Definitive Report - Report No 374, March 2015

Case No 3044 (Croatia) - Complaint date: 17-SEP-13 - Closed

Allegations: The complainant organization alleges the adoption of the Act on Denial of Payment which allows the Government to unilaterally derogate from the public service collective agreements in force

1. 306. The complaint is contained in a communication from the Association of Croatian Trade Unions (MATICA) dated 17 September 2013.
2. 307. The Government sent its observations in a communication dated 22 September 2014.
3. 308. Croatia 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. 309. In its communication dated 17 September 2013, the complainant organization, one of the representative trade unions in Croatia, which includes a total of ten unions in public and government service, alleges that the Act on Denial of Payment of Certain Substantive Rights of Public Service Employees (OG No. 143/12, hereinafter referred to as “the Act”) violates the right to freedom of association guaranteed by Conventions Nos 87 and 98.
2. 310. The complainant indicates that the employment status of public service employees in Croatia, is, with the exception of the Croatian Constitution, international sources of labour law which include ratified ILO Conventions, the Labour Act and the Act on Salaries in the Public Service, essentially determined by the Basic Collective Agreement for officers and employees in the public service and sectoral collective agreements as an autonomous source of law in this area. Collective bargaining in Croatia is widespread in the field of public service since the number of employees enables the effective use of this instrument in order to ensure the balance of interests in the work process. In Croatia, the Basic Collective Agreement for officers and employees in the public service (hereinafter: 2010 BCA) entered into force on 4 October 2010; it was concluded by eight representative unions of public services and the Croatian Government with a date of validity to 4 October 2013. Collective agreements for specific areas of public services (hereinafter: sectoral collective agreements) have been concluded subsequently, e.g. the collective agreement for science and higher education of 22 October 2010 (OG No. 142/2010) valid until 23 October 2014, the collective agreement for employees in the secondary schools of 21 December 2010 (OG No. 7/2011) with a date of validity to 31 December 2014, the collective agreement for employees in the elementary schools of 29 April 2011 (OG No. 66/2011) with an expiry date of 30 April 2015, the collective agreement for the health care and health insurance of 27 October 2011 (OG No. 126/2011) valid until 28 October 2015, etc.
3. 311. The complainant organization states that, on 19 December 2012, the Parliament as the legislative body of Croatia adopted the Act, which denies the payment of certain substantive rights to public service employees in Croatia that had been obtained on the basis of concluded collective agreements or other agreements entered into by the Government. In its view, the Act is a direct attack on the right to collective bargaining in Croatia, which is guaranteed by fundamental ILO Conventions Nos 87 and 98, ratified by Croatia, that are, according to article 140 of the Constitution of the Republic of Croatia, part of the national legal system, having precedence over the law. As evidenced in a December 2012 draft of the Act (enclosed with the complaint), the Ministry of Labour and Pension System, as the proponent of the controversial Act, states the following, as reasons: (a) reverse of the macroeconomic trends; and (b) necessity of further fiscal austerity measures to reduce public debt by reducing labour costs in the public sector.
4. 312. According to the complainant, the Government’s reasons for denying the rights contracted in collective agreements are essentially irrelevant and unfair. As regards (a), the stated “reversed macroeconomic trend” in the Croatian economy has been present for a total of two years before contracting of the public service employees’ rights that are denied by the respective Act. These rights have been contracted in October 2010 and the “reversed trend” (or, in economic terms, recession) has been going on since the end of the year 2008, taking into account that after two years of decreased gross domestic product (GDP) the situation stabilized in 2011. The complainant considers that, during the term of sectoral collective agreements validity, there have been no significant changes in relation to the time of their signing, and the Government has concluded the agreements and subsequently derogated them by the Act in almost the same or rather similar economic circumstances. The Act was adopted in December 2012, at a time when the Government possessed statistical data which in no way indicated any major changes. Moreover, the Government’s official documents relied on its own estimates for 2012 which predicted the growth of the GDP.
5. 313. With respect to (b), the complainant believes that the Ministry’s statement of causality between the “reversed trend of macroeconomic indicators” and the need to reduce labour costs precisely in the public sector is not grounded or justified. According to a growing number of economic standpoints, the stated causality exists only in a sense of negative indicator, meaning that the fiscal austerity measures worsen the crisis rather than resolving it, which has been clearly demonstrated by the failure of strict austerity measures across Europe over the past five years. The complainant considers that austerity measures reduce aggregate demand, and, consequently, the production which causes job losses and decline of all “macroeconomic indicators”, which is confirmed in the scientific papers of prominent economic theorists today, pursuant to which the institutions, which so far have blindly insisted on these measures, begin to alter or soften their views (IMF, European Commission) during this year.
6. 314. The complainant organization indicates that, following the parliamentary elections in 2012, the newly elected Government of liberal orientation started to implement an economic concept based primarily on savings. In February 2012, the Croatian Parliament adopted the state budget, which provided insufficient funds to meet government obligations undertaken by applicable basic and sectoral collective agreements. The state budget was passed without any prior consultation with the unions, and the Government indicated that it had no intention to respect the contractual rights of public service employees. Until June 2012, in the implementation of its concept of economic policy, the Government has repeatedly stated official positions on the need to reduce the rights and salaries of public service employees, while completely ignoring the obligation of social dialogue.
7. 315. The complainant adds that the negotiations with the public service unions were initiated by the Government in June 2012, i.e. at the end of the academic year, thus indirectly preventing the unions to effectively make use of their most efficient tool in the fight for the rights of their own members – a workers’ strike. Unions were brought to an ultimatum in the sense that they were offered the choice between pay cuts to their members or withholding some benefits on wages. Due to the economic situation and with the intention to help the Government to implement its economic concept, all unions were willing to sacrifice, provided that their rights would be returned when possible. Four unions (Croatian Teachers Union, Independent Union of High School Employees in Croatia, Independent Union of Research and Higher Education Employees of Croatia, Croatian Union of Nurses and Medical Technicians) who gather over two-thirds of all members in the public service were not willing to unconditionally waive their rights without that being put to a vote for their members by a referendum. They demanded for the public services, after emerging from the crisis and once the economic indicators are favourable, a return of the funds for compensation and of the rights obtained upon them. The complainant organization states that, not agreeing to the union proposal, the Government insisted on an unconditional waiver and announced the cancellation of the basic collective agreement for public service in early August.
8. 316. According to the complainant, during the entire period prior to termination, negotiations between Government and the unions as a process of reasoned dialogue and exchange of views or a process in which parties were trying to reach a compromise virtually did not exist, the Government being only interested in execution of its ultimatum, with no interest in reasonable dialogue. Finally, in late July, four unions refused to sign an unconditional reduction of the rights of its members, a mediation process with the unions in the dispute was conducted and the referendum among union members as to whether they agree to irrevocable reduction of their rights was held. This resulted in voting of 59,256 employees, which represent 84 per cent of union members, out of which 91.1 per cent voted against the Government’s proposals and provided full support to the unions. The complainant denounces that, five days after the union referendum, in October 2012, the Government illegally cancelled the basic collective agreement for officers and employees in public service of 4 October 2010.
9. 317. Moreover, the complainant organization indicates that, on 12 December 2012, the Government signed a new Basic Collective Agreement for officers and employees in public service with minority public services employees’ unions (OG No. 141/2012). The 2012 BCA included a new Appendix I, by which the parties mutually and temporarily, for the duration of the year 2013, agreed to limit substantive rights of public service employees formerly enshrined in the 2010 BCA. At this point the complainant denounces the illogic of Croatian legislation according to which the Government can conclude a collective agreement that applies to all employees of the public service with a minority union that does not even gather one third of the public service union members. However, although the Government had managed to unlawfully cancel the 2010 BCA and enter into a new one with a minority public service employees’ union, branch collective agreements for certain public services still remained in force and defined the rights and benefits of the employees to which they applied in a substantially similar or nearly identical manner as the cancelled 2010 BCA. In the complainant’s view, by applying the principle of “in favorem laboratoris” (in favour of the workers), the employees in the public service regardless of the cancellation of the 2010 BCA continued to be entitled to payment of contractual rights according to suspended Appendix I to the 2010 BCA (annual Christmas and vacation bonuses in years 2012 and 2013). According to the complainant, the Government deprived public service employees of their rights on 20 December 2012 by adopting the Act without any negotiations or announcements and contrary to the obligations set forth in those agreements, the nature and purpose of collective bargaining and international sources of labour law to which it abides.
10. 318. With reference to Article 8(2) of Convention No. 87 and Article 4 of Convention No. 98, the complainant considers that the Act is in complete contradiction to Conventions Nos 87 and 98, the universal values of international law enshrined therein as well as the principles and values that are part of the Croatian legal order. In its view, the Act takes away any sense of the right to organise and collective bargaining, because it sends the message that if the Government is the participant in negotiations for the conclusion of collective agreements, these negotiations and the signing of collective agreements are not considered legally binding for the Government, hence the results of the negotiations can be arbitrarily voided and employees can be denied their rights without prescribed conditions and procedures. In such circumstances, any union action is rendered meaningless, and the right to organise and collective bargaining becomes a cliché without any content. The complainant believes that the above is confirmed by the ILO Committee of Experts on the Application of Conventions and Recommendations (CEACR) in its 2010 individual observation on the application by Croatia of Convention No. 98, which basically states that the law in general cannot derogate the collective agreement and that unilateral interference by the State in matters regulated by the collective agreement amounts to a violation of the Convention.
11. 319. The complainant therefore considers that collective agreements could be derogated by law only if the following conditions were fulfilled: (i) the Government, as a party to the collective agreement, previously negotiated on the possible amendment to the collective agreement; and (ii) the rights have been suspended to a minimum extent, for a fixed term and equally to all, with a reasonable cause for such actions due to a significant disruption of the economic system. In its view, the Government failed to fulfil several of these important conditions prior to the enactment of the Act which suspended the rights of public service employees previously agreed upon by the collective agreement.
12. 320. As regards the condition of negotiation before suspension of the rights guaranteed by collective agreements, the complainant states that, whereas the Government did negotiate and conclude a new Basic Collective Agreement for officers and employees in public service in 2012, which included Appendix I in which it was agreed to temporarily suspend Christmas and vacation bonuses to public services in 2013, Christmas and vacation bonuses had also been agreed in sectoral collective agreements for certain public services, and for their amendment or abrogation the Government did not even try to open negotiations. The complainant stresses that the fact that some of the unions did not want to sign the new Basic Collective Agreement for officers and employees in public service does not relieve the Government of its obligation to negotiate with each of these unions on the rights guaranteed by branch collective agreements, since the Government cannot and must not be exempted from previous negotiations of sectoral collective agreements on the account that some of the unions did not want to enter into the new Basic Collective Agreement. Moreover, the complainant denounces that, as regards the unions who had agreed to a temporary non-payment of Christmas and vacation bonuses by signing the 2012 BCA: (i) the Government did not attempt to negotiate on the terminated rights stipulated by the branch collective agreements concluded with those unions; and (ii) that the provisions of the Act even derogate from the branch collective agreements concluded with those unions, despite the fact that in their case there was no reason for such action.
13. 321. The complainant reiterates that the Government should have tried to negotiate sectoral collective agreements with those unions that have not agreed to the new basic collective agreement, as it could not and should not have assumed that the refusal to accept the Basic Collective Agreement also means refusal of amendments to sectoral collective agreements. Sectoral collective agreements have a substantially different content than the basic agreement and there is always a possibility that a matter that could not be resolved at the Basic Collective Agreement level is resolved at branch collective agreement level, because these negotiations do not have to be only about Christmas and vacation bonuses but also about other rights granted by these sectoral collective agreements. The complainant therefore believes that, despite the rejection to enter into the new Basic Collective Agreement, it is certainly not valid to state that the sectoral collective agreements negotiations (one element of which could have been the possibility of cancellation of sectoral collective agreements) were unnecessary. The complainant also emphasizes that the Government did not even attempt to unilaterally terminate the sectoral collective agreements although cancellation is a solution in line with the rules of the collective agreements and could have been carried out according to the procedure stipulated in these collective agreements.
14. 322. Finally, the complainant denounces that the Government failed to abide by this condition. In its view, through the adoption of this Act, the Government denied substantive rights to public service employees, but the denial was not applied in the same sense to the rest of the public sector owned by the State (namely companies and other entities that are majority owned by the State). Those legal persons are either beneficiaries of the budget for their costs and losses and represent the budgetary cost in the same way as the public service, or are the entities filling the budget, meaning that denying their Christmas and vacation bonuses would lead to an increase in budgetary revenues. According to the complainant, the Government thus selectively reduced the rights only of public service employees.
15. 323. The complainant therefore considers as utterly inappropriate that the Government, as the employer in the public sector, strengthens its bargaining position through legislation proposed by the Government itself, the adoption of which has been secured by the parliamentary majority, thus de facto imposing its will in collective bargaining. In its view, such government conduct is contrary to Conventions Nos 87 and 98, which protect the right to organize and collective bargaining from unauthorized interference by the authorities and prohibit the legal derogation of the rights guaranteed by collective agreements.

B. The Government’s reply

1. 324. By its communication dated 22 September 2014, the Government forwards its comments on the observation made by the Committee of Experts on the Application of Conventions and Recommendations in 2013 on the application of Convention No. 98, as well as the information it had supplied to the Committee on the Application of Standards of the International Labour Conference at its 103rd Session in May–June 2014, which contains information on the cancellation in 2012 of the BCA in the public sector and on the Act on the suspension of payment of certain rights to public service employees (referred to by the complainant as the Act on Denial of Payment of Certain Substantive Rights of Public Service Employees).
2. 325. According to the Government, the global financial and economic crisis has had a belated effect on the Croatian economy, which was reflected in a considerable decrease in economic activity, a steady decline in the GDP and a constant increase in the rate of unemployment, with a subsequent decrease in the citizens’ standard of living. At the end of 2011, the share of the public debt in GDP amounted to 46.7 per cent with a further growth tendency, so that in 2012 it accounted for 55.5 per cent. Given that the deterioration of macroeconomic trends continued during the first half of 2012, it was necessary to further reduce government spending to maintain fiscal consolidation and respect the fiscal rule (whose share increased in the GDP and continued to grow).
3. 326. Consequently, the Government, under economic circumstances that were continuing to deteriorate, proposed amendments to the BCA during public services negotiations with the trade unions. Eight meetings were held from 4 June to 16 July 2012. Proposed amendments were aimed at reducing or temporarily suspending the following rights: the right to a Christmas bonus in 2012; the right to a holiday bonus in 2013; and the right to jubilee awards in 2013, except for employees who had been employed for more than 35 years and were retiring in the year to which they were entitled to the bonus; travelling allowances would be reduced from 170 Croatian kuna (HRK) to HRK150; and the method of reimbursement of transport costs to and from work would be regulated differently for the purpose of rationalization. During the negotiations on those amendments to the BCA, which were aimed at avoiding wage adjustments, four of the eight trade unions who had signed the BCA confirmed that they would accept the proposed amendments; the other four had refused to accept them, requesting that the Government commit itself to paying the funds to the public servants in the future. Considering that the BCA envisages the possibility of bringing the dispute before arbitration (article 9), the Government, at the proposal of the four trade unions who had signed the proposed BCA amendments, had, on 17 July 2012, suggested arbitration to the trade unions who had refused to sign the amendments. On 19 July 2012 it appointed its representatives to the arbitration council, while constantly inviting the trade unions to reach an agreement. Those trade unions that had refused to sign the amendments sent a written rejection of the arbitration settlement of the dispute, stating that arbitration was not mandatory. The conciliation procedure was unsuccessful. Article 23 of the BCA provided that the Agreement can be cancelled in writing by both parties in the event of economic circumstances that have significantly changed, after the party cancelling the Agreement had proposed amendments to the other party beforehand, with a notice period of three months. Having exhausted all possibilities of coming to an agreement, based on article 23 of the BCA, on 17 September 2012, the Government took the decision to revoke the BCA for public service employees with a notice period of three months. The procedures for cancellation were therefore conducted legally.
4. 327. The Government further indicates that, at the same time that it was expressing its intention to repeal the existing BCA, it was initiating negotiations on the conclusion of a new BCA, whose text would not change with respect to the text of the revoked BCA. Negotiations would only refer to the issue of the reimbursement of transport costs, whereas the issues of the Christmas bonus, holiday bonus and jubilee award would be settled in an annex to the BCA. The new BCA, with an Annex I, was signed on 12 December 2012, before the cancellation of the previous agreement had entered into force. Collective bargaining was conducted with the bargaining committee of the trade unions established in accordance with the Act on the criteria for participation in tripartite bodies and the representativeness for collective bargaining, which entered into force in the meantime (28 July 2012). It was signed by a total of six out of 11 representative trade unions.
5. 328. Concerning the Act of 20 December 2012, the Government indicates that, despite the conclusion of the new BCA and Annex I (agreement to reduce or temporarily suspend some material benefits), pursuant to the principle in the Labour Code to apply the more favourable law, those rights continued to be applied according to the branch collective agreements, because they had been agreed in branch/sectoral collective agreements for each public service (health care, social welfare, primary and secondary education, science, higher education and culture). Civil servants had negotiated their collective agreement with the Government on 2 August 2012. In Annex I of the collective agreement, inter alia, they agreed that for civil servants, the Christmas bonus would not apply in 2012 and 2013; the holiday bonus and jubilee award would not apply in 2013; and travelling allowances would be reduced from HRK170 to HRK150 (the same was offered to the public service employees). Civil servants in this case were, in practice, discriminated against, since the material rights for both categories were ensured in the state budget. For that reason, the Government decided to regulate the rights contained in Annex I of the BCA equally for all, both civil servants and public service employees, under the Act of 20 December 2012. On the basis of that Act, the right to a Christmas bonus in 2012 and 2013, and a holiday bonus in 2013, no longer applied. This decision was taken in order to urgently maintain the fiscal stability of the public service system under the deteriorating economic conditions and to achieve a balance in the rights of both categories of officials. In order to bring the branch collective agreements in line with the BCA, the Government entered into negotiations in 2013 with representative trade unions of each public service. In 2013, the collective agreement was concluded for the health-care sector. Collective agreements for the social welfare, culture and primary and secondary education sectors were all concluded in 2014. As yet, no branch collective agreement for science and higher education had been concluded.

C. The Committee’s conclusions

1. 329. The Committee notes that, in the present case, the complainant alleges the adoption of the Act on Denial of Payment which allows the Government to unilaterally derogate from the public service collective agreements in force. The Committee notes in particular the following allegations of the complainant organization, which is one of the representative Croatian trade unions that includes a total of ten unions in public and government service: (i) the employment status of public service employees in Croatia was essentially determined by the Basic Collective Agreement for officers and employees in the public service (BCA), which entered into force on 4 October 2010 and was concluded by the Government and eight representative unions of public services with a validity of three years, as well as by subsequently concluded sectoral collective agreements in the public service; (ii) in February 2012, the state budget was passed without any prior consultation with the unions, providing insufficient funds to meet government obligations undertaken by the applicable basic and sectoral collective agreements, and the newly elected Government indicated that it had no intention to respect the contractual rights of public service employees; (iii) in June 2012, the Government initiated negotiations on the amendment of the 2010 BCA with the public service unions without showing an interest in reasonable dialogue with a view to reaching a compromise; (iv) following a referendum held by four unions gathering over two-thirds of all members in the public service, where 91.1 per cent voted against the irrevocable reduction of their rights, the Government announced in early August 2012 the illegal cancellation of the 2010 BCA; (v) as regards sectoral collective agreements, which also provided for Christmas and vacation bonuses, the Government did not even try to open negotiations for their amendment or abrogation and they remained in force after the cancellation of the 2010 BCA; (vi) on 12 December 2012, the Government signed a new BCA with minority public services employees’ unions that did not even gather one third of the public service union members, including a new Appendix I, by which the parties agreed to limit for the period 2012–13 substantive rights of public service employees formerly enshrined in the 2010 BCA; (vii) on 19 December 2012, the Act, which denies to public service employees in Croatia the payment of certain substantive rights that had been obtained on the basis of formerly concluded collective agreements, was adopted on the grounds of the claimed reverse of the macroeconomic trends and ensuing necessity of further fiscal austerity measures to reduce public debt by reducing labour costs in the public sector, reasons considered irrelevant and unfair by the complainant; (viii) the Government only denied substantive rights to public service employees but not to the rest of the public sector owned by the State, which the complainant deems contrary to the equality principle; and (ix) the Act is a direct attack on the right to collective bargaining in Croatia and thus violates the right to freedom of association guaranteed by Conventions Nos 87 and 98.
2. 330. The Committee notes the Government’s reply and in particular, the information it had supplied to the Committee on the Application of Standards of the International Labour Conference at its 103rd Session in May–June 2014.
3. 331. As regards the alleged unilateral cancellation of the 2010 BCA by the Government following the failure of amendment negotiations with the public service unions allegedly without the Government’s interest in reasonable dialogue with a view to reaching an agreement, the Committee notes that the Government considers that the procedure for cancellation of the BCA was conducted legally. It refers, in particular, to article 23 of the BCA and explains that having exhausted all possibilities of coming to an agreement, based on article 23 of the BCA, on 17 September 2012, the Government took the decision to revoke the BCA for public service employees with a notice period of three months.
4. 332. The Committee notes article 23 of the 2010 BCA, a copy of which was forwarded by the complainant, pursuant to which:

   Cancellation of the Agreement

   • 1. This Agreement may be cancelled in writing with a notice period of 3 months.
   • 2. This Agreement may be cancelled by either party in the case of significantly changed economic circumstances.
   • 3. Before cancelling the Agreement, the party which cancels the Agreement is required to propose the amendments to the Agreement to the other party.
5. 333. While recalling the general principle that agreements should be binding on the parties, and that collective bargaining implies both a give and take process and a reasonable certainty that negotiated commitments will be honoured, at the very least for the duration of the agreement, such agreement being the result of compromises made by both parties on certain issues, and of certain bargaining demands dropped in order to secure other rights which were given more priority by trade unions and their members; if these rights, for which concessions on other points have been made, can be cancelled unilaterally, there could be neither reasonable expectation of industrial relations stability, nor sufficient reliance on negotiated agreements [see Digest of decisions and principles of the Freedom of Association Committee, fifth (revised) edition, 2006, paras 939 and 941], the Committee understands that in the present case, the unilateral cancellation of the Agreement followed the procedure provided in the Agreement itself.
6. 334. With respect to the allegation that the 2012 BCA revoking the relevant bonuses was concluded by minority public services employees’ unions that did not even gather one third of the public service union members, the Committee notes that the Government refutes this allegation and indicates that collective bargaining was conducted with the bargaining committee of the trade unions established in accordance with the Act on the criteria for participation in tripartite bodies and the representativeness for collective bargaining (2012) and was signed by six out of 11 representative trade unions.
7. 335. The Committee understands that the 2012 Representativeness Act is no longer in force, and that a new legislation dealing with that matter was adopted and entered into force on 7 August 2014. The Committee requests the Government to provide a copy of the new legislation to the Committee of Experts on the Application of Conventions and Recommendations to the attention of which it draws the legislative aspects of this case.

The Committee’s recommendation

1. 336. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendation:
   • The Committee requests the Government to provide a copy of a new legislation dealing with the issue of representativeness to the Committee of Experts on the Application of Conventions and Recommendations to the attention of which it draws the legislative aspects of this case.