Judgment of the Constitutional Court No. 294/2014 of 2014-05-09 Retroactive effects of monetary clauses of collective bargaining agreements

The Public Prosecutor brought an appeal to the Constitutional Court, requesting the  review of the constitutionality of the rule set out in Article 2(2) of  Order No. 213/2010 of 15 April, which set out the retroactivity of pay scales and of the amounts of meal and  shift allowances established in an arbitration award.

Despite the fact that the arbitration award did not provide for the retroactive effect, the  extension order did provide for such effects, dating them back to 1 December  2009,  with the purpose  of aligning employees’ labour statutes and the conditions of  competition within the companies of the sector of activity concerned.

In this case, the employer in question had been discharged from the charges of  misdemeanour in a case relating to the non-compliance with these retroactive effects;  the Employment Court of Faro refused to apply Article 2(2) of Order No. 213/2010, of  15 April, as it considered that the same breached the principle of equality and the  freedom of private initiative, embodied in Articles 13 and 61 of the Portuguese  Constitution.

Requested to rule on this case, the Constitutional Court analysed the alleged breach of  the principle of equality. This  Court reminded that the principle in question covers  essentially three dimensions: the  prohibition of arbitrariness, the prohibition of  discrimination and the obligation to differentiate. It then considered that the extension  of a  collective bargaining agreement makes no relevant distinction between employers  and employees in terms of principle of equality. Indeed, the solutions set out in each  collective  bargaining agreement result from the specific dynamics inherent in the  exercise of the right of collective bargaining, the differences between the employer and  the employee being assumed from the outset.

The Constitutional Court considered that it was precisely the different negotiating power  between these two subjects in each individual employment contract that justifies the  collective bargaining, as a mean to compensate such unbalance of negotiating powers.

The Constitutional Court considered that the establishing of retroactive effects set out in  Article 2(2) of Order No. 213/2010, of 15 April, could not be considered as an arbitrary  measure and, therefore, it did not breach the principle of equality.

On the other hand, with regard to the alleged breach of the freedom of private economic  initiative, the Constitutional Court emphasised that such freedom is exercised within the  framework set out by the Constitution and the law, and having regard to the general  interest. This means that private economic operators may claim a space to exercise  their activity, which the law cannot eliminate or reduce in such a way that the private  economic activity sector is reduced to an insignificant position, nor can it impose  conditions or restrictions which make such exercise particularly costly.

However, within those limits, the legislator can mould the exercise of the private  economic initiative, as well as impose conditions and restrictions, in particular to  respond to constitutional requirements on the subject of the rights of employees (for example, the limitation to the private economic activity arising from the prohibition of  lockout or the recognition of the employees’ right to strike).

The Constitutional Court considered that the analysis of the constitutional compatibility  of retroactivity was justified not only in respect of the freedom of economic initiative,  but also with regard with the principle of legal security.

The Court held that, with regard to situations that are economically or socially similar to  those regulated by collective bargaining agreement or arbitration award, the Extension  Order is admissible in the cases where there is no collective bargaining agreement and,  once it is approved, it can be waived by a subsequent collective bargaining agreement.

For that reason, and also because it increases the number of employers and employees  subject to the rules set out in the collective bargaining, the Extension Order can also be  seen as a form of promoting collective bargaining.

In any case, the Constitutional Court emphasised that the pre-conditions for the  extension show that this is strictly a supplementary or residual procedure  vis-à-vis the  collective bargaining, and that it cannot prevail where the latter exists and is viable.

The Constitutional Court therefore concluded that the possibility to approve Extension  Orders — which may even give retroactive effect to provisions of a monetary nature,  such as provided for in Article 478(1)(c) of the Labour Code  — also corresponds to a  form of moulding the exercise of private economic activity, intended to respond to  constitutional requirements relating to employees’ rights, without interfering with the  guarantee aspects of the freedom of economic initiative.

With regard to the possible breach of legal security, the Court considered that there was  no change of the legal system with which the recipients of the Extension Order could not  reasonably expect, and that, in any case, such change had been brought about by the  need to safeguard rights protected in the  Constitution and that must be considered to  prevail. The Constitutional Court considered that the safeguard of those interests does  not impose disproportionate sacrifices on the employer’s recipients of the said Order.

The Constitutional Court also referred that the communication of the draft Extension  Order – published a little after the arbitration award, the content of which was extended  – already announced the intention to  provide retroactive effects to some of the  monetary provisions contained in the arbitration award and that, with regard to such  intention, no opposition was filed by the persons concerned.

Accordingly, the Constitutional Court decided not to hold unconstitutional the rule of  Article 2(2) of  Order No. 213/2010, of 15 April, which gave retroactive effect to  monetary clauses of a collective bargaining agreement.