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Obligatory sharing of wage information in Slovakia – a cartel organised by the State?

May 2018 – From 1 May 2018, employers in Slovakia must comply with the following important new rules:

  1. the obligation to disclose the amount of the basic wage component when they advertise job vacancies; and
  2. the prohibition to agree on a basic wage component in an amount lower than the advertised basic wage component.

This article reviews the provision that obliges employers to share wage information from the perspective of competition law and offers practical guidelines for compliance with statutory requirements, including arguments that can be used as defence in potential proceedings on the imposition of penalties for a breach of such obligations.

The reasons for the introduction of the obligation for employers to share the amount of the basic wage component are unclear. The explanatory memorandum to Act no. 63/2018 Coll. (the “Amendment”) — which amended, among other laws, Act no. 311/2001 Coll., Labour Code (the “Labour Code”) and Act no. 5/2004 Coll. on Employment Services (the “Employment Services Act”) — states only that: “The aim of this proposal is to prevent employers from advertising job offers containing such information that they will feel are not binding on them.” The intention to penalise unfair employer practices is, naturally, a legitimate one. However, this does not answer the question why employers are forced to share information about the wages they offer. Even prior to the introduction of this Amendment, legal means were available that could be used as a defence against the publication of misleading wage information (such as legal means for the protection against unfair competition). Thus it appears that it is not strictly necessary to introduce new mechanisms to penalise employers.

Competition law aspects of the Amendment

Arguments have appeared in the press suggesting that the new obligation will result in decreased discrimination and more intensive competition between employers for employees, which in turn will lead to higher wages. These arguments are likely misleading. As mentioned above, the obligation to share wage information raises concerns about the protection of competition, which in turn could lead to wages being kept artificially low. In this context, the argument that the Amendment is a measure against wage discrimination loses validity, particularly when government authorities and institutions could use other, more efficient, tools toward this goal. Nordic countries (Norway, Sweden and Finland) apply rather transparent access to such information, as it is disclosed in income tax returns. In Norway, for example, anyone can see the income tax returns filed by others.

Even if a tax return can give, indirectly, a very rough idea about the income of a specific individual, most likely it is not possible to determine from a tax return what part of an individual’s income falls under the basic wage component and what part relates to bonuses, who the employer is, and other similar information. Moreover, in Norway, the individual concerned automatically receives information about who wanted to see his or her tax return. From this perspective, transparency in access to tax returns has an incomparably lower effect on competition between employers than the effects posed by the obligatory sharing of wage information.

The effects that the sharing of wage information has on competition were discussed in a US Department of Justice (DOJ) Antitrust Guidance for HR Professionals published in October 2016:

„From an antitrust perspective, firms that compete to hire or retain employees are competitors in the employment marketplace, regardless of whether the firms make the same products or compete to provide the same services. It is unlawful for competitors to expressly or implicitly agree not to compete with one another, even if they are motivated by a desire to reduce costs. […] Sharing information with competitors about terms and conditions of employment can also run afoul of the antitrust laws. Even if an individual does not agree explicitly to fix compensation or other terms of employment, exchanging competitively sensitive information could serve as evidence of an implicit illegal agreement. While agreements to share information are not per se illegal and therefore not prosecuted criminally, they may be subject to civil antitrust liability when they have, or are likely to have, an anticompetitive effect. Even without an express or implicit agreement on terms of compensation among firms, evidence of periodic exchange of current wage information in an industry with few employers could establish an antitrust violation because, for example, the data exchange has decreased or is likely to decrease compensation. For example, the DOJ sued the Utah Society for Healthcare Human Resources Administration, a society of HR professionals at Utah hospitals, for conspiring to exchange nonpublic prospective and current wage information about registered nurses. The exchange caused defendant hospitals to match each other’s wages, keeping the pay of registered nurses in Salt Lake County and elsewhere in Utah artificially low.”

In other words, it is the view of the US Department of Justice that the exchange of wage information has the effect of keeping wages at articially low levels. Given that European competition law approaches the exchange of commercially sensitive information probably even more strictly than US law (such an exchange of commercially sensitive information is prohibited under Article 101 of the TFEU), the exchange of such information by employers should be judged with reference to more severe standards than in the U.S. We note that the provisions contained in the TFEU can be directly applied in proceedings conducted before Slovak courts.

Next steps

What then are the recommended practical steps, especially for those employers who do not wish to advertise information about the wages earned by their employees but fear penalties that may be imposed on them for breaching of the Labour Code or, as applicable, the Employment Services Act?

As the statutory obligation only covers the basic wage component and not bonuses, employers may be tempted to adjust the basic wage component and keep it at the lowest level possible or at a level offered by their competitors, and to compete with them in the hiring of employees by offering higher bonuses. This means that a job advertisement stating a lower basic wage component but promising interesting bonuses (without sharing their amount) might be seen by potential candidates as being equally as lucrative as a job advertisement promising a higher basic wage component. From this perspective, the statutory obligation to share the amount of basic wage component loses its practical meaning.

The remuneration of individual employees who have the same job position can vary, depending on their job experience. Therefore, a good way forward would be to publish in a job advertisement the basic wage component for the given job position, together with a note that this is a minimum basic wage that would apply in the case of a candidate that has no relevant job experience, and that the basic wage is increased depending on the job experience of the given candidate.

On the other hand, we do not recommend taking the reverse approach – i.e., to disclose the maximum basic wage component available for a certain job position, with a note that this amount applies to the most qualified employees. In such a case, if the employer agrees to a lower wage for less qualified employees, it would expose the employer to the risk of a court action seeking to increase the wage to the advertised pay.

Penalties

What about employers whose job offers contain no information about the basic wage component? They could be penalised with a fine of up to EUR 33,193.91, imposed by the Central Office of Employment, Social Affairs and Family or the relevant local Office for Employment, Social Affairs and Family. However, in the proceedings on the imposition of such a fine, the employer could argue in their defence that the statutory provision laying down the obligation to publish the amount of the basic wage component contravenes Article 55 of the Slovak Constitution and Article 4(3) in association with Article 101 of the TFEU, and that under such circumstances any penalties imposed for a breach of this obligation should remain at the lowest levels possible.

As the Employment Services Act obliges the authorities to impose fines for a breach of the obligation to publish the amount of the basic wage component, the authorities must impose a fine for this administrative offence. However, because the Employment Services Act lays down no minimum amount of such a fine, these offices could still satisfy this legal requirement while at the same time respecting the demands following from the Slovak Constitution and the TFEU if they would, for example, impose a fine in an amount of not more than EUR 1.

What are the legal implications for a breach of the obligation to reflect the advertised amount of the basic wage component in the employment contract? In this case, the penalties are more severe. According to Act No. 125/2006 Coll. on the Labour Inspectorate, as amended, employers are at a risk of fines as high as EUR 100,000 in such cases. Moreover, if the employer does receive a fine, it also risks losing its licence for employing foreign nationals under simplified terms, as provided in the Employment Services Act.

The question remains how would such a breach be reflected in the legal relation that an employer has with individual employees. We do not rule out that the employer may successfully argue that the employee is not, per se, entitled to be paid the difference between the basic wage agreed in his or her contract and the basic wage that was advertised. In practice, however, there is a risk that the Labour Inspectorate could require an employer to remove any irregularities that are found, which could, in theory, lead to the obligation to make an extra wage payment to the employee so that the employee’s wage reaches the amount adverstised in the job offer.

For more information, contact Roman Oleksik, Partner, at

e-mail

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