Observation (CEACR) - adopted 1989, published 76th ILC session (1989)

The Committee notes the information supplied by the Government in its report and by the Confederation of the Netherlands Trade Union Movement (FNV), the Federation of Christian Trade Unions (CNV) and the Federation of Middle and Senior Staff Personnel (MHP) in their joint communication dated 14 March 1988.

The Committee recalls that in 1985 the Parliament adopted new legislation relating to conditions of employment in the "trend-following" or national insurance and subsidised sectors (the WAGGS Act). In its 1987 observation the Committee requested the Government to supply detailed information on the practical operation of this new legislation in its next report.

The Committee notes that a copy of an Interim Report on the Evaluation of the WAGGS Act was transmitted to the Office on 19 February 1988 and that an English translation of the final report of the review was transmitted to the Office on 17 June 1988. The Committee records its thanks to the Government for its co-operation in this matter.

The Committee notes that in their letter of 14 March 1988 the FNV, CNV and MHP expressed a number of concerns about both the content and the practical application of the 1985 legislation, and alleged that it constituted an impermissible interference with the rights guaranteed by Article 3 of the Convention. The Committee has also taken note of the Government's response to these allegations.

The WAGGS legislation

According to section 2(1) of the 1985 Act, the legislation applies to the conditions of employment in force between such workers and employers and categories of employers as may be designated in accordance with section 2(2). Essentially, this means employers whose labour costs are met (wholly or partly) out of grants from public funds, or out of social insurance funds. Section 2(3) of the Act also contemplates that the Minister of Social Affairs and Employment may conclude "a settlement concerning the payment of costs" with certain employers - this constitutes the so-called "budgeted sector".

Section 4(1) of the Act requires the Minister to "promote" annual, centralised, discussions on "the development of conditions of employment and consequent labour costs" of workers in the trend-following sector. This entails the Minister informing all employers, employer organisations and worker organisations whom (s)he considers appropriate of her/his "provisional view" of the bargaining parameters which are to be set for the coming year. This is to be done at least two months before the Government presents its annual budget to the Parliament.

The relevant worker organisations are then given an opportunity to "express their standpoint" on the Minister's provisional view (section 4(3)). After that, the Minister invites the employers to participate in "consultations ... to see whether agreement can be reached as to the standards which are to be set by virtue of section 5" (section 4(4)). The Minister is obliged to present a report on these discussions, and her/his conclusions thereon, to the Parliament (section 4(6)). At least 20 days after this report has been submitted, the Minister, acting with the agreement of any other relevant ministers, is required to "set standards with regard to the financial scope for the development of labour costs to be made available within the framework of cost coverage and setting of rates of contribution resulting from the modification of the conditions of employment" (section 5(1)). In setting these standards the Minister is obliged to take account of: the effect of wage increases in the private sector; the Government's views on appropriate public expenditure levels, and the extent to which the development of labour costs has departed in previous periods from the pre-determined standards for that year.

Once the parameters have been set, the employers/employer organisations and worker organisations are then free to enter into negotiations on the terms and conditions of employment which are to apply over the next year.

Section 4(1) of the Wage Determination Act, 1970, requires the parties to a collective agreement to notify the Minister "of its conclusion and of any amendments thereto". The Minister is then required to "inform the parties in writing as soon as possible of the date on which the notification is received". The 1985 Act uses this provision as a means of securing compliance with the pre-determined bargaining parameters in the trend-following sector. It does this by stipulating (section 6(1)) that an agreement "shall not enter into force until six weeks have elapsed" after the transmission of the section 4(2) notice by the Minister. This six-week period can be extended by up to four further weeks by written notice. Within this six/ten-week period the Minister, acting in agreement with any relevant ministers, may make a written declaration to the parties that their agreement "will meet with objections if the labour cost development resulting therefrom will not, according to reasonable expectation, conform to the standards set on the subject" (section 7(1)). The effect of such a declaration is to prevent the agreement becoming operative "for the time being", and the terms and conditions of employment of those covered by the agreement remain as they were before it was concluded (section 7(2)). Once a declaration has been issued, the Minister is required to promote the holding of further consultations between the parties (section 7(3)). These consultations are to take place not later than three weeks after the making of the declaration. After these consultations, the parties to the agreement may make a joint, written declaration to the effect that "they still deem desirable the coming into operation" of the agreement (section 7(4)). The Minister is obliged immediately to affirm the receipt of this affirmation, and the agreement is to enter into force on the day following its transmission.

If the Minister, and any other relevant minister, are of the joint opinion that the operation of an agreement which has been affirmed by the parties in accordance with section 7(4) creates either a threat to the level of service provided by the employer, or a danger that maintenance of the necessary level of service would entail "an unjustified increase in costs at the public expense" then (s)he may "order that those conditions of employment shall apply ... which were effectively in force immediately before his decision came into effect" (section 10(1)). In other words, the Minister can freeze the terms and conditions of employment of workers covered by the agreement. Before exercising these powers the Minister must first notify both houses of the Parliament (section 10(4)). The "freeze" does not become operative until ten days after service of this notice.

Section 11 makes similar provision in relation to the "budgeted sector".

Even where there has been no freeze under section 10, a cost overrun in any given year may be taken into account in setting the parameters for the next year (section 5(3)). In addition, grants, etc., which are intended to cover labour and/or operating costs are calculated on the basis of the parameters laid down under section 5 (section 12), rather than upon costs actually incurred (or budgeted).

The Committee's analysis

The Committee has now conducted a detailed examination of the legislation in the light of the information on its practical operation set out in the Review Report.

The Committee recalls that Article 3(1) of the Convention provides, inter alia, that workers' and employers' organisations shall have the right to organise their activities and to formulate their programmes, whilst Article 3(2) enjoins the public authorities to refrain from any interference which would restrict these rights, or impede the lawful exercise thereof. The Committee has consistently taken the view that the right freely to participate in collective bargaining is an important part of the activities in which such organisations may engage in order to protect and to promote the interests of their members. Indeed, as was indicated in the preliminary work for the adoption of the Convention on freedom of association, "one of the main objects of the guarantee of freedom of association is to enable employers and workers to combine to form organisations independent of the public authorities and capable of determining wages and other conditions of work by means of freely concluded collective agreements" (Freedom of Association and Industrial Relations, Report VII, International Labour Conference, 30th Session, Geneva, 1947, page 52).

It follows that interference in the bargaining process by the public authorities (through legislative or other means) is, in principle, not in conformity with the guarantees provided by the Convention. Nevertheless, the Committee has recognised that some degree of interference with the autonomy of the parties may be warranted in certain limited circumstances - namely for compelling reasons of national economic interest. However the Committee has also made clear that any such restrictions should be imposed only as an exceptional measure and only to the extent necessary, without exceeding a reasonable period; further, they should be coupled with appropriate guarantees for the protection of workers' standards of living (General Survey, 1983, paragraph 315).

The Committee notes from the Report on the Review of the WAGGS legislation that both employer and worker organisations have expressed concerns about the timing of the annual parameter-setting process under sections 4 and 5 of the Act, and about their lack of impact upon the outcome of that process. The Committee notes with interest that the Government has undertaken to amend the legislation to permit earlier consultation with the parties, and asks the Government to keep it informed of developments in this regard.

The Committee notes that section 6 of the Act requires that agreements in the trend-following sector must be submitted to the Minister before they become operative. It also notes that section 7 enables the Minister to delay the commencement of an agreement pending consultations with the parties, but that the parties retain the right by virtue of section 7(4) to reaffirm their agreement notwithstanding any concerns raised by the Minister. The Committee is of the view that these provisions are not inconsistent with the approach set out at paragraph 314 of its 1983 General Survey:

It might also be prescribed that a collective agreement would come into force only a reasonable length of time after being filed with the competent public authority. If this authority considered that the terms of the proposed agreement were manifestly in conflict with the economic policy objectives recognised as being desirable in the general interest, the case could be submitted for advice and recommendation to an appropriate consultative body, on which the workers' and employers' organisations were represented; this body could indicate to the parties the considerations of general interest that might call for further examination by them of the agreement in question, provided always, however, that the final decision on the matter rested with the parties to the agreement.

In this respect, the 1985 Act appears to the Committee to constitute a marked improvement upon its predecessors.

Sections 10 and 11 of the Act raise more difficult issues. These provisions enable the Minister to override any "declaration" by the parties under section 7(4), and to "freeze" the operation of an agreement where (s)he is of the opinion that it creates either a threat to the level of service provided by the employer or a danger that maintenance of the necessary level of service would entail an unjustified increase in costs at the public expense. The Committee notes that to date these powers have never actually been used in practice. However, the Committee is of the view that if the Government were to impose a freeze on the basis of sections 10 and 11 that would constitute an interference with the rights which are protected by Article 3 of Convention No. 87 - unless that interference could be shown to be justified on the basis of compelling reasons of national economic interest, and that the legislation incorporated the safeguards which are considered essential even where interference with the right to negotiate is permissible.

The Committee recalls that the so-called Temporary Act which preceded the WAGGS Act operated for a period of six years. The Committee notes that the 1985 legislation has already been in operation for a period of three years, and that in May 1988 the Government announced that it would be extended at least to the end of 1992. A measure of this nature cannot be regarded as "exceptional", as remaining in force for only a "reasonable period", or as operating only to the extent necessary to protect the national economic interest.

The Committee notes that according to the report of the review of the legislation, the earnings gap between the trend-following and market sectors has widened appreciably during the currency of the WAGGS Act. This inevitably raises doubts as to whether the Act contains adequate safeguards to protect the living standards of those to whom it applies. The three federations who have directed observations to the Committee clearly feel that it does not. Employers in the trend-following sector also appear to be unhappy about the overall effect of the legislation - as is evidenced by their stated desire to narrow the earnings gap between employees in this sector and those in the market sector if they were permitted to do so.

The Committee has commented upon this legislation, and its predecessor, several times. The matter has been discussed by the Committee on the Application of Conventions and Recommendations of the Conference on a number of occasions. The Committee considers that it must now ask the Government to repeal sections 10 and 11 of the WAGGS Act, and that employers and workers in the trend-following sector be permitted freely to conclude agreements on terms and conditions in this sector. In making this observation the Committee is mindful of the fact that the Wage Determination Act 1970 (as amended) gives the Government powers to intervene in the bargaining process in the face of compelling reasons of national economic interest. It is also mindful of its 1984 observation to the effect that even before the Temporary Act became operative the Government had ready access to indirect means of encouraging responsible bargaining in this sector.