, 1985, paragraph 583):
   • The right to bargain freely with employers with respect to conditions of work constitutes an essential element in freedom of association and trade unions should have the right, through collective bargaining or other lawful means, to seek to improve the living and working conditions of those whom the trade unions represent. The public authorities should refrain from any interference which would restrict this right or impede the lawful exercise thereof. Any such interference would appear to infringe the principle that workers' and employers' organisations should have the right to organise their activities and to formulate their programmes. Article 4 of Convention No. 98, meanwhile, can properly be seen to be concerned with the promotion of free collective bargaining.
2. 144. The Act of 20 May 1988 clearly restricted the right of employees and worker organisations to engage in free collective bargaining during the term of the legislation. Article 4 of the Act extended the operation of all current agreements on wages and terms to 10 April 1989 (subsequently reduced to 15 February 1989), and prohibited "lock-outs, strikes, including sympathy stoppages of work or other acts intended to force an alternative order of wages and terms affairs to that stipulated in the present Act". Furthermore, article 5 forbade employers from raising "wages, remuneration and any kind of payments in kind in excess of that which has been negotiated in agreements on wages and terms and stipulated in the present Act".
3. 145. There is, therefore, a prima facie inconsistency between the provisions of the Act of 20 May 1988 and the principles of freedom of association. However, the matter does not necessarily end there.
4. 146. Both the Committee on Freedom of Association and the Committee of Experts on the Application of Conventions and Recommendations have recognised that some restrictions upon the freedom of the participants in the bargaining process may be warranted for compelling reasons of national economic interest (see Digest, op. cit., paragraph 639 and the General Survey by the Committee of Experts on Freedom of Association and Collective Bargaining, 1983, paragraph 315). Any such restriction should be imposed as an exceptional measure and only to the extent that is necessary, without exceeding a reasonable period, and it should be accompanied by adequate safeguards to protect workers' living standards (Digest, op. cit., paragraph 641, and General Survey, ibid.).
5. 147. The Government has adduced evidence which suggests that in early 1988 Iceland was confronted with a number of serious economic problems. The Government clearly felt that it needed to take drastic action in order to prevent the situation from deteriorating further. It claims to have engaged in extensive consultation with the social partners and to have been prepared to engage in further consultation but was thwarted by the attitude of the ASI. The ASI contests this latter proposition, but does not deny that the Government was indeed confronted with a serious economic situation at that time.
6. 148. The complainant points out that there has been general legislative intervention in the bargaining process on no less than nine occasions in the last ten years. On the other hand, five of the measures cited by the ASI were introduced in a 15-month period in 1978-79, and there was no intervention between the expiry of Act No. 58 of 1983 (partly on 31 January 1984 and partly on 1 June 1985) and the introduction of Act No. 14 of 1988. The Committee also notes that according to the complainant there has been an unspecified number of legislative interventions of a purely local character. Taken together, these figures certainly lend substance to the suggestion that there may be too-ready recourse to legislative intervention in the bargaining process in Iceland.
7. 149. On the other hand, the Committee notes that the legislation was originally intended to remain operative for only 11 months (subsequently reduced), that the levels of wage increase in article 1 of the Act conformed very closely to the standard which had already been set by means of voluntary bargaining, and that the legislation appears to have made a serious attempt to control prices and (some) interest rates.
8. 150. The Committee nevertheless endorses the complainant's view that the repeated use of legislation to amend existing collective agreements, or to control the content of future agreements, serves to undermine wage earners' belief in the value of trade union membership. Members or potential members may feel that there would be little point in supporting or joining an organisation the principal purpose of which is to represent its members in collective negotiations with employers, if the outcomes of these negotiations are repeatedly set aside by legislative decree.
9. 151. The Committee is not competent to determine whether the complainant might or might not successfully have challenged the validity of the Act of 20 May 1988 by reference to Article 73 of the Icelandic Constitution. It would point out, however, that it has always taken the view that although it may take account of whether a complainant has exhausted internal legal procedures, its competence to examine allegations is not subject to the exhaustion of national procedures (Digest, op. cit., paragraphs 31-33).
10. 152. The issues raised in this case clearly bear upon the manner in which Iceland gives effect to its obligations under Conventions Nos. 87 and 98. It is appropriate, therefore, that the Committee's report be drawn to the attention of the Committee of Experts on the Application of Conventions and Recommendations.

The Committee's recommendations

1. 153. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendations:
   • a) The Committee notes that the Act of 20 May 1988 restricted the right of employers' and workers' organisations to engage in free collective bargaining. It also notes with concern that this was the ninth instance of such intervention in ten years (the last being in 1983). Nevertheless, the Committee considers that on balance the restrictions imposed were warranted by reasons of compelling national interest, were imposed only to the extent necessary, operated only for a reasonable period, and were accompanied by adequate safeguards to protect workers' living standards.
   • b) The Committee draws the attention of the Committee of Experts on the Application of Conventions and Recommendations to its report in this case.