Our regular human resources management news roundup from across Europe from the Federation of European Employers (FedEE).

EUROPE: Recession, what recession?

Whilst newspaper journalists have been warning about an imminent recession, current evidence indicates only a temporary slowdown in the rate of economic growth.

The conventional definition of a recession is two successive quarters without economic growth. During the last two available quarters, GDP at constant prices for the EU27 countries has risen by 0.5 percent (Q2 2007) and 0.8 percent (Q3 2007). Over 2007 as a whole, the EU economy grew by 2.9 percent and during 2008 the rate of growth is predicted by the European Commission to fall slightly to 2.4 percent. In fact, across the EU, real unit labour costs have fallen through each of the last five years for which statistics are available (2002-6) and the latest unemployment figures show that the proportion of people out of work fell from 7.7 percent to 6.9 percent over the year to November 2007.

Even the OECD's monthly longer leading indicator points to no more than 'a moderate slowdown in economic activity' over the next six months, with Germany and the UK faring better than the other leading EU economies. Company stocks may continue to decline in value for some time, but changes in secondary stock trading prices will take many months to filter through into sales figures or restrictions on company borrowing. There is a strong prospect that companies will be able to ride out the first half of 2008 and that downsizing will be largely confined to smaller firms and businesses in the service sector that cannot sustain growth by tapping into global markets.

BELGIUM: Tax-free bonus launched

A national collective agreement on the payment of bonuses to employees that was concluded at the end of 2007 has now been incorporated into Belgian law.
 
A new payment for 'non-recurrent advantages linked to results' may be introduced by a company, provided that it does not replace or substitute any other element of a remuneration package. The bonus may not exceed 2,200 euros per year and will not be subject to any tax or social security deductions before being paid to an employee. Their employer will be subject to a special social security levy of 33 percent of the bonus value, although the levy will count as an employment cost and may be offset against corporation tax.

BULGARIA: Reform of collective bargaining law

A working group has been established in Bulgaria to draw up amendments to the collective bargaining law based on proposals submitted by leading members of the ruling coalition. The main amendment goes beyond the only comparable legislation in Europe, the Norwegian system of compulsory mediation, by requiring trade unions to submit their disputes to an arbitration court. This body would be able to seek evidence and views from all interested parties, including the labour ministry, and its decisions would be final.

Bulgarian trade unions have strongly rejected this proposal and threatened to call a general strike this spring if it is included in the parliamentary Bill. To ally union fears about curtailment of their right to strike, the government has offered several seats on the working group to the main trade union confederation, Podkrepa.

ECJ: Vacation entitlement during sickness absence

An adviser to The European Court of Justice (ECJ), Advocate General Verica Trstenjak, has issued her opinion in a case concerning the effects of employee absence upon vacation entitlement.

The Landesarbeitsgericht Düsseldorf (Germany) lodged a reference for a preliminary ruling from the ECJ for an interpretation of Article 7(1) of the Working Time Directive (2003/88/EC). The main question at issue was whether workers must receive minimum annual paid leave of four weeks if their absence makes it impossible to grant the leave within the year in question – or during any carryover period laid down in national law.

In the Advocate General's view, Directive 2003/88/EC must be understood to mean that employees have a right to receive a minimum of 4 weeks' paid annual vacation. If the employee has been unable to take their full vacation because of illness in the vacation year, it should be granted at a later time.

According to this opinion, upon completion of the employer-employee relationship, an employee is entitled to financial remuneration for vacation not taken because of prior sickness absence. Moreover, a worker who is absent for the entire year does not lose their entitlement to annual vacation or payment in lieu of vacation that has not been taken (C-350/06).

In the further case of C. Stringer et al v Her Majesty's Revenue and Customs submitted to the ECJ, Advocate General Trstenjak has also taken the view that a worker on indefinite sick leave is entitled to designate a future period as paid annual leave. However, they may not take this leave during a period in which they would otherwise be on sick leave (C-520/06).
 
HUNGARY: Government set on radical tax reform

The parties making up Hungary's ruling coalition are currently
debating alternative methods to improve economic
competitiveness through radical tax reforms.

These options include: * Lowering the social security contribution by 8-10 percent and increasing the VAT rate by 2-4 percent.* Cutting the personal income tax rate, but including social security contributions in the tax base (following the example of the Czech Republic). * Sharply reducing the current 16 percent standard rate of corporation tax, extending the range of the lower 10 percent rate, or abolishing the 4 percent solidarity tax on business profits and personal incomes above 6m forints (23,694 euros). * Introducing a flat-rate tax system of 19 percent as in the Slovak Republic, 16 percent as in Romania, or 10 percent as in Bulgaria.

It is expected that the final reform package will be hammered out during the next month and followed up by a parliamentary Bill this spring.

UK: Agency workers and implied contracts with end users

The UK Court of Appeal (civil division) has published its ruling in an important agency worker case (James v London Borough of Greenwich). The court upheld the judgement of the employment tribunal and EAT by discounting the claim that an implied contract of employment existed between the end user and the agency worker.

In the view of Lord Justice Mummery, an implied employment contract must be necessary in order to explain why a worker has provided services to a particular end user or 'the fact of the end user's payment of the worker via the agency'. But in this case, there were genuine express contracts between both the worker and the agency and the end user and the agency, leading Mummery to consider that 'an implied contract cannot be justified as necessary'.

He went on to conclude that 'the question whether an "agency worker" is an employee of an end user must be decided in accordance with common law principles of implied contract and, in some very extreme cases, by exposing sham arrangements. Just as it is wrong to regard all "agency workers" as self-employed temporary workers outside the protection of the 1996 Act, the recent authorities (ie: principally the Dacas and Muscat cases) do not entitle all "agency workers" to argue successfully that they should all be treated as employees in disguise'.

OTHER EUROPEAN NEWS IN BRIEF

EUROPE:

The OECD's latest quarterly figures indicate that over the year to September 2007, labour productivity outstripped increases in labour costs within the eurozone, leading to a 0.7 percent fall in unit labour costs. Europe's largest annual changes in unit labour costs over the same period were, however, registered outside the eurozone - with a 12.4 percent increase in Norway and a 7.3 percent fall in the Slovak Republic.  

GERMANY:

Germany's federal court of auditors has ruled that the removal of tax deductibility from the first 20km of daily commuting costs is unconstitutional. In the view of the court, all travel to and from work is a legitimate work-related expense. This ruling must still be ratified by the constitutional court and will have to overcome strong opposition from the federal finance ministry, which maintains that the current commuting rule is constitutional. It will, however, give some encouragement to employees who have already submitted a claim for tax relief in full pending the outcome of the legal challenge (cases VI R 17/07 and 27/07).

GERMANY:

The German rail operator Deutsche Bahn AG has reached an agreement with the GDL train drivers' union that increases basic pay rates by 8 percent in March 2008 and by a further 3 percent on September 1st 2008. This highly inflationary deal has been reached following 10 months of negotiations and a series of strikes that have been damaging to the German economy. The company has revealed that the sharp increase in payroll costs brought about by the wage agreement will result in increased rail fares and labour shedding throughout its operations. It may also help to dissuade the ECB from making the all-important short-term cut in interest rates necessary to encourage economic growth across the eurozone.

HUNGARY:

Average gross wages in the Hungarian business sector rose by 7.6 percent to 196,793 forints (771.83 euros) over the year to November 2007. This was a sharp reduction on the 9 percent wage inflation that took place over the year to October 2007.

MOLDOVA:

Average gross monthly remuneration in Moldova increased by 20 percent over the year to December 2007 to stand at 2,630 lei (160.38 euros). Pay levels fell in fishing, mining, and public administration and increased by only 8 percent in transport and communications, 10.3 percent in agriculture and 14.1 percent in construction. In all other sectors, the average increase was between 22.7 percent and 48.7 percent. Finance remains at the top of the sectoral pay league with average monthly pay reaching 7,632 lei (465.56 euros) at the end of last year.

SWEDEN:

The corporate tax bill increased by 8 percent in Sweden last year, whilst income tax payments by individuals rose by 5.4 percent. The majority of increased income tax receipts arose from local government taxes on personal income.  A rise of 3.5 percent in consumer prices and an increase of 2.5 percent in GDP during 2007 account for much of the increase in tax revenues, but this still leaves a real increase of around 2 percent in corporate taxation at a time when the Swedish economy is facing a significant downturn.

TURKEY:

The Turkish economics minister, Mehmet Simsek, has announced a new programme to reduce the costs of research and development activities and to encourage highly-qualified professionals to seek work in Turkey. Towards this end, the Turkish government has decided to pay 50 percent of social insurance premiums for employees in research and development. This rate will rise to 90 percent for employees who have a doctoral research degree.

February 2008

Copyright: FedEE Services Ltd 2008