Labour Law – Seniority bonuses
Imperative legal norms;
Right to collective bargaining and collective labour agreements;
Right to be paid;
Irreducibility of wages;
Protection of trust (legal certainty);
Capacity to contribute to public costs;
Principle of equality;
RULING No. 194/15
19 of March of 2015
The Constitutional Court found no unconstitutionality in a norm contained in the State Budget Law for 2011 (LOE2011) that imperatively prohibits any act which results in a pay increase linked to the length of service of workers employed by enterprises that are either wholly owned by the state or in which the latter holds a majority stake. LOE2011 says this norm takes precedence over any other provision in either the ordinary law or collective agreements.
Sitting in Plenary in an earlier ex post facto abstract review case, the Constitutional Court had previously declined to find another LOE2011 norm that reduced the amount already paid to such workers unconstitutional. In the present case the Court said it is even clearer that it is not unconstitutional to prohibit increases in their remuneration.
The Court took the view that the existence of imperative norms – i.e. norms that lay down fixed clauses (which cannot be replaced by other provisions, even if they are agreed by the parties) or impose minimum conditions designed to protect a labour relationship (which can only be replaced by other provisions that establish a more favourable regime) – does not in itself contradict the right to engage in collective bargaining and enter into collective labour agreements. Imperative norms enshrine a mandatory, non-negotiable statute applicable to a given type of contract – here, the specific labour contract applicable to workers who perform public functions. They do not undermine the contractual statute governing the workers in question, which is defined partly by the imperative norms and partly by those collective labour agreement norms that do not contradict them. The link between these different provisions and their addition to the clauses actually contained in the labour contract, with the resulting whole defining the legal regime governing the public labour relationship, does not constitute any violation of the right to collective bargaining and collective labour agreements.
Even though the fact that they institute pay cuts mean that this type of norm can be classed as “labour legislation”, and although the competence to exercise the constitutional right to collective bargaining and collective labour agreements pertains to the trade unions, the same right also charges the ordinary legislator with the task of delimiting the right itself and entrusts it with a broad freedom to create legislation on the matter. The right to collective contractual autonomy implies that there must be an ample space within which collective labour agreements can regulate labour contracts, and this space cannot be eliminated by norms issued by the state. However, the Court said that because the public interest pursued via the budgetary consolidation process is one the Court is required to take into account here, the obligation imposed on the ordinary legislator by the Constitution to always leave a minimally significant range of matters open to collective bargaining cannot serve to constitutionally invalidate the necessarily imperative nature of budget norms that exceptionally and transitionally place limitations on the right to collective bargaining and collective labour agreements.
Removing the ability to oppose imperative norms of this kind is a necessary condition for the imperative regime to be capable of achieving its purpose, and does not represent an intrusion into the core matters that can only be decided by collective bargaining.
Whenever another court refuses to apply a norm on the grounds it is unconstitutional, the Public Prosecutors’ Office (MP) must appeal against the decision to the Constitutional Court. In this case the MP applied for a concrete review of a decision in which the Porto Labour Court refused to apply norms contained in the State Budget Law for 2011 (LOE2011) because it considered them materially unconstitutional. Workers employed under individual labour contracts by the state-owned company STCP asked the court a quo to order their employer to recognise their right to a new seniority bonus they alleged they were entitled to under the applicable collective labour agreement. STCP argued that it could not pay the additional amount, because the 2011 and 2012 State Budget Laws had effectively frozen such bonuses by prohibiting acts that increased pay packages. The Porto Labour Court found in favour of the plaintiffs, refusing to apply the Budget norms on the grounds that they were unconstitutional.
In the past the Constitutional Court had already held that instrumental measures of this type are only valid if their purpose is to reduce public spending and correct an excessive budget deficit as part of an overall programme that is delimited in time.
There is no rule in the Constitution that directly, autonomously and per se guarantees that salaries cannot be cut. However, such a rule does form part of the country’s infra-constitutional law and is included in both the Regime governing Public Sector Labour Contracts (RCTFP) and the Labour Code.
It was argued at first instance that although this guarantee is created by ordinary legislation, it also enjoys parallel constitutional force due to the constitutional provision which says that the fact that the Constitution enshrines certain fundamental rights does not preclude the existence of others included in applicable ordinary laws and rules.
The Court pointed out that the ordinary-law rule in question is only valid for pay in the strict sense of the term and is not absolute. The only thing it absolutely prohibits is that employers (public and private) arbitrarily reduce the amount of an employee’s pay without sufficient normative grounds for doing so.
The Court rejected the argument that there is a right for a worker’s salary to be irreducible, whose inclusion in labour legislation gives it the force of a fundamental right under the open constitutional clause on the existence of fundamental rights outside the Constitution. Given the basic protection provided by the existence of a minimum guaranteed wage, the Court also said it is not possible to argue that pay above that minimum cannot be reduced because this is required by the dignity of the human person, or because such an irreducibility is a primary or essential asset, which is in turn the material criterion for determining whether one is in the presence of a subjective right that can be deemed fundamental even though it is not enshrined in the Constitution, but only in the ordinary law.
The constitutional legislator took the trouble to create a dense network of provisions designed to protect the compensation payable for work done, and therefore enshrined the guarantees deemed necessary to ensure the position of workers in this respect in the Constitution. In addition to recognising the basic right to be paid, the legislator also established the principle of “equal pay for equal work, in such a way as to ensure a minimally dignified standard of living”, charged the state with “creating and updating a minimum national wage”, and required the ordinary legislator to make provision for “special guarantees” for wages. However, none of this signifies the existence of a constitutional right to be protected from pay cuts.
In the light of all this, the Court was of the view that there were insufficient material grounds for considering the right not to have one’s pay reduced to be a fundamental legal right.
That which is a fundamental right – i.e. a right whose nature is analogous to that of the various constitutional rights, freedoms and guarantees – is the “right to be paid or compensated” for one’s work. This is fully accepted in legal doctrine and has been stated by the Court in the past. However, the right to compensation is one thing; a right to a concrete amount, which by law cannot be reduced whatever the circumstances and the economic/financial variables that concretely condition it, is something else entirely. The ordinary-law restriction on reducing or otherwise negatively affecting a wage is not a guarantee-style dimension of the protection afforded to the right to be paid for one’s work, nor does a reduction in the quantum of a worker’s pay affect or restrict the right to be paid itself.
Inasmuch as there is no rule with constitutional value that directly prohibits pay cuts and no such guarantee can be inferred from the fundamental right to be paid, the Court was only able to gauge the constitutional conformity of the norms before it using parameters derived from certain constitutional principles, particularly those of trust and equality.
Pay cuts are of a budgetary nature and are not definitive. Even so, one can ask whether they are in breach of the principle of the protection of trust (legal certainty).
The protection given to the value ‘trust’ reflects the subjective application of the requirement to protect legal certainty. The protection of trust and legal certainty form a necessary condition for the fulfilment of the principle of a democratic state based on the rule of law.
The application of the principle of trust (certainty) must begin with a rigorous definition of the cumulative requisites that a “trustworthy” situation must meet in order for it to deserve protection. Once these requisites have been verified, it is necessary to weigh up the private interests which are unfavourably affected by the change in the normative framework that regulates them on the one hand, against the public interest which justifies the amendment on the other.
Significant pay cuts that encompass the entire universe of people paid out of public funds do not fall within the range of behaviours on the part of the decision-making authorities that can be called predictable. However, the Court said that the country is currently going through an absolutely exceptional conjunctural situation from the perspective of the financial management of public resources. The budget imbalance generated strong pressure on Portuguese sovereign debt, with a progressive rise in interest rates, thus posing serious funding difficulties for the Portuguese State and the country’s economy.
No one could reasonably doubt that the pay-cutting measures were intended to safeguard a public interest that should be considered to warrant prevalent status, and the Court said that this was the decisive reason for rejecting the allegation that it was in the presence of a failure to protect that could be criticised in constitutional terms.
Pay cuts form part of a range of measures that the political authorities, acting in concert with the international bodies of which Portugal is a member, decided to take in order to restore a balance in the country’s public finances – a balance that was seen as absolutely necessary in order to prevent and staunch disastrous consequences in the economic and social sphere. The public interest that needed to be safeguarded was clearly identified and of key importance. The Court said that that interest necessarily had to prevail over the others at stake, even though one could not ignore the intensity of the sacrifice caused to the private spheres affected by the reductions in pay.
One could indeed ask whether the need to impose asset-related sacrifices in order to protect a public interest pertaining to everyone meant that the spheres of every citizen with the same capacity to contribute should have been equally affected. This would be one logical outcome of the principle that there must be equality in the responsibility for public expenditure, under which the sacrifices inherent in fulfilling public needs must be fairly distributed between all the country’s citizens. The measures before the Court do not divide the sacrifices imposed by the exceptional financial crisis situation between every citizen with the same capacity to contribute in the same way, inasmuch as their scope is not universal and they only fall on persons with a public employment relationship. The legislator could alternatively have taken fiscal measures that would have brought in tax revenues equal to the amount saved by the pay cuts. In that case everyone with the same taxable income would have been subjected to an equal sacrifice from the point of view of their contribution to public expenses.
However, no one has established grounds for saying that the principle of equality in the responsibility for public expenditure requires the taking of fiscal system measures, thus predetermining the possible type of solution and taking any scope for free choice away from the democratically legitimated political decision-maker.
Whether the government should fight the deficit on the revenue side (primarily fiscal) or the spending side of the public finance equation (or indeed by means of a suitable combination of the two types of measure, and by choosing the most appropriate ones from among all the various possibilities) was and continues to be the object of intense political and economic debate. It is not the Constitutional Court’s place to take part in this debate, weighing up whether this or that measure is “better” or “worse”. The Court said its responsibility in the present case was to gauge whether the actual solutions before it were arbitrary, because they gratuitously and unjustifiably overburdened a certain category of citizens.
The Court held that this was not the case. The decision not to forego pay cuts, taken within an overall framework of an articulated range of different budgetary consolidation measures that also include tax rises and other public spending cuts, was based on a rationale that is coherent with an action strategy whose definition remains within the scope of the ordinary legislator’s freedom to shape policies.
As such, the Court found no unconstitutionality in the norms before it.
The Ruling was unanimous.
Rulings nos. 237/14 (06-03-2014); 396/11 (21-09-2011); 620/07 (20-12-2007); 304/01(27-06-2001); and 94/92 (16-03-1992).