Last week’s resignation of Bulgaria’s government highlights the economic and political struggles plaguing Europe’s eastern flank, and the risks for investors and companies looking to do business in emerging economies.  Unemployment in the eastern European countries is generally high, and recent data show no relief is in sight.  Making matters worse, the austerity programs put in place to woo foreign investment have led to social unrest, such as in Bulgaria, making investors skittish and less willing to invest. 

It is not the austerity programs alone, however, that have led to seeming never-ending recession and public unhappiness.  Two countries illustrate the challenges faced by the emerging economies of eastern Europe.  Both Hungary and Bulgaria have educated and skilled workforces, and their central locations in Europe and low labor costs make them ideal candidates for employers looking to expand operations.  Unfortunately, both countries have been held back by government mismanagement and corruption.

Bulgaria 

The Bulgarian resignation was preceded by protests around the country, sometimes violent, expressing widespread anger over austerity policies and ongoing recession.  Austerity measures are not the only factor contributing to Bulagria’s problems.  In addition to harsh austerity policies, Bulgaria suffers from rampant corruption and the malign influence of organized crime.  Although Bulgaria began the economic crisis with a balanced budget and austerity measures have been relatively mild as compared to those of other countries like Greece, government corruption and mismanagement and a corrupt legal system have continued to deepen the economic crisis there. 

Bulgaria touts itself as an investment haven by promoting its ten percent flat tax and educated, skilled workforce, but it does not appear those attributes have had much influence on foreign investment.  Bulgaria is still excluded from the European Union Schengen zone (permitting passport free travel among members) and its justice system has been under the oversight of the EU because of corruption allegations.  The average monthly salary in Bulgaria is less than half the EU average, and its official unemployment rate, which hovers around twelve percent, is thought to be artificially low because of the thousands of Bulgarians who have been unemployed so long they no longer receive unemployment benefits.  Bulgaria has been ranked 66 out of 185 places in ease of doing business (according to the World Bank), and although reforms were planned for 2013 to improve its ranking, its government position leaves those reforms very much up in the air.

The catalyst for the recent protests was a sharp increase in heating and electricity costs, the costs of which rose to more than half the average monthly salary and two-thirds or more of the average pension.  Embattled, the prime minister promised to reduce electricity costs by eight percent, but gave no explanation as to how he would do so.  Resorting to xenophobic tactics, the departing prime minister vowed to revoke the power distribution license held by a Czech company.  Indeed, many of the protests in the past few weeks appeared to take on a nationalistic tone, which can only serve to further scare off foreign investment and employers hoping to capitalize on the educated, skilled, and low-cost workforce.

Unfortunately, desperately needed reforms to the energy sector have been put on the back burner, with the government’s resignation leaving the country’s governance in disarray, and countrywide protests have not ended.  It remains to be seen whether in the current climate Bulgaria will be able to attract and keep foreign investors.

Hungary

An increasingly volatile and autocratic government in Hungary has exacerbated already difficult conditions there.  In addition, effective January 1, 2013, regulations regarding the enforcement of the new Labor Code and regulations modifying 68 legal acts, including multiple employment laws, came into effect, creating compliance challenges for many employers. 

Although the reasons for Hungary’s continuing malaise are slightly different than in Bulgaria, it too has been suffering from an exodus of capital and decreased investment.  Prime Minister Viktor Orban recently imposed Europe’s highest banking tax and has threatened to boost taxes even further on foreign owned retailers and utilities.  Hungary’s economy shrunk for the fourth consecutive quarter, contracting 2.7 percent from October to December 2012.  The European Commission projects a budget deficit of 3.4 % GDP both for 2013 and 2014, making it even more difficult to leave the EU’s excessive deficit procedure, something it is eager to do.  In addition, the EU projects a 0.1% GDP contraction for Hungary in 2013, which Hungary disputes.  Hungary responds that it expects one percent growth in GDP in 2013, although it is unclear what factors would drive that projected growth. 

Much like his former counterpart in Bulgaria, Orban’s Fidesz party attempts to stir up nationalist fervor, with party officials publicly making nationalist, anti-Semitic, and anti-Roma remarks, with one prominent columnist with government ties calling for a “final solution” for Hunagary’s Roma population. 

The EU has accused Fidesz of making undemocratic changes to the judicial and banking systems and for making constitutional changes to the voting system which potentially has the effect of keeping thousands of voters from the polls.  Further, Orban’s policies have turned the Hungarian media into a highly-controlled mouthpiece for the government, with very little room for independent or critical voices.  In response to EU and international criticism, Orban complains that the EU is trying to control Hungary and has threatened to turn down EU economic assistance.  It remains to be seen whether the EU will actually impose any meaningful sanctions on Hungary, as its track record on such issues is generally poor.  In the meantime, Hungarians, much like their Bulgarian neighbors, will continue to suffer through government mismanagement and corrupt rule. 

This is the sixth article in a series about Central and East European employment law issues.

Since 1990, Poland has been steadily transitioning to a liberalized economy, and although progress has been rocky at times, Poland stands out as a bright spot among its fellow transitional economies.  Poland still struggles with rigid labor and employment laws, low-level corruption, and creaky infrastructure, but boasts an educated workforce, and according to the World Bank, ranks 62 out of 183 economies for ease of doing business (a slight decrease from 2011).  As of the post date of this entry, Poland is in the midst of co-hosting the Euro 2012 competition (for those of you who may be scratching your heads – the Euro 2012 is a showcase of the world’s most popular sport – the “beautiful game” known as football the world over, and soccer to most Americans), which to date has gone off fairly smoothly, and has served to introduce many to the beauty of Poland and its capability to host a major international event.   

Background

Poland is a democracy, with its current constitution in place since 1997.  The head of government is the president, who serves a 5-year term, and a prime minister.    There is a bicameral parliament, with a lower house, the Sejm, consisting of 460 members, and an upper house of 100 members, the Senat.  The Polish economy has continued to remain fairly strong during the global recession, and as of early 2012, had not entered recession.  Although many Polish citizens took advantage of their European citizenship to see work elsewhere, a number of highly-educated, English-speaking Poles have returned to Poland in the last couple of years as jobs in western Europe have dried up and those economies struggle with stagnant growth.  Tourism, banking, and energy are all important  industries in Poland, and Poland exports textiles, machines, and chemicals, among other products.  The zloty is the Polish unit of currency, and as of the date of this post, one Euro was roughly equal to 4.27 zloty and one dollar equal to approximately 3.40 zloty.    

The Labour Code

The Labour Code, along with secondary legislation and collective bargaining agreements, are the primary sources of labor and employment law.  The Labour Code was enacted in 1974, but has been amended numerous times.  Employers doing business in Poland are advised to review relevant Labour Code provisions on a regular basis.  Perhaps surprisingly, given Poland’s history with organized labor, only about 20% of all Polish employees are covered by some type of collective bargaining agreement.

The employment contract

As in most European countries, the employment contract establishes the essential terms of the employment relationship.  Under the Labour Code, the employment contract must be in writing and must include the following information, at a minimum:

• The names of the parties to the contract;
• The date employment commences and contract execution date;
• The type of contract (e.g., fixed term, unlimited term, or contacts for specific tasks);
• Type of work to be performed;
• Location where work will be performed;
• Salary amount, how often wages are paid;
• Working hours (on a daily and weekly basis);
• Entitlement to holidays;
• Required notice period.

Employers should note that these terms are required to be in writing at the outset of the employment relationship, and seven days after the commencement of employment for additional terms.  

Termination of employment

Employment contracts may only be terminated based on the grounds enumerated in the Labour Code.  For an individual dismissal without notice, the employee may only be dismissed for (1) gross violation of job duties; (2) employee committing a crime which makes it impossible for him or her to continue with his or her job duties; or (3) employee loss of necessary license/authorizations, etc.  Under certain circumstances enumerated under the Labour Code, employees may be entitled to severance, and terminations in violation of the Labour Code may be appealed to the Labour Court.  Remedies include reinstatement or payment of damages

Non-competition agreements valid

Under the Labour Code, employees may be subjected to post-employment restrictions on employment provided they are paid a minimum salary for the duration of the on-competition period.  Although the contract must specify the period of the restriction, the period is not limited by law, but cannot be unreasonable. 

Equal Treatment under the Labour Code

The Labour Code requires equal treatment of all employees, with respect to commencement and termination of employment, pay and work-related benefits, promotions, and training.  Employees are protected on the basis of gender, age, disability, race, religion or belief, nationality and ethnic origin, political views, trade union membership, sexual orientation, and employment contract status (i.e., whether unlimited, fixed term or specific task).  The burden to prove there was no discrimination rests with the employer, and sexual harassment can lead to criminal liability, including fines and/or imprisonment. 

Although this is only a brief overview, it is important to note that trade unions, collective bargaining, and employee work councils are also permitted under the Labour Code, and foreign employers doing business in Poland should take care to review all potential contracts and agreements pertaining to its operations before taking any actions that may affect employee rights, or the terms and conditions of employment.

This is the fifth article in a series about East European employment law issues.

Bordered by Germany, Austria, Poland, and Slovakia, the Czech Republic occupies an important position in Europe.  Following the Velvet Revolution of 1989, and its return to liberal democracy, the Czech Republic quickly became re-integrated into Europe and is a strong economic force in the region.  The Czech Republic ranks 64 out of 183 economies for “ease of doing business” and boasts a highly-educated and developed workforce.  For employers looking to do business from a strategic, centralized location, the Czech Republic offers many advantages. 

Background

The Czech Republic came into existence on January 1, 1993, following the Republic of Czechoslovakia’s peaceful split into two countries:  the Czech Republic and The Republic of Slovakia.  The Czech Republic is a parliamentary representative democracy, led by a Prime Minister.  The head of state is the President, who serves for a five-year term, and has limited powers.  Although the Czech Republic has made great strides in privatizing most of its industry, the country is still hampered by a relatively high rate of corruption, which can provide challenges to running a business in the country.  The Czech Republic is a relatively affluent country, with its per capita GDP approximately 80% of the European Union average.  Although a member of the European Union since 2004, the Czech Republic has not yet adopted the Euro, and there is no set timeframe in which it will do so.  Most observers believe that 2013 would be the earliest date that Czech citizens would vote to adopt the Euro.  The currency unit is the Czech koruna (CZK).  As of December 2007, the Czech Republic became a Schengen country, doing away with border controls with its neighboring countries.   

The Labour Code

In the Czech Republic, the Czech Labour Code, along with The Collective Bargaining Act, and the Employment Act, are the primary sources of labor and employment law.  Because the Labour Code has been updated at least ten times since 2007, employers are advised to review relevant Code provisions on a regular basis.

The latest revisions to the Labour Code took effect on January 1, 2012, and were generally welcomed by employers.  The Labour Code governs most aspects of the employment relationship, from minimum wage, severance pay (governed by length of service), overtime pay and maximum hours (limited to 416 hours annually for managers, 150 hours annually for non-management employees), outsourcing, terms and conditions of employment, to annual leave (a minimum of four weeks of paid leave - longer for certain professions/industries - with at least one block of leave taken in a two-week increment).  It is important to note that “employment-at-will” as permitted in the United States is not recognized under the Labour Code.  Employee terminations are limited to certain specific reasons, and the employer must be careful to follow required notice and severance requirements.  

The employment contract

The Labour Code requires that the terms of the employment relationship must be outlined in a written employment contract at the outset, and should address the following topics: 

• A description of the job, including duties required;
• The start date for the job, including the time;
• Location of the work.
• Additional information that is recommended, but not required, includes information regarding
• Holidays – length of leave;
• Any required notice periods;
• Weekly schedules/hours to be worked;
• Wage and salary information, including date for payment and method for calculation;
• Collective bargaining information; and
• Whether there is any trial period.  Under the Labour Code, trial periods can last up to three months for non-management employees and up to six months for managers.  Importantly, the trial period must be in writing and agreed to prior to the commencement of employment, or will be invalid. 

Non-competition agreements valid

Pursuant to the January 2012 revisions to the Labour Code, employees may agree to accept a non-competition agreement, provided the agreement does not exceed one year, and the employer is able to show there is a valid reason for such an agreement.  During the non-competition period,  the employee must be paid one-half of his or her average monthly wage.

Equal Treatment under the Labour Code

Under the Labour Code, equal treatment of all employees, with respect to pay and benefits, training and advancement opportunities, is guaranteed to all employees, with special protection guaranteed to pregnant women and new mothers.  Employees complaining of unfair treatment may bring a complaint to the local labour office or in a court of law.  Discrimination on the basis of race, color, gender, sexual orientation, creed, religion, language, political opinions, membership in political parties or movements, trade union membership, nationality or ethnic/social origin, property status, health status, family extraction, marital or family status or responsibilities is also prohibited, as is sexual harassment.  “Mobbing,” which is defined as “any behavior perceived by the employee as unwanted, unsuitable or offensive, and which could affect personal dignity or create a humiliating or unpleasant work environment” is also prohibited.
 
Although this is only a brief overview, it is important to note that trade unions, collective bargaining, and employee work councils are also permitted under the Labour Code, and foreign employers doing business in the Czech Republic should take care to review all potential contracts and agreements pertaining to its operations before taking any actions that may affect employee rights, or the terms and conditions of employment.