2020 A Year in Review and What Major IR/ER Challenges do Employers Face in 2021?
As 2020 draws to a close, it is also appropriate to take a look forward to the year ahead and to some of those Employment Relations issues which employers should be aware of as they look to plan for the year ahead. As we emerge from the Covid-19 pandemic, we all hope that 2021 will bring better circumstances and economic recovery.
In this article we zone in on 5 issues in particular:
Changes in Employment Legislation Must Be Informed By 'Evidence' Rather Than 'Populism'
The Public Sector Pay Determination System Lacks Independent Input
Statutory Sick Pay – Employers Should Expect Developments in 2021
The EU Commission’s proposal for a Directive on “Adequate minimum wages in the European Union” - A Wolf in Sheep’s Clothing?
Developments in Private Sector Pay – CPI Gives No Justification For Pay Increases In 2021
The impact of the downturn on the labour market has been unprecedented and job losses have been slow to recover in some sectors. In these most uncertain of times, too many businesses are fighting for survival and the anticipated effects of Brexit still must be navigated.
Now is not the time for policy makers to place unsustainable burdens on employers and instead we need to help employers to reduce their costs, so that through the economic recovery to come they can sustain and create jobs so that we can hasten the return to much needed investment and growth. This must be our concerted focus in 2021.
1. Changes in Employment Legislation Must Be Informed By 'Evidence' Rather Than 'Populism'
Stratis Consulting is aware of multiple campaigns and proposed changes in our employment legislation that in combination could severely damage our competitiveness. Employers already operate within a very heavy burden of obligations and every year we see new additions to the list of demands for change with pressure for new rights to be conferred on employees. (e.g. right to remote working, right to sick pay, right to disconnect, additional parental leave etc )
At Stratis we support quality employment and the adoption of best HR practices but there must be an understanding that we cannot continue to add to the list of employee rights without making Ireland a very challenging and uncompetitive place for employers. The focus is on the next ‘Right’ to be added to the list with very well organised social media led campaigns, political support from opposition parties and multiple spokespersons available. Each ‘Right’ is evaluated on its own merits without any regard for the cumulative impact that it has on employers. Every election brings a new set of commitments that are inserted in the manifestos of each of the main political parties.
All elements of our employment law should be focussed on making Ireland the preferred choice for talent and business. Ireland must remain an attractive location for employers to do business and must also be an attractive place for international talent to live in. From an employer’s perspective it must be an easy place to do business where overall costs including labour costs are competitive. When changes are envisaged they must be considered in light of the impact they will have on competitiveness and Ireland’s reputation as the preferred location for doing business.
A ‘sustainable employment test’ should be applied to any proposed changes in employment regulation. This should be carried out by an Independent Agency and contribute to a ‘Specific Regulatory Impact Assessment’ ( RIA ) and a Cumulative Regulatory Impact Assessment (CRIA).
2. The Public Sector Pay Determination System Lacks Independent Input
Stratis notes with interest the IRN headline “Public service unions & employers agree proposals for a two-year agreement” (IRN 45 10 DEC 2020). The final phase of The Public Service Stability Agreement (PSSA) was a 2% increase for 3 months from the 1st October 2020 to the 31st December 2020. We now know that the proposed terms under the ‘Building Momentum’ agreement allows for two 1% general pay increases (either a 1% increase or a rise of €500 per year, whichever is the greater) the first on 1 October 2021, the second a year later. Some higher-paid public servants will not be eligible for these adjustments. In addition there is to be a sectoral avenue for other pay adjustments under a new Sectoral Bargaining Fund equivalent to 1% to be available to deal with outstanding issues
Before any new agreement, the public service pay bill is already projected to be €21.8 billion by end 2021, up €5.3bn (32%) on 2017 levels. We understand that when fully implemented in 2023, it will add a further €900m a year to the public sector bill. However, it remains unclear if this includes the cost of other measures involving the restoration of overtime and premium payments to pre-2013 levels, or those to address pay equality issues for teachers recruited since January 2011.
This is also against the backdrop of the government facing an unprecedented economic and fiscal crisis, inflation is at minus 1.1%, and government borrowing is now at record levels. We can anticipate a current budget deficit for a number of years as the economy recovers from the recession caused by the pandemic. A private company faced with such an array of challenges would not be contemplating pay increases.
Any move to sectoral bargaining on category and grade issues has the potential to return to the bad old days of leapfrogging claims. We need a public sector pay system that has strong foundations in external equity and affordability. This requires a line by line analysis of all elements of remuneration (to include pay, benefits, pensions, security of employment and total working time) with appropriate comparators in the private sector in Ireland and in the public sector across the EU and internationally.
The proposed agreement provides for an implementation plan and verification of delivery of agreed reforms. A critical issue to be addressed in the public sector is the need to adhere to agreements reached and to exhaust normal IR procedures. There are too many examples of unions in the public sector taking action in breach of agreements and /or prematurely without first having referred the matter to the WRC and Labour Court. This needs to stop as it is corrosive to our IR system.
Finally, our system of pay determination in the public sector lacks any structured independent input. The Public Service Pay Commission concluded it’s important work in October 2019 and has not been replaced. It is inconceivable that in a highly developed economy there is no systematic mechanism to provide input to and oversight of public sector pay discussions.
3. Statutory Sick Pay – Employers Should Expect Developments in 2021
In September The Labour Party introduced the “ Sick Leave and Parental Leave (Covid-19) Bill 2020”. In summary it provided for:
· no waiting period before payment,
· a 4 week service requirement,
· an entitlement to 6 weeks sick pay (or 30 individual days ) in any 12 month period,
· with unlimited paid Parental Leave arising from Covid related reasons.
The government proposed a postponement of the reading of the Bill for six months. The matter is currently being considered by a sub-group in the social dialogue body, Labour Employer Economic Forum (LEEF) and a consultation paper was recently published with responses due by 18th December.
The government plan is to publish a Bill in March 2021 and for any proposals to be in effect by end of 2021. This is a complex issue that if poorly introduced could impose considerable cost and administrative burdens on employers and incentivise absence.
Stratis is also mindful that this legislation will set a new floor that trade unions will seek to build on in negotiations with employers. It is timely for employers to review policies and practices on sick pay and attendance management in advance of any legislative developments.
4. The EU Commission’s proposal for a Directive on “Adequate minimum wages in the European Union” - A Wolf in Sheep’s Clothing?
The 2020 State of the Union Address by President von der Leyen at the European Parliament Plenary set out the commission’s intention to ..”put forward a legal proposal to support Member States to set up a framework for minimum wages.” In launching the Directive in October 2020, The President stated “What we propose today is a framework for minimum wages, in full respect of national traditions and the freedom of social partners”.
Article 153/5 of Treaty on the Functioning of the European Union (TFEU) and different European Court of Justice (ECJ) rulings affirm that the EU has no competence to introduce a binding legal instrument on the level of pay. Definitions such as collective bargaining, collective agreement and collective bargaining coverage should be set at national level, or left to social partners to decide. Otherwise, the principle of subsidiarity is undermined and the autonomy of collective bargaining is not respected.
Ireland has one of the highest minimum wage levels in the EU, currently 10.10 per hour, which is set by an independent commission with the strong input of social partner representatives. This Directive, if transposed in its current form, would fundamentally alter the nature of our IR system in Ireland. It would remove the discretion to set minimum wage levels as absolute criteria would be established to determine ‘adequacy’. Furthermore, it would force Member States to provide a framework for collective bargaining and establish an action plan to promote collective bargaining if at least 70 percent of workers are not covered by collective agreements. It would also require Member States to put in place monitoring and enforcement mechanisms for ensuring compliance.
The Directive is also predicated on the assumption that collective bargaining is the only means through which employees can secure fair terms and conditions of employment. In Ireland we have many examples of multinational employers who have a direct engagement model and in parallel are market leaders in their approach to remuneration. The legitimacy of this approach has been captured in our legislation which has ensured that workers who are unfairly treated have mechanisms to address any gaps in remuneration.
The Trade Union movement in Ireland has for some time been seeking to advance the cause for domestic collective bargaining rights through a European agenda. They now appear to want to continue to practice ‘voluntarism’ in areas where they are strongest and create a highly regulated space in areas of the private sector where employers will be compelled to engage in collective bargaining. The mechanism of an EU Directive is being pursued as it would supersede our Constitution and there appears to be a low level of confidence to argue and win that case domestically.
It is important that as a country we enter into these debates with a full understanding of the implications of any changes in this arena. We have a strong value proposition to encourage multinational employers to locate in Ireland including a highly articulate and educated workforce, a competitive approach to corporations profit tax and the ability of employers to work with employees directly or via representative mechanisms as appropriate. This could easily be undermined through a Directive that on the surface has noble intentions of ensuring ‘adequate minimum wages’.
5. Developments in Private Sector Pay – CPI Gives No Justification For Pay Increases In 2021
The unprecedented shock to the Irish economy from Covid-19 has impacted on all aspects of Irish society. Whole swathes of business activity shuddered to a halt, with a collapse in employment levels, when the lock-down commenced in March, and is only now beginning to re-emerge as part of the Governments Roadmap for the Reopening of the Economy.
The July Stimulus package was designed to help get Ireland’s businesses back on their feet and get as many people as possible back to work quickly. It is now clear that public policy is not to subsidise low-productivity employment where demand has permanently shifted and that the focus of Government is to provide supports to enable workers to move between sectors.
However, while every effort is being made by Government and employers to sustain as many jobs as possible, with many accessing temporary state aid measures, the reality for many has been postponed, and as employers finalise their budgets for 2021 we will see hard decisions to resize many businesses.
Before the pandemic hit, private sector pay was running at c 2.5% per annum, many for up to 3 years with a small number of agreements at even higher levels based on business performance and market outlook. This varied by sector with those most likely to be impacted by Brexit doing deals at the lower end, around 2% per annum. Most of the agreements had some productivity element. However, even with wage adjustments being commonplace, with some sectors outstripping others, some employers in parts of the domestic economy were struggling to afford any adjustments.
According to an Ibec study, 50% of organisations are stating that they envisage no increase applying in 2021, and some may even be seeking decreases. Those who are contemplating wage increases must do so recognising inflation and the impact on long term competitiveness.
The consumer price index (CPI) for November 2020 was 1.1% lower than the corresponding month in 2019. It is clear that recovery will vary from sector to sector, therefore, the response in terms of reorganisation (including cuts in staffing numbers and wage rates) or the capacity to enter into wage negotiations is likely to be much more varied
In our engagement with clients, we have encouraged organisations, in the first instance, to differentiate between the negative temporary short term impact caused by the Covid-19 lockdown and social distancing measures on their business, and any ongoing negative impact caused by the resultant recession in addition to the losses incurred during the lockdown.
This differentiation is of significance while temporary Government supports remain in place. Temporary or short-term problems can be overcome, in some cases, by way of temporary lay-offs or short time working. Whereas longer term problems may require reduction in employment numbers and/or wage rates. Given the current level of uncertainty for many organisations, it may be difficult to fully differentiate at this time.
Past trends in wage inflation, prior to the lockdown, are less relevant to how individual organisations should now respond to pay claims, where they arise. We expect to see large swathes of businesses being unable to make any commitments to increase pay in 2021. 'Inability to pay' issues will be more commonplace and for some, who entered multi-year pay agreements prior to Covid-19, these may need to be revisited. For a minority of others in parts of the internationally traded sectors, who may not have been hugely impacted by Covid-19, some modest adjustments on pay may be possible.
Affordability and impact on competitiveness are the key determinants
Some organisations are postponing wage negotiations for a period to allow them to assess and overcome the current challenges and to establish greater certainty. There are several options open to the employer and it is up to each individual organisation to consider and assess which is best, at this time. These Include:
1. Continue to focus on all necessary temporary measures in response to urgent needs and refuse to entertain any claims. In doing so it may be prudent to gauge when the business may be amenable to agree to a future time for review, but without commitment. In this scenario, the employer would be reserving its right through such future negotiations to bring about:
a) permanent cost reductions; or
b) commencement of negotiations on a new wage deal (which could include deferrals or pay pauses) considering prevailing circumstances; or
c) a combination of the two.
2. Decide to proceed now to secure more permanent cost and headcount reductions as necessary to include an agreement which delivers wage certainty for a defined period of time by way of a combination of pay pauses, suspension of regular incentive payments (if applicable) and/or a modest adjustment at a future date where the business sees this as affordable.
3. Put everything on hold for 2021 and continue to use temporary relief measures such as recourse to temporary lay-offs and/or short time working, or temporary pay reductions as required.
4. For those employers where agreements expired and were in the middle of talks and/or may have made an offer on pay, they may need to pause discussions and review matters later in 2021.
5. Similarly, for those employers where agreements are due to expire in 2020, they may need to defer any discussions pending assessment of the full impact of Covid-19 on their business and trading environment and to review matters in 2021.
6. For those minority of employers who may be willing to proceed to conclude an agreement on pay, they should do so having regard for the impact of their actions on other employers and amongst the options available they may consider provision of 'non-consolidated' lump sum payments on an interim basis as an alternative to ongoing consolidated rate increases.
Throughout the Covid-19 crisis, employers have had to deploy regular and active communications with employees to keep them informed of all relevant work and business developments. There has never been a more compelling time to ensure that employees continue to be kept fully up to date and understand what is happening and why. The organisation must also ensure that its processes are effective to allow it to understand the concerns of staff. Effective communications will be vital to what is achievable in any pay negotiations at the appropriate time. In the current environment, employers should act with caution and only enter into agreements which are in the best interests of the organisation where the timing is right, and a better deal will not be achievable in the future.
If you would like to talk to us about any of the above issues or about engaging your people through the period ahead, please get in touch with one of our Partners.
‘Leading People Strategies’
T: +353 (0) 1 2166302
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