Report in which the committee requests to be kept informed of development - Report No 279, November 1991

Case No 1563 (Iceland) - Complaint date: 29-NOV-90 - Closed

1. 344. The Alliance of Graduate Civil Servants (Bandalag Haskolamenntadra Rikisstarfsmanna/BHMR) presented a complaint of violations of trade union rights against the Government of Iceland in a communication received on 29 November 1990, and further information in a communication received on 20 December 1990. The World Confederation of Organisations of the Teaching Profession (WCOTP) lodged its complaint on behalf of its affiliated organisation in Iceland - the Hid islendska kennaraféleg (HIK) - in a communication dated 14 December 1990.
2. 345. The Government sent its observations on the allegations in a communication dated 26 April 1991.
3. 346. 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 complainants' allegations

1. 347. In its communication received on 29 November 1990, the BHMR alleges that Conventions Nos. 87 and 98 have been violated by the promulgation, on 3 August 1990, of Provisory Act No. 89/1990 on Wages (a copy of which is supplied) which deprives BHMR members of the wage increase they had been awarded following a Labour Court decision and restricts the implementation of other clauses of the current collective agreement signed with the government authorities on 18 May 1989. According to the complainant, the Provisory Act renders the collective agreement invalid after 31 August 1991 although it was in force until 31 December 1994 and suspends the Association's right to negotiate.
2. 348. The BHMR explains that it is a federation of unions covering university graduates employed by the Icelandic State, by local authorities and by other institutions which are publicly funded. It has 23 affiliated unions covering 4,000 members. Act No. 94/1986 recognised the right to bargain and to strike of the constituent unions of the BHMR and empowered the Minister of Finance to represent the Treasury in negotiating and implementing wages and terms agreements with these associations. A first series of such negotiations culminated in the signature of agreements which expired on 31 December 1988. The constituent associations (with the exception of only two) formed a joint negotiating committee - called the BHMR Group - for negotiating the next series of agreements and when talks broke down, 12 of them exercised their right to strike on 6 April 1989.
3. 349. On two occasions during the dispute, the Minister of Finance invited the BHMR Group to conclude an agreement similar to those reached in the meantime by two other civil servants' groups which had negotiated outside the BHMR Group. However, despite continuing talks, the invitations were declined because these other agreements did not address the bargaining issue pursued by the BHMR Group, namely the alignment of graduate civil servants' wages with those of private sector graduate employees. By mid-May 1989 a more active approach was taken by the ministerial bargaining committee (which now included the Prime Minister and other Ministers from all political parties) and an agreement covering, inter alia, the alignment issue was signed on 18 May 1989. Its conclusion also ended the six-week old strike. Because of the breakdown in trust between the negotiating committee of the BHMR Group and the Minister of Finance, the Prime Minister himself gave the assurance that the entire Government supported the agreement and took the unusual measure of having the agreement made the subject of a government protocol. The agreement was to be in force until 31 December 1994. It included details for small wage increases over the period 1 May 1989 to 30 June 1990 (section 2); for further comparable increases if widespread changes were made to the wages of other wage-earners after 30 November 1989 so that they rose above a certain level (section 15), as well as for further increases in stages over the period 1 July 1990 to 1 July 1994 so as to bring their wages up to the level received by graduates in the private sector. The agreement could be renounced after 30 September 1990 with one month's notice.
4. 350. The complainant explains that well after the signing of its agreement, in February 1990, framework agreements were concluded in the private sector between the Icelandic Federation of Labour (ASI) and the Confederation of Icelandic Employers (VSI). Many individual constituent unions of the ASI negotiated wages and terms agreements on the basis of this framework. These wages and terms agreements contained only small wage increases but, at the time they were being drawn up, other accords had been reached (e.g. with the farmers to limit increases in the price of agricultural produce) to bring down inflation. All these measures have been described as the "National Reconciliation". Private sector employer representatives complained to the Government that the BHMR Group agreement contained increases that were higher than those in the National Reconciliation agreements and urged the Government to open negotiations with the BHMR so as to avoid this.
5. 351. On 12 June 1990 the acting Prime Minister wrote to the BHMR announcing the Government's unilateral decision to postpone the implementation of the agreed new wages system. He justified this move by reference to section 1 of the agreement (which states that amendments were to be made to the wages system in such a way as not to cause disruption to the general wages system in the country). The letter - a copy of which is supplied - states that the increases would be at variance with the National Reconciliation and would jeopardise it. The BHMR vigorously opposed this unilateral suspension and many meetings took place, but were unsuccessful. On 5 July one of the BHMR constituent unions, the Union of Icelandic Natural Scientists, brought a test case before the Labour Court, demanding that the Court order the payment of the agreed increase as of 1 July 1990. On 23 July 1990 the Court delivered its decision that the Government had acted without authority in suspending the agreement, irrespective of what the effect of the increases might be. According to the judgement (a copy of which is supplied), if the Government had considered that the increase due on 1 July would have disrupted the general wage system in the country, it ought to have tried to reach an agreement with the BHMR Group on how to react to such a situation. The Court ordered the payment of the increase to the Union of Icelandic Natural Scientists and they were accordingly paid.
6. 352. The Government reacted strongly to the judgement, saying it had set in motion "an infernal mechanism of raging inflation". Yet according to the complainant, this assertion is not supported by any economic studies of the effects of wage increases on inflation. (To the complainant's letter of December 1990, it attaches two independent studies on the inflationary effects.) The Government opened talks with the BHMR demanding the abolition of the increase in question and of section 15 of the collective agreement. As the BHMR was not mandated to renegotiate the wage increase which the Court had confirmed, it agreed to discuss just the amendment of section 15. No consensus could be reached and the complainant believes that the Government entered into discussions merely for the sake of appearances. Thus 11 days after the judgement, on 3 August 1990, the President - using her constitutional right to issue temporary legislation in an emergency when Parliament is not sitting - introduced the Provisory Act No. 89/1990 on Wages.
7. 353. Section 2(1) of the Provisory Act states that wage increases shall be the same as apply under the National Reconciliation accords; section 2(4) states "If wages ... have increased between 30 June and 1 September 1990 then that increase shall be withdrawn as from and including 1 September 1990 and the wage increases according to subsection 1 shall replace them". Thus the increase awarded by the Labour Court was invalidated. Section 4(1) of the Provisory Act declares void sections 5 and 15 of the collective agreement; section 4(2) declares the continuance of the agreements of BHMR constituent associations, with their radical change of content, until 31 August 1991 and they then expire without notice of termination.
8. 354. Not only does the complainant contend that the Government should not have given in to pressure from the employers and other trade unions who were not party to its collective agreement, but also that the Government had a duty to protect the BHMR and its agreement from such pressure. A member of the Union of Icelandic Natural Scientists has brought a test case before the Reykjavik Civil Court challenging the constitutionality of the Provisory Act on the grounds of protection of freedom of association and of the right of ownership (arguing that the paid increases may not now be reclaimed).
9. 355. The complainant summarises its arguments as follows: (1) the Government has once again (many other interventions have occurred over the last ten years) legislated to alter the contents of valid collective agreements, at the same time effectively suspending the right to negotiate of the unions involved; (2) the Provisory Act aims at a restricted group of wage-earners (although its wording may give the impression that it is of a general nature); (3) this legislative intervention overturns a court decision handed down only 11 days previously and ignores what the Court said about the obligation to honour the agreement; (4) it was the Government's duty to protect the BHMR Group against pressure from various other unions to withdraw the wage increase ruled by the Labour Court; (5) there was no reason for such a measure since the increase itself had only a negligible inflationary effect which would have disappeared in a few months and because the Government had other measures available to check inflation. The complainant also considers that such government intervention weakens freedom of association because workers become less interested in belonging to trade unions as a means of improving their wages when rights negotiated or awarded by courts can be removed simply by temporary legislation; such intervention can also lead to disillusionment with bargaining "and possibly a move to violence or individual agreements".
10. 356. Lastly, the complainant refers to the Government's apparent attitude that there is nothing to prevent it from intervening in already concluded agreements whenever it wishes: for example, despite the fact that the ASI had lodged a complaint on this very type of intervention (Case No. 1458, examined by the Committee at its February 1989 meeting), in 1988 the Government introduced two further Provisory Acts (No. 14/1988 and No. 74/1988) which interfered in the contents of valid agreements.
11. 357. In its letter of 14 December 1990, the WCOTP, on behalf of the Icelandic Teachers' Union, describes the six-week strike which ended with the signing of the collective agreement on 18 May 1989, as well as the Government's 12 June 1990 letter purporting to postpone the introduction of the new wage system and the Labour Court's decision criticising the Government's action. The WCOTP alleges that the subsequent adoption by the Government of Provisory Act No. 89/1990 annulled a freely negotiated agreement and thus violated Convention No. 98.
12. 358. The BHMR, in its letter received on 20 December 1990, adds details to its allegation that the Government gave in to pressure from other groups on the issue of intervening. According to the complainant, the Government gave an undertaking to the ASI and the VSI in which it promised not to abide by the BHMR Group agreement. In a television interview the Chairman of the VSI apparently made a statement to this effect: "... That was their gentleman's agreement, and we urged very strongly that this promise should be honoured".

B. The Government's observations

1. 359. The Government, in its detailed letter of 26 April 1991, discusses matters relating to the economy and employment relevant to the complaint, and gives an account of the wages and terms agreements which have been concluded over the last two years. The Government explains the signature of the agreement between the Ministry of Finance and the BHMR Group in May 1989 and why it later requested that certain provisions of the agreement be amended due to changed circumstances. It stresses the great number of meetings held with BHMR representatives which, unfortunately, did not lead to amendment. Lastly, the Government describes why it was compelled to introduce Provisory Act No. 89 of 3 August 1990 in order to protect the unique success which had been achieved in controlling the economy and so as to ensure coordinated development of wages in the Icelandic labour market.
2. 360. The Government firstly explains the importance of fisheries and foreign trade to the nation's prosperity. Both catch totals and seafood export prices are subject to large fluctuations which in turn have led to a decline in Gross Domestic Product no fewer than eight times since Iceland was founded in 1944. Although these fluctuations have been declining, they impose very narrow restrictions on the country's economy; cutbacks in national expenditure due to this have been effected either by devaluing the currency or by exerting direct influence on the real wage costs of business sectors. The Government adds that collective agreements have always been made with the participation of the national organisations of workers and employers so that unions can, and do, take economic factors into account when formulating their wages and terms policies; another consequence of this centralised bargaining tradition is that the Government has had more opportunities to include in national-level agreements important issues such as pensions, welfare and taxation.
3. 361. It states that inflation has been a persistent problem in Iceland linked, according to some economists, to the one-sidedness of its economy: in 1976, after extensive anti-inflation measures (including a limit on the payment of indexation adjustments to wages) it stood at 30 per cent. Collective agreements negotiated in 1977 fueled inflation by providing for a 25 per cent general increase plus full indexation and on top of this came various separate agreements adding substantial increases to the general one. Inflation rose again to 50-60 per cent in the early 1980s, necessitating measures in 1983 such as the abolition for two years of wage indexation and a devaluation. The sensitivity of national labour organisations to inflation is evidenced by the 1986 consultative agreement and the February 1990 National Reconciliation. Over 1986-89 inflation fell to 20-25 per cent and measured 7.3 per cent at the end of 1990. At the same time, however, the Government explains that 1988 - when demand for labour was high - saw wage increase agreements in some sectors giving rise to claims for equal increases in others, a piggy-backing which forced the Government to the "desperate solution" of enacting Provisory Act No. 14/1988 on Economic Measures. This Act prevented wage increases being forced through for certain groups over and above those which the majority of wage-earners had agreed to. After the expiry of that Act in February 1989, two general wages and terms agreements were negotiated for the majority of wage-earners: that signed between the ASI, the Association of Cooperative Employers and the VSI on 1 May 1989, and the subsequent one of 1 February 1990 which contained moderate wage increases on the basis of certain premises, such as developments in the cost-of-living index, the exchange rate and the understanding that developments in the wages of other workers were to be the same as provided in the agreement. Special accords were also reached at that time with the banks and the Icelandic Farmers' Union. Other unions too (including the Federation of State and Municipal Employees) entered into agreements which in most respects were identical to the general agreement. Thus, this National Reconciliation had come to cover about 90 per cent of wage-earners. The Government describes this consensus as being unique in the history of wages and terms matters in Iceland.
4. 362. Referring to the May 1989 BHMR Group agreement, the Government points out that according to its section 1:
   • ... graduate employees shall enjoy wages and terms similar to those who occupy similar positions or have comparable or similar educational qualifications ... who are not paid according to the wage system of civil servants, and taking into account in this comparison benefits and other matters that affect wages and terms. The amendments referred to shall be carried out in such a way as not to cause disruption of the general wage system in the country. Temporary fluctuations and special circumstances on the labour market shall not affect this revision.
   • The revision of pay scales was to be completed within three years and on the basis of the work of special committees. The Government describes the work of the Wages and Terms Comparison Committee which, after 22 meetings, has still not completed its task so that it is still not clear whether there is a difference between the wages of graduate employees in the civil service and private sector university graduates. According to section 5 of the collective agreement, if this task was not completed by 1 July 1990, an advance payment would be paid in respect of the expected increase; but those involved in the National Reconciliation felt that any advance payment in the absence of terminated work would disrupt the general wage system in the country. After the unsuccessful discussions with the BHMR, the Government decided to postpone implementation of the agreement on the basis of above-quoted section 1.
5. 363. When the BHMR disputed this decision, the Government requested that, in accordance with section 9 of the agreement, the dispute be referred for adjudication to a three-man committee. The committee was never appointed because the BHMR requested that the matters in dispute be better defined, and at the same time referred the issue of the non-payment of the section 5 increase to the Labour Court through the Union of Icelandic Natural Scientists. According to the Government this referral came as a surprise since the agreement itself - in section 9 - explicitly made provision for disputes settlement. After the Court judgement, which found against the Government unilaterally postponing the increase due, the Government again negotiated with the BHMR to have the agreement amended, but without success.
6. 364. According to the Government, the BHMR had been invited to take part in the broad-based consensus leading to the National Reconciliation at a January 1990 meeting with the ASI, but was the only wage-earners' organisation to refuse. The ASI repeatedly stated that it would not allow its members to be left in a worse position than other groups of workers even if that meant that premises in the lead-up to the February general agreement were to be disrupted. Thus after the Labour Court judgement, the ASI demanded from the employer signatories to the general agreement that its members should receive the same increase as BHMR Group members. The employers' reply (a copy of which is supplied) noted that the consensus had aimed at all wage-earners receiving the same treatment, so it was recognised that if the increase confirmed by the Court decision went through, the employers would have to guarantee a similar development of wages. The Government ordered from the National Economic Institute an estimate of the effect on prices if all wages in the country were to rise by the amount in question (4.5 per cent) and, despite certain statistical reservations, the three scenarios presented by the Institute were seen to have "a frightening effect on the economy". On this point the Government contests the two studies submitted by the complainant and cites yet other declarations from specialist bodies concerning the potential negative influence on wages and prices. The Government concludes that when talks could not persuade the BHMR to amend the agreement, it had no alternative but to enact the Provisory Act to protect the success of the February 1990 general agreement between the ASI and the VSI and to avoid economic chaos and unemployment.
7. 365. The Government states that the Provisory Act is not aimed only at the BHMR Group. Although a reference is made to the breakdown in talks with BHMR in the Act's introduction, section 1 states that it covers agreements in force at the date of entry into force of the Act; in fact provisions in other agreements which provided for larger wage increases were also not implemented, e.g. in the Seamen's Union agreement.
8. 366. As for the passage of the Provisory Act under article 28 of the Constitution, the Government explains that such Acts must be presented to the next session of Parliament for confirmation, which was done in this case on 17 October 1990. The confirming Bill received thorough discussion with a majority supporting enactment to avoid a wage-price spiral and relying on the drafting of the BHMR Group agreement itself which addressed the specific issue of disruption of the general wage system in the country. The Bill was finally passed after a vote in both the Lower and Upper Chambers, and became law as Act No. 4 of 1991. As for the challenge to the legality of the Act presented by the Union of Icelandic Natural Scientists, the Government describes the pleadings before the Reykjavik Civil Court where the Minister of Finance, as defendant, argued that the legislature had the indisputable right to amend current law as determined by the courts. The Civil Court, in a judgement dated 13 March 1991, held that the Provisory Act did not violate the cited articles of the Constitution. It found, inter alia, that such an Act was needed to prevent a wage spiral which would have led to the collapse of the National Reconciliation, and that the Government's interests in having freedom to manoeuvre to pursue a particular economic policy were so great as to justify the drastic measures involved. An appeal against this judgement has been lodged with the Supreme Court, which is expected to render judgement in 1992.
9. 367. In conclusion, the Government denies that the Act violates the right to establish and operate workers' associations as set out in Convention No. 87 and stresses that freedom of association is guaranteed in the Icelandic Constitution and statutes. The BHMR's fear that workers will lose interest in joining unions is, according to the Government, not supported by the positive attitude to unionism in Iceland, where almost 50 per cent of unionised workers belong to the ASI but only 3 per cent belong to the BHMR. The Government states that it cannot be countenanced that a small group jeopardise the agreements reached by all other social partners and the authorities; it thus sees the Provisory Act as an emergency protective measure to save major interests at the expense of minor. It also rejects any alleged violation of Article 4 of Convention No. 98 since comprehensive discussions took place before the Act was introduced and since this is only a temporary intervention in already concluded agreements due to the national economic situation.

C. The Committee's conclusions

1. 368. The Committee notes that this case involves alleged violations of Conventions Nos. 87 and 98 by the adoption on 3 August 1990 of Provisory Act No. 89/1990 on Wages. The Act suspends certain wage increases due under a collective agreement signed between the complainant organisation (the BHMR) and the government authorities some 15 months earlier and confirmed by a Labour Court decision 11 days earlier.
2. 369. The Committee observes that the complainants' and the Government's versions of the events leading up to the adoption of the Act are not contradictory. They differ, however, in the interpretation of the necessity for such government intervention (particularly as regards the alleged inflationary effects of wage increases) and in regard to the conformity of this measure with the relevant ILO standards, in particular Conventions Nos. 87 and 98.
3. 370. On the one hand, the complainants stress: the difficulties (including strike action) which preceded the signing of the collective agreement in question; the arbitrary manner in which the Government proposed to suspend it when pressured by the parties to the National Reconciliation to disallow special wages treatment for small groups; the Labour Court decision upholding the payment of the increase; and the fact that the Government systematically turns to legislative intervention whenever it cannot persuade the parties to agreements to modify their contents. It believes that such behaviour dissuades workers from joining unions and undermines collective bargaining.
4. 371. On the other hand, the Government argues that: the Act was necessitated by the threat of a wage spiral which would ruin the National Reconciliation; it undertook strenuous negotiations to try and achieve its aim before being forced to intervene in the previously concluded collective agreement; its actions were confirmed by both Chambers of Parliament and survived a constitutional challenge before the Reykjavik Civil Court (although an appeal against this is pending); and the wage increase ought not to have been argued before the Labour Court at all since the collective agreement itself contained a provision for disputes settlement by a tripartite arbitration committee. It considers that the positive attitude to unionism in general refutes the complainant's fear that the right to join unions will suffer, and that its action concords with the ILO supervisory bodies' views on what is acceptable intervention since it is temporary.
5. 372. In the present case, the Committee notes that the problem mainly concerns the application of Article 4 of Convention No. 98 which obliges ratifying States to encourage and promote (...) voluntary negotiation (...) with a view to the regulation of terms and conditions of employment by means of collective agreements. It is on the basis of this provision that the Committee, as has the Committee of Experts on the Application of Conventions and Recommendations, has considered that the voluntary negotiation of collective agreements, and therefore the autonomy of the bargaining partners, is a fundamental aspect of the principles of freedom of association.
6. 373. The ILO supervisory bodies have recognised that where, for compelling reasons of national economic interest and as part of its stabilisation policy, a government considers that it is not possible for wage rates to be fixed freely by means of such agreements, any restrictions should be imposed as an exceptional measure and only to the extent that is necessary, without exceeding a reasonable period and should be accompanied by adequate safeguards to protect workers' living standards. (See Digest of decisions and principles of the Freedom of Association Committee, 3rd edition, 1985, para. 641.)
7. 374. The Committee used these four criteria in examining the provisions of Provisory Act No. 89/1990. In the light of the information before it, the Committee finds it difficult to determine whether the Provisory Act was only adopted for the necessary time period and whether it was imposed only to the extent necessary, particularly given the complexity of the provisions in question. In fact it appears that by virtue of the Act adopted on 3 August 1990 wage fixation will be controlled for most of the collective agreements involved until September 1991. However, certain aspects of the BHMR Group agreement will be suspended until August 1994.
8. 375. As regards the adequate safeguards to protect the workers' living standards, the Committee notes that increases will be granted under the general agreement signed between the ASI and the VSI, although they will be less than the increases provided for in the BHMR Group agreement.
9. 376. The Committee cannot but note that, over the past years, the Government has on several occasions had recourse to measures of intervention in collective bargaining. Indeed, in a previous case concerning Iceland (see 262nd Report, Case No. 1458, paras. 124 to 153, in particular para. 148), the Committee had observed that there had been general legislative intervention in the bargaining process on no less than nine occasions in the last ten years. These interventions manifestly show the existence of difficulties in the industrial relations system.
10. 377. The Committee must also note that Act No. 89/1990 does not limit itself to controlling wage fixing for the future, but moreover amends an agreement that the Government itself signed with the BHMR Group some 15 months earlier, an agreement containing wage increases confirmed by a Labour Court decision.
11. 378. Taking account of these observations, the Committee considers that, so as to avoid in the future disputes harmful to all the parties, they should endeavour to give priority to collective bargaining as a means of determining employment conditions. In the circumstances of the present case, the Committee is of the view that it should appeal to the parties involved to negotiate in good faith with a view to reaching an agreement. As the Committee has already pointed out (Digest, para. 590) satisfactory labour relations depend primarily on the attitudes of the parties towards each other and on their mutual confidence.
12. 379. The Committee notes that an appeal has been lodged before the Supreme Court against the Rejkjavik Civil Court's decision concerning the constitutionality of Provisory Act No. 89/1990. It asks the Government to keep it informed of the outcome of this appeal.

The Committee's recommendations

1. 380. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendations:
   • (a) In view of the importance of voluntary negotiations and the autonomy of the parties, the Committee appeals to all the parties involved to endeavour to give priority to collective bargaining as a means of determining employment conditions.
   • (b) The Committee also asks the parties involved to negotiate in good faith with a view to reaching an agreement.
   • (c) The Committee asks the Government to keep it informed of the outcome of the appeal lodged against the Reykjavik Civil Court's decision concerning the constitutionality of Provisory Act No. 89/1990.