Suspension of the Christmas-month (13th month) and holiday-month (14th month) payments of annual salaries, both for persons who receive salaries from public entities and for persons who receive retirement pensions from the public social security system.
State based on the rule of law
Economic and financial crisis
Principle of equality
Distribution of sacrifices
RULING No. 353/12
5 of July of 2012
The norms that provided for a measure under which the Christmas-month (13th month) and holiday-month (14th month), or any equivalent, payments were suspended in 2012-2014, both for persons who receive salary-based remunerations from public entities and for persons who receive retirement pensions via the public social security system, were unconstitutional because they violated the aspect of the constitutionally enshrined principle of equality that requires the just distribution of public costs. There should have been limits to the difference between the extent of the sacrifice made by the persons who were affected by this measure and the sacrifice of those who were not; and the inequality caused by the difference in situations should have been the object of a degree of proportionality. The extremely serious economic/financial situation and the need for the measures that are adopted to deal with it to be effective cannot serve as grounds for dispensing the legislator from being subject to the fundamental rights and key structural principles of the state based on the rule of law, and this is true namely with regard to parameters such as the principle of proportional equality. The Constitution clearly cannot distance itself from economic and financial reality, but it does possess a specific normative autonomy that prevents economic or financial objectives from prevailing in an unlimited way over parameters such as that of equality, which the Constitution defends and with which it must ensure compliance.
Under the rules governing abstract ex post facto reviews, a group of Members of the Assembly of the Republic asked the Constitutional Court for a declaration with generally binding force of the unconstitutionality of various norms contained in the State Budget Law (LOE) for 2012. These norms created measures that provided for “suspension of the Christmas and holiday-month payments” (non-payment, in principle for a number of years, with no prospect of payment of the lost amounts at any time in the future), while simultaneously maintaining the measures involving “remuneratory reductions” contained in the LOE for 2011. The universe of persons encompassed by the “suspension” measures was comprised of public-sector workers, and retirees (in the latter case, including those from the private sector). The duration of the LOE 2012 norms in question was for as long as the Financial Assistance Programme (FAP) for Portugal remained in force – a duration that was by nature extendable – and did not respect the legal assumption that the remuneratory reduction measures provided for in LOE 2011 would only remain in effect for one year at a time and would require annual renewal if they were to last longer than that. The appellant group alleged violation of the principles of a democratic state based on the rule of law (protection of trust aspect), proportionality, and equality.
The FAP comprises a set of legal instruments, the parties to which are the Portuguese government and the International Monetary Fund (IMF). They include a Technical Memorandum of Understanding and a Memorandum of Economic and Financial Policies, which set out the terms and conditions governing the provision of financial assistance to Portugal by the International Monetary Fund. In addition, the Portuguese government and the European Union signed a Memorandum of Understanding on Specific Economic Policy Conditionality. All these Memoranda are binding on the Portuguese state, to the extent that they are based on international-law and European Union-law instruments – the Treaties that instituted the international entities which are parties to them, one of which is Portugal – that are recognised by the Constitution. These documents require the Portuguese state to adopt the measures they set out, as one of the conditions for the phased fulfilment of the financing contracts entered into by the same parties.
The reasons the legislator gave for adopting the measure contained in the norms before the Court were primarily based on the need to comply with the budget-deficit limits (4.5% of GDP in 2012) imposed in both the Technical Memorandum of Understanding and the Memorandum of Economic and Financial Policies.
The cutting of the whole of the Christmas and holiday-month payments, or any payments that were equivalent to the so-called 13th and 14th months of pay was applicable to persons who received a remuneration or pensions worth more than €1,100 euros/month, and came on top of the earlier reductions that had already been imposed in 2011 and were maintained for 2012. Non-payment of the whole of these amounts represented a 14.3% reduction in the annual value of salaries and retirement pensions, in addition to the previous reductions. The latter already entailed a decrease of between 3.5% and 10% in the net monthly pay of persons working in the public sector who had been earning a gross amount of more than €1,500 euros/month at the end of 2010. The Court also took account of the fact that there had been a public-sector pay freeze in 2010, 2011 and 2012, and a freeze on pensions in 2011 and 2012, and that the FAP Memoranda provided for these freezes to continue in the coming years. When combined with the phenomenon of inflation, all of this is implying a real fall in the value of such salaries and pensions. On the other hand, in terms of measures with a universal nature that were adopted under the public revenue heading and directly reduced citizens’ net incomes by increasing everyone’s contribution to the budget consolidation effort, the only thing that LOE 2012 did apart from making a number of amendments to the regime governing the calculation of personal income tax (IRS), was to subject taxpayers in the highest income bracket to an additional 2.5% on their taxable income. The legislator did not opt to repeat the extraordinary 3.5% surtax on income subject to IRS in 2012-2014, as it had done for 2011; nor did it create any specific new extraordinary tax. It preferred to act primarily on the spending side of the equation, by reducing the amount the state paid to persons who received holiday and Christmas-month payments from public funds.
The Constitutional Court noted that the nature of these and any other equivalent 13th and 14th month payments was no different from that of the salaried forms of remuneration that had been the object of reduction in LOE 2011 – reductions which the Court had declined to declare unconstitutional in a previous ex post facto review (Ruling no. 396/11 of 21.09.11). The law says that the nature of both the Christmas and the holiday bonuses is that of payment for work done and that they form part of the worker’s annual remuneration, regardless of whether they are paid under the private-law or the public-law regime.
The Court recalled that the principle of equality with regard to the just distribution of public costs, as a specific manifestation of the principle of equality, is a necessary legislative parameter which the legislator must consider when it decides to reduce the public deficit in order to safeguard the state’s solvency. The sustainability of the public finances is of interest to everyone and, to the extent of their capacity to do so, everyone must contribute to the burden of the readjustments that are indispensable if that sustainability is to be ensured. The fact that the measures contained in the norms before the Court were not universal meant that they did not distribute the sacrifices equally between all citizens, in proportion to each one’s financial capacity. They required an additional effort exclusively from certain categories of citizen.
The Court considered that the only justification for the measure included in LOE 2012 that it could deem proven was the measure’s efficacy, given that it was certain to produce effects and to do so quickly in the search for a result that would be of important public interest. However, the Court also recalled that even within the framework of a serious economic/financial crisis, the legislator’s freedom to resort to cutting the remuneration and pensions of persons who receive them from public funds, with a view to achieving a budgetary balance, cannot be unlimited. The difference between the degree of sacrifice undergone by those who are affected by this measure and that of those who are not must be subject to limits.
Legal equality is always a proportional equality, so any inequality that is justified by a difference in situations cannot be immune from a judgement of proportionality. The Court said that the difference in treatment in the case before it was so substantial and significant that the efficacy-related reasons advanced for the measure were not valid enough to justify such a large difference, all the more so in that it was possible to resort to alternative solutions.
Bearing in mind that the execution of the 2012 Budget was already well underway, the Constitutional Court considered that the consequences of an unqualified declaration of unconstitutionality could endanger the maintenance of the agreed financing and thus the state’s solvency. It therefore restricted the effects of the declaration of unconstitutionality as permitted by the Constitution, and did not apply them to the suspension of payment of the Christmas and holiday bonuses or any equivalent payments with regard to 2012.
Three Justices were of the view that the effects of the declaration of unconstitutionality should also extend to the current year, and therefore dissented from the decision to exclude 2012.
Three Justices dissented from the declaration of unconstitutionality itself.
Rulings nos. 39/88 (09-02-1988), 96/05 (23-02-2005), and
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