Constitutional protection of the social sector of ownership of the means of production – the right of not-for-profit entities to own means of production
Economic, social and cultural rights
Freedom to engage in trade and industry
RULING No. 612/11
13 of December of 2011
By allowing a pharmacy business to be conducted via legal persons owned by not-for-profit entities linked to charitable objectives, the legislator helped to promote the pursuit of the goals of such entities, which are in the public interest. The compulsory requirement to form a commercial company in order to gain access to the right to own pharmacies is justified by the objective of obliging all the various market operators to respect the rules of free competition, when that business activity occurs in the marketplace. The protection which the Constitution affords to the social sector of ownership of the means of production, in an area of business that is open to the market and to competition, does not prevent the legislator in such cases from submitting the social sector to the requisites imposed on other operators, in the name of balanced competition between economic agents.
However, the imposition in all cases of the compulsory requirement to form commercial companies, as a requisite for access to the pharmacy business, with the goal of protecting free competition, deprived social entities of the possibility of engaging in that business in their role as social entities – i.e. without seeking a profit. By obliging social entities that want to engage in the pharmacy business outside the market to form commercial companies, the legislative solution in question was one that failed to fulfil the demands for balance derived from the principle of the prohibition on excess that is included in the principle of a state based on the rule of law. It is excessive for the legislator to require the formation of commercial companies, and in this case it is not possible to consider a measure that results in the imposition on social entities of the burden of artificially forming commercial companies and thus adding to their organisational structures and costs, to be a measure that respects the principle of the prohibition of excess.
This case involved a request by the Ombudsman for an ex post facto review of constitutionality.
At stake were Executive-Law norms that precluded entities in the social sector, acting as such (i.e. in their specific role and form as social sector entities), from owning pharmacies. The legislative act in question says that natural persons and commercial companies can own pharmacies; it allows entities in the social sector of the economy to do so, on condition that they form a commercial company and put the pharmacy in that company’s name. The reason for this provision is to ensure fiscal equality between such pharmacies and all the others. The regime does not exclude the social sector from the pharmacy business, nor does it reserve that business to the private sector.
Given that the social sector can own pharmacies on condition that is does so via the commercial company format, no sector of the economy is excluded from access to the possibility of owning such establishments and the coexistence of the various sectors in the pharmacy market is not in question.
However, the Constitutional Court was of the view that the exclusion of social sector entities from the ability to own pharmacies in their own right – i.e. as such entities, outside the marketplace – implies a violation of the principle of equality. The law cannot deny charitable institutions the right to own pharmacies by obliging them to “transvert” themselves “into commercial companies if they want to pursue an activity in the health field with social – i.e. not-for-profit – goals. The imposition of this obligation to form commercial companies does not pass the test of the requirement for proportionality in the confrontation between the two orders of reasons which, according to the preamble of the Executive Law in question, led the legislator to establish the legal solution described above: the desire to make it possible to exercise a close administrative control over the ownership of pharmacies (inasmuch as a given legal person cannot own more than four such establishments); and the wish to safeguard fiscal equality between the entities that own them.
The Constitutional Court accepted that by forcing would-be owners to form commercial companies, the legislator avoided the need to change all the different norms that distinguish social sector entities (and not just from the fiscal point of view), solely for the purposes of engaging in the pharmacy business. The obligation to form a commercial company makes it possible to impose a blanket regime on all the agents in the pharmacy market.
However, the solution that involves the imposition of an undifferentiated obligation to form commercial companies is unbalanced. Quite apart from anything else, this is because when the ownership of a pharmacy and the corresponding pursuit of its business are undertaken in favour of the beneficiaries of a social entity, and there is no competition with market operators, the objective of guaranteeing equal competition loses its raison d’être and the imposition of the corporate legal format is inappropriate.
If the social entities act outside the market in order to achieve the goals which their articles of association require them to pursue, and the guarantee of free competition is therefore not applicable, the public interest which those entities fulfil reacquires its full weight in the scales of decision. In the absence of powerful reasons that would justify the precondition of the formation of a commercial company, the law must not deprive social entities of a favourable treatment that is derived from the state’s constitutional obligation to support the social sector.
At the same time, inasmuch as the institutional guarantee of the coexistence of the various sectors of production (private, public and social) must be seen as ensuring each one of them, each with its own specific characteristics in terms of its identity, the ability to act in all the different areas of activity, it would be excessive to require the social sector to act in its normal space – outside the marketplace – without the ability to present itself to the world with its natural identity.
The Constitutional Court therefore declared the unconstitutionality of the norms before it, with generally binding force.
The Ruling was the object of two dissenting opinions, one of which was appended to it by the President of the Court. Their signatories were of the view that the majority did not go far enough in the terms of its declaration of unconstitutionality. They would have preferred a declaration with broader effects, to include the unconstitutionality of the obligation to form a commercial company when a social sector pharmacy is open to the public, rather than just when its users are restricted. The dissenting Justices took this position on the grounds that social entities are also acting inside their natural area of activity in such cases.
The two Justices were moreover of the opinion that the part of the norm that subjects the legal persons which the same Executive Law says must obligatorily be formed by social sector entities that are active in the pharmacy area to the same fiscal regime as that applicable to commercial companies in general, is also unconstitutional. They argued that the unacceptability of the requirement to form such commercial companies in turn makes it unacceptable for the law to impose the corresponding regime, including the fiscal regime. The precepts in question automatically lead to the decharacterisation of the social sector entities which, when they are wearing the pharmacy-owner hat, are thereby prevented from pursuing their charitable objectives by selling medicines to the public. Without sufficient material grounds for doing so, this precludes the recognition that is due to social sector entities under the terms of the principle of the coexistence of the sectors of ownership of the means of production, which is enshrined in the Constitution.