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.