Report in which the committee requests to be kept informed of development - Report No 382, June 2017

Case No 3162 (Costa Rica) - Complaint date: 14-AUG-15 - Closed

Allegations: The complainant organization alleges that in compliance with a ruling by the Office of the Comptroller General of the Republic, a state-owned bank amended a provision of a collective agreement

1. 275. The complaint is contained in a communication dated 14 August 2015 from the Costa Rican Confederation of Democratic Workers (CCTD).
2. 276. The Government sent its observations in communications dated 26 September and 15 December 2016.
3. 277. Costa Rica 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. 278. In its communication of 14 August 2015, the CCTD states that on 30 April 2014, the National Bank of Costa Rica (the Bank) and the Labour Union of the National Bank of Costa Rica (SEBANA), signed their seventh collective bargaining agreement, applicable for a three-year period. The complainant alleges that, in compliance with a ruling issued on 16 January 2015 by the Office of the Comptroller General of the Republic (CGR), the Bank amended article 63 of the collective agreement.
2. 279. The complainant states that article 63 governs payment of an incentive bonus known as the “performance appraisal and staff incentive scheme (SEDI)”, which seeks to promote staff development and well-being. Article 63 states that the Bank’s staff are entitled to a financial incentive geared to an overall performance rating achieved for each period, and that the payment must be equivalent to 15 per cent of the net profits made by the Bank and its subsidiaries in the previous year plus any reserves and provisions additional to the regulations of the Financial Institutions Supervisory Body (SUGEF) which are posted in the year-end accounts, but that the 15 per cent will be reduced by the taxes and contributions which the Bank is required to pay by law.
3. 280. The complainant states that, as part of an audit conducted to evaluate the Bank’s performance, the CGR issued report No. DFOE-EC-IF-10-2015, annexed to the complaint, in which it concludes:
   • Although the collective agreement states that the Bank must allocate 15 per cent of its profits to pay for the incentive bonus, the Bank in fact incurs other costs relating directly to this payment, namely employer contributions, bonuses, the “salario escolar” [an additional allowance for public sector workers], the labour capitalization fund, reserve fund contributions and solidarity fund contributions, as well as those incurred under article 26 of the agreement; together these constituted an average of 82 per cent of the SEDI performance incentive payment over the period examined (2006–12). It follows that the overall cost of the incentive to the Bank should include not only the payment itself but also the additional expenses that the Bank has to meet and which increase the burden on overall operating costs and on the institution’s available profits.
4. In the report, the CGR recommends that the Bank’s governing board should “ensure that the SEDI conforms to the parameter laid down in the existing regulations, such that all associated costs are incorporated”.
5. 281. According to the complainant, it is blatantly unlawful for the CGR to have instructed the Bank to pay the SEDI by treating the 15 per cent of profits as a ceiling and including in that percentage all the associated costs, namely the taxes and contributions for which the employer is responsible. The complainant emphasizes that payment made under article 63 of the collective agreement is by nature salary-related and that the inclusion of what the CGR calls associated costs (taxes and contributions payable by the Bank) greatly reduces the amount of money to be shared among entitled employees of the institution, and is thus seriously detrimental to all employees of the Bank. According to the complainant, the CGR is de facto interpreting and amending the collective agreement, which constitutes state interference that violates the principles governing all collective bargaining.
6. 282. The complainant states that the Bank lodged a rescindment appeal against the CGR’s ruling, which the latter rejected. According to the complainant, this constitutes a new kind of violation of collective agreements by the State: whereas, previously, unconstitutional proceedings were instituted against the provisions of collective agreements, now an administrative body such as the CGR produces an interpretation, without being competent to do so, and amends collective agreements.
7. 283. The complainant also states that SEBANA turned to the courts in an effort to have the content of the collective agreement upheld, but that the Employment Court of the Second Judicial Circuit of San José closed the case, ruling that trade unions are not competent to use the courts of law to enforce the contents of a collective agreement and arguing that SEBANA must be granted special powers by its members allowing it to represent them in a judicial process. The complainant attached to its complaint a copy of the appeal submitted to the Higher Employment Tribunal on 13 August 2015. In that appeal, the trade union emphasized that the case is not concerned with the personal interests of the Bank’s employees, but is rather a matter relating to a collective agreement signed by the trade union.

B. The Government’s reply

1. 284. In its communications of 26 September and 15 December 2016, the Government transmits its observations together with a report prepared by the Bank’s general management. The Government explains that the Bank is an independent public law institution owned by the State and that its organic law obliges it to carry out binding instructions from the CGR. The Government adds that the Bank is also obliged to correct errors or actions that are harmful to the public purse and have generated additional outlay without appropriate legal justification.
2. 285. The Government indicates that the CGR, as the body which controls public finances, is responsible for examining the accounts of state institutions and public officials. In this context, the Office of the Comptroller produced the “Special audit report on performance assessment in state-owned banks: the National Bank of Costa Rica”, on 16 January 2015. In this study the CGR evaluated the soundness of the Bank’s policies and the total cost to the Bank of maintaining the SEDI it has applied since 1997.
3. 286. The report concludes that, although article 63 of the existing collective agreement states that the Bank should pay a productivity incentive equivalent to 15 per cent of consolidated profits, nevertheless over the period under review (2006–12), the amounts distributed by the Bank under the productivity incentive exceeded 30 per cent of its profits, because the Bank’s administration did not include the costs associated with the incentive, including employers’ contributions, within the 15 per cent ceiling established in the collective agreement.
4. 287. The Government states that the senior management of the Bank submitted an appeal for rescindment of the report which was rejected by the Economic Services Audit Area of the CGR’s Division for Performance Evaluation Audit. Its decision, issued on 19 February 2015, states the following:
5. 288. The Government states that, after the Bank’s rescindment appeal was rejected, it corrected the procedure used in paying the incentive, in accordance with instructions and recommendations issued by the CGR. A report written by the Bank’s management, which the Government encloses, argues that although the Bank, motivated by error, acted incorrectly in the past on the basis of an interpretation that differed from the wording of the collective agreement, this does not entitle the workers to perpetuate the error. According to its management, the Bank’s decision does not disregard the spirit and historical context of the agreement; on the contrary, it enables correct application of the agreement as consented to by the parties and in accordance with the law. According to the Bank’s management, the CGR at no time instructed it not to apply the provision in the agreement, but instead drew the Bank’s attention to its true scope, which in the past was not being observed.
6. 289. Lastly, the Government points out that there are currently four judicial proceedings awaiting decision in connection with the Bank’s actions relating to the ruling of the CGR.

C. The Committee’s conclusions

1. 290. The Committee observes that the present case refers to the allegation by the CCTD that, in compliance with a ruling of the CGR, the Bank amended a provision in a collective agreement signed with SEBANA.
2. 291. The Committee notes that the complainant and the Government state that: (i) since 1997, the Bank has implemented the performance appraisal and staff incentive scheme (SEDI), which aims to promote staff development and well-being; (ii) on 30 April 2014, the Bank and SEBANA signed their seventh collective agreement for a three-year period, article 63 of which states that: (a) the Bank’s employees are entitled to a performance-related incentive geared to an overall rating achieved for each period; and (b) the bonus is equivalent to 15 per cent of the net profits made by the Bank and its subsidiaries in the previous year plus any reserves and provisions additional to the regulations of the Financial Institutions Supervisory Body (SUGEF) which are posted in the year-end accounts, but that the 15 per cent will be reduced by the taxes and contributions which the Bank is required to pay by law; (iii) on 16 January 2015, the CGR issued an audit report in which it stated that, during the period under examination (2006–12), the real cost of the SEDI to the Bank represented an average of 30 per cent of the Bank’s net profits and not the 15 per cent stipulated in the collective agreement, because the costs incurred by the Bank in paying the SEDI were not included within the established ceiling; (iv) these “associated costs” to the SEDI are social charges that the Bank must pay which are inherent in every salary-related payment, examples being employer contributions, bonuses, the so-called “salario escolar” [an additional allowance for public sector workers] and the labour capitalization fund; and (v) in its report, the CGR recommended that the Bank’s governing board should ensure that SEDI payment conforms to the parameter laid down in the existing regulations, so that the “associated costs” are incorporated within the maximum limit of 15 per cent stipulated in the collective agreement.
3. 292. The Committee also notes the allegation by the complainant that the “associated costs” referred to by the CGR in its report are charges and taxes that an employer is legally required to pay, and that it is blatantly unlawful to deduct such costs from a salary-related incentive such as that provided for in article 63 of the collective agreement. The Committee further notes that the complainant states that deduction of the “associated costs” from the incentive payment greatly reduces the amount of money available for distribution among entitled employees of the institution, and is thus seriously detrimental to all the Bank’s employees. According to the complainant, whereas, in the past, the State violated collective agreements through unconstitutional actions, now, through the CGR, it is de facto interpreting and amending collective agreements.
4. 293. In this respect, the Committee notes the Government’s statements that: (i) the Bank is an independent public law institution which must comply with the CGR’s rulings; (ii) the percentage to which the Bank is committed in its collective agreement is 15 per cent of its profits less the taxes and contributions for which it is liable in law; (iii) the fact that the Bank’s administration has been implementing an arrangement that contravenes the provisions of the agreement, by not subtracting taxes and contributions from the distributable amount and thus granting greater benefits to its employees (incentives exceeding 15 per cent of net profits) does not entitle those employees to continue benefiting from the error; and (iv) although, as a first resort, the Bank lodged a rescindment appeal (which was rejected by the CGR in a decision issued on 19 February 2015), the management of the Bank has stated that the CGR at no time instructed it not to apply the provision in the agreement, but instead drew the Bank’s attention to its true scope, which in the past was not being observed by the Bank.
5. 294. In the light of the above, the Committee observes that the present complaint concerns a conflict in the interpretation of a clause of a collective agreement that applies within a state-owned bank. The Committee notes in this regard the complainant’s allegation that the CGR imposed an interpretation of the clause relating to payment of an incentive bonus known as the SEDI without having competence to do so and that, furthermore, the judicial proceeding brought by the union to challenge that interpretation was declared inadmissible by the Employment Court of the Second Judicial Circuit of San José (Case No. 15-0713-0166-LA) (the complainant has not enclosed a copy of this judgment). According to the complainant, the Court ordered the case to be closed, finding that the unions do not have competence to bring cases to trial for the purposes of enforcing the contents of a collective agreement, and that they must obtain special powers from their members before representing them in judicial proceedings. The Committee notes that the complainant has attached to its complaint a copy of an appeal submitted to the Higher Employment Tribunal on 13 August 2015, on which no ruling has yet been made. The Committee observes that in its appeal the union emphasized that the case concerns not the individual interests of Bank employees but a collective agreement signed by the union. The Committee also notes that the Government refers to the existence of four judicial proceedings relating to the Bank’s actions taken in response to the ruling of the CGR, which are awaiting settlement.
6. 295. In this regard, the Committee recalls paragraph 6 of the Collective Agreements Recommendation, 1951 (No. 91), which states that disputes arising from interpretation of a collective agreement should be submitted to an appropriate procedure for settlement established either by agreement between the parties or by laws or regulations as may be appropriate under national conditions. Accordingly, the Committee considers that this difference in interpretation of article 63 of the collective agreement should be resolved by the mechanisms provided for such purpose in the agreement itself, or in any event by an impartial mechanism which should be accessible to both parties signatory to the agreement, such as an independent judicial body. On the basis of the foregoing, the Committee requests the Government and the complainant to keep it informed of the outcome of the ongoing judicial proceedings.

The Committee’s recommendation

1. 296. In light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendation:
   • Emphasizing the importance of settling differences of interpretation of collective agreements by the mechanisms provided for such purpose in the agreement itself, or in any event by an impartial mechanism which should be accessible to both parties signatory to the agreement, such as an independent judicial body, the Committee requests the Government and the complainant to keep it informed of the outcome of the ongoing judicial proceedings.