“THE NECESSITY OF NEW LEGISLATIVE FRAMEWORK OF THE PUBLIC RELATIONS RELATED TO THE PROVISION OF LABOUR FORCE”

The article has been represented by Angel Buzalov, Attorney-at-Law, partner and head of the employment department in “Popov & Partners”, during the first part of the discussion forum “Law Day”, which is annually organized by the German – Bulgarian Chamber of Commerce and Industry (GBCCI), which was held on March 20^th 2014. The presentation includes legal review and comment on the necessity of new legislative framework of the public relations related to the provision of labour force.

The reason for choosing this topic was given to us by our Clients and the difficulties they encounter in the efforts to meet the requirements of the Bulgarian labour legislation. Of course, the necessity for such legislative amendments is reported for the first time now – even now there are discussions conducted on the necessity of amendments and their eventual nature in the public domain.

Meanwhile, on the second reading the consecutive law amendment of the Labour Code was adopted in the Bulgarian Parliament which, however, hardly meets the existing social and economic necessities.

According to official statistics, the unemployment in Bulgaria is at level of 13%, and the youth unemployment is 28.4% (Figure 1). According to independent studies, the actual rates of unemployment far exceeds the official statistics. Long-term unemployed (over 12 months) are 59% of all unemployed. This puts Bulgarian unemployment at the highest levels of unemployment in the EU.

Figure 1

At the same time, according to current statistics valid up to 2011 (Figure 2), the Bulgarians that graduate from universities are 24, 6 % of the population, whereas high school graduates are more than twice. The statistics shows that the majority of university graduates employability do not work in their specialty. It is evident that the current legal and economic framework cannot meet the challenges of the time. In this sense, we find it important that the gradual adoption and implementation of amendments designed to stimulate the investments and revive the labour market. Along with the important changes in the education system, which should be adopted, we consider that substantial amendments must also undergo in the labour legislation framework.

Figure 2

The current Labour Code was adopted in 1986 (during the time of the planned economy, fundamentally different nature of the industrial property and virtual absence of any market industrial relations, and in striving the law to serve the power of authority of only one class – the proletariat) and repeatedly amended during more than 35 years. It is important to consider that often the amendments in the Labour Code, performed in time after 1989, comply in much – largely extent of the economic objectivities of the planned economy rather than the market one.

The vast majority of the rules create highly formal and inapplicable requirements as for workers and employees, and employers. The employers are often faced with situations in which they artificially serve all of the formal rules of Labour Code under the threat of potential administrative sanctions. This, of course, entails tremendously additional financial burdens and costs for the business.

Simultaneously, there are many listed debates by the employers who are “jealously” rejected by trade unions and representatives of political parties. We also share the expressed by many business and investing-orientated organizations thesis that the stabilization and development of the labour market is problem № 1 for this stage, in which the Bulgarian’s economy is stucked now. This is the reason and it explains why the debate concerning the labour law reform  should be opened once again as a national task of high priority.

I am convinced that this is the understanding and of the other business and social partners, too

The administrative burdens on the business

The over-regulations, and often preposterous restrictions in the labour relations, are part of the administrative burden on business, along with other major issues.

The transfer of excessive social responsibilities on business, including solving demographic and other national issues (payment of 2-6 gross salaries at retirement, freezing the ratio 60:40 for insurance contribution of employers and workers, and others.) is always associated with additional direct or indirect costs for doing business.

The reduction of these costs is part of the mechanisms for improvening the business environment in order to achieve greater competitiveness and investment climate. The final effect of improved competitiveness is creating qualitative and sustainable jobs, expanding the employment opportunities and the access to the labour market of the disadvantaged people (the young, the people with low degree of education and qualification, etc.) and increasing the amount of the salaries.

What does actually mean to hire even one worker or an employee in Bulgaria?

If, at present, you decide to run a small business and hire even a single worker or an employee in Bulgaria, this would involve you in implementing a number of compulsory formalities, as follows:

–  You must sign a written employment contract with the worker or the employee;

–  You must send an official notification to the National Revenue Agency;

–  You must adopt as an employer “Internal Rules of Labour Procedures” and “Internal Rules for Salary”, established after consultation with the General Assembly of the employees;

–  You must sign a contract with an occupational health service;

–  You must develop and approve Internal Rules for Physiological Modes of Work and Rest according the requirments of the Health and Safety Work Act;

–  You must establish a schedule for using the paid leave;

–  You must ensure the conduction of special books for initial and periodic briefings – even when the only worker or employee can work in an office, for example;

–         You must provide an audit book certified by the Labour Inspectorate, in which any prescriptions of the Labour Inspectorate related to violation of the labour legislation could be applied – even though the very Inspection could maintain a centralized database where to store such information

and also a number of other requirements which, in a large percentage of the cases, are executed simply formally.

The situation for you (the employer), however, could be greatly compounded if you decide to release or terminate the labour contract with this worker or employee. In this case, if the employee is reluctant to sign the documents for the termination of their contract by mutual consent, you will be faced with the necessity to find another effective way for their release. The Labour Code lists restrictively the opportunities of the employer to terminate unilaterally the labour contract, but each of them is related to the performance of additional requirements, many of which are not stipulated in the law, but are a result of the case law and practice.

Implementation of unilateral non-fault ground for termination of employment relation by the employer without the necessity of extra motivation

In order of the above mentioned, the termination of the labour contract with a worker or an employee is related to performing of a number of formalities, the reversal of which in any event carries risks for the employer – whether revocation of the dismissal and claim for compensation by the employee or by eventual administrative penalty imposed by the Labour Inspectorate. The issue is that the fulfillment of the formal requirements do not isolate fully those risks. On the one hand, the main reason for this uncertainty are the limited opportunities that the law provides for unilateral termination of the employment contract by the employer and on the other hand, the case law and practice which authorizes the termination issues – mainly protecting the interests of workers and employees.

In a comparative study of the possibilities to terminate a contract of the employment in 25 European countries in May 2013, prepared by the Belgian law firm LAGA, Bulgaria is one of the few countries for which it has been noted that “the dismissal procedure is highly formal procedure that requires a lot of written job. In addition, the case law and practice is primarily protecting the worker.”

The complicated, formal and risky procedure that must be carried out for the termination of an employee’s labour contract is one of the major factors that makes the economic environment extremely unfavorable for investments.

Practically, a vicious circle is created, in which the labour market becomes static and almost falls into lethargy. The difficulty an employee to be released prevents another from finding a suitable employment. This creates a situation in which on the one hand, if an employee, despite all the difficulties and risks to be fired, for them it would be much harder to be re-employed than if the demand of qualified staff was developing within a dynamic labour market. Thereby, the obstructions in case of termination of labour contract entail as a direct result a higher level of unemployment.

By this forcibly freezing of the dynamics of the labour market lose all sides in the employment relation:

–         The employer – because the possibilities  to select the team and manage the staff are limited. Imagine how the football would look like if the coaches were required to fulfill such requirements as to remove a player from the group for the next game.

–  The unemployed – because their only chance to find a job is in  opening of new job positions – the old ones are occupied until retirement or at least until the person who has taken them decide to give up.

–  The person, who seeks for its first job – because from the very beginning they are   placed in the hopeless position of the unemployed.

–  The working person – because they have been faced with the lack of any alternative to the current working position.

This could be illustrated in Figure 3 and 4, in which the possibilities of unilateral termination by the employer in several European countries and the percentage rate of unemployment and youth unemployment are compared:

Figure 3

Figure 4

As you could note, countries such as Bulgaria, Slovenia and Italy, in which the termination of the employment contract is related to additional and limit grounding and there are other formalities, higher levels of unemployment and youth unemployment  are observed. The study, prepared by LAGA, mentions Slovenia, as one of the countries, where the judicial authorities decide predominantly in favor of the employees and it is difficult to bring to a successful end a certain dismissal.

On the other hand, in Belgium, where it is possible to terminate the employment contract without further substantiation significantly lower levels of unemployment are observed. Such similar situation is similar in Switzerland and in the United Kingdom.

For comparison, in the United States, where the relations with employees are governed on the basis of the so-called “At-Will employment” (or with the possibility of termination an employment contract by the free will of the employer and without further substantiation) the unemployment rate is 7.3%.

The doctrine “At-Will” also allows the signing of a bilateral declaration, in which it is attached that any of the two parties to the employment relation on their own will and without motivation could terminate the labour contract. Virtually, such opportunity exists in Bulgaria, but only in favor of the worker and employee – the latter could terminate their employment contract with 30 days written prediction without giving any additional grounds or arguments (art. 326 Labour Code).

Of course, proceeding from the common adopted position that the worker is the weaker party in this bilateral relationship, is probably appropriate for the employer to terminate the employment contract not to correspond completely in range with the relevant right of the employee. Such balance could be achieved, for instance with an obligation of the employer to give a longer notice prediction or for example, to pay certain compensation for such unilateral termination. It is possible, like other European countries do, the period of the written prediction to be determined depending on the years of service.

The obligation for additional substantiate of a dismissal (whether due to reduction of the staff, the closure of part of the enterprise, lack of skills of the worker or employee or other reasons) poses a liability in the employer to prove in contesting the existence of those grounds and accomplishment of formalities due to the dismissal. In this respect, if a dismissal is not thoroughly prepared beforehand (which preparation takes again time and resources), then the risk the employer to be condemned is essential.

Sometime ago, a comparatively flexible approach to the termination of the employment relationship was the dismissal due to reduction of the staff. Despite the numerous formalities around such dismissal, the employer could at their own discretion to choose which employees to release in reduction.

With Interpretative decision № 3/2011, the Supreme Court of Cassation issued a mandatory interpretation of the law, according to which the assessment of the employer, whose worker or employee responds better in working and who shall be released, is also a subject of judicial supervision.

Considering the above, we believe that economic measure which would have positive effects on the business climate is the implementation of legislative amendments providing more flexible options for the employer to terminate the employment contract as expedient.

In conjunction with the necessity of enhancing the business climate, I would like to focus the attention on some proposals for legislative amendments adopted by the Bulgarian Chamber of Commerce:

Such measure, for example, is the possibility for exchange via electronic documents between employer and employee. It is good that this opportunity to be explicitly regulated because very commonly the administrative and judicial authorities manifest a reserved attitude towards electronic communication.

Of course, as far as not every worker or employee has a permanent access to electronic environment, this opportunity could be implemented as an option for workers and employees, who, explicitly and written, express consent for such type of correspondence. Certainly, the implementation of such a measure would facilitate higher percentage of employers, furthermore, it would reduce the administrative costs at not insignificant amount. Thus, it could be given attention to the practice of delivering documents to employees via e-mail, as it is adopted in Belgium.

It is worth considering the proposal for implementation of a single system for keeping and storing information from a service record of the employee.         

This concept could also be provided at the beginning as an option to be set up as an alternative to enterprises and by the employers, who wish to benefit from a similar proposal. Parallel with this proposal at employer standard, a unified electronic system should be developed and implemented in action, in which the worker or the employee to have  the option continuously in real time to monitor their labour service. The implementation of such production software at the level of labour relations, would certainly reduce the abuses of the service record, it would place limits and would align the manner of keeping and storage of this document.

In addition to the above proposals, the opportunity to create and maintain an electronic register of the Labour Inspectorate, which could replace conceptually outdated audit book, should be discussed.

Certainly, the transition to electronization of the documents, accompanying the employment relation, would bring for the transparency of the overall regulation and it would exert a preventive effect on the abuses in the document flow of each enterprise. The presented concept could be only in support of business, as well as of the employee, who could carry out references into an unified system for key elements of their employment relation with the employer.

The issue with the Trilateral cooperation

The proposals for amendments in any event have to be part of the trilateral debate between the government, the employers and the organization of the employees and workers (the Trade Unions).

As you may know in the National Council participate two representatives from the Council of Ministers, from the Trade Unions (Confederation of Independent Trade Union and Labour Confederation “Support”), as well as the Employer’s organizations (Bulgarian Chamber of Commerce, Bulgarian Industrial Capital Association, Bulgarian Chamber of Commerce and Industry and Confederation of the Employers and Industrialists in Bulgaria).

In this respect, it should be noted that most of the employees and workers are not represented in the implementation of the trilateral cooperation. Virtually, the two existing confederations of the Trade Unions represent only 12% of the employable people in Bulgaria. In comparison, as it is indicated in Figure 5, employers’ organizations represent enterprises, in which participate in about 47% of the working population. In this sense, it could be hardly said for genuine trilateral cooperation, provided that one of the parties is not actually presented in these relations. Meanwhile, often precisely the Trade Unions close the road to any kind of business-oriented reforms in the labour legislation. The recent media statements by the leaders of the Trade Unions do not even give an opportunity on certain proposed amendments.

Figure 5

Entire categories of employees, virtually, are not represented by the Trade Unions at all, but nevertheless, the conditions for exercising their labour, their rights, obligations and opportunities on the labour market are dictated by the decisions of these Trade Unions (Figure 6). Virtually the case that the miners and the transport workers, for instance, decide and determine the fate of the financial experts, the employees in call centers, the marketing specialists, etc. This not only account the differences in the specifics of individual professions and respectively – the difference in their interests, but also undoubtedly discriminates the vast majority of the employees in Bulgaria.

Figure 6

In view of this, we consider that  the current model of trilateral cooperation should be altered, in order to allow at least for genuine debate concerning the necessity of legislative amendments.

In light of the foregoing, it is evident that the labour legislative reform is inevitable and the legislature if not today, then in the near future will be faced to the unique opportunity to carry it out.