Proposal for Labor Law Reform Sam Levy, SAL Consultoria

22

Proposal for labor law reform

• Background

• Objectives

• Grand Bargain

• Strategy

• Methodology

• Main Changes

• Main Innovations

• Next Steps

33

Background

• 1985—Law 8/85 of 14 December

– Labor law for centrally planned economy

• 1987—Economic Restructuring Program (Programa de Reestruturação Económica)

– Mozambique opts for a market economy

• 1998—Law 8/98 of 20 July

– A step away from Law 8/85, but only a step. Still very protective of existing formal employment, with little attention to competitiveness in making Mozambique a competitive destination for labor-intensive investment and, hence, to job creation.

44

Main objectives

• Objectives of the proposal are based squarely on employers’ daily experience of Mozambique’s labor environment:

– Make labor relations more flexible– Reinforce the role of collective bargaining in regulating the

labor environment– Make Mozambique competitive in attracting labor-intensive

investment– Ensure rights to a larger number of workers , and

thereby

– Create more jobs.

55

The Grand Bargain

• Redistribute cost of employment

– Reduce benefits for already employed to create more formal jobs for the many unemployed

– Ensure minimum rights to all: after only 90 days under any contract, a worker starts accruing benefits

– Lower cost of restructuring means less need to resort to informal labor

• Freedom to bargain

– Less statutory prescription means that the collective bargaining relationship becomes more important. Labor unions must be key players.

– Management and labor allowed to opt out of the court system in resolving disputes.

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Strategy

• To facilitate study and negotiation of the draft, preserved the structure of current labor law, which is perfectly serviceable.

• Left intact, or with only modest changes, all articles adjudged matters of consensus or that did not harm the interests of the private sector.

• Kept the terminology of the current law to the extent consistent with newly introduced principles.

• Sought, wherever possible

– To avoid changes that would require Mozambique to reconsider its adherence to ILO conventions;

– To simplify language of the law and its methods of accrual and calculation.

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Methodology

• Gathered and studied modern labor doctrine and statutes from variety of jurisdictions. Main sources for systematic comparison were

– Mozambique’s regional competitors: South Africa and Botswana

– Job-creating Asian tigers: Singapore and Malaysia

– Civil law jurisdictions that recently revised their labor legislation: Portugal and Spain.

• Compared chosen sources to current labor law.

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Methodology (continued)

• Adapted resulting principles and text to Mozambican requirements for style and form, adding solutions to specific problems experienced by national businesses.

• Organized and harmonized text.

• CTA held various presentations and debates among its members, leading study team to introduce many specific suggestions.

• Prepared annotated draft of proposal with the corresponding articles of existing law alongside to aid study and negotiation.

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Main changes

• Main changes pertain to the following subjects:

– Contracts

– Absences

– Contract rescission and severance

– Collective bargaining

– Dispute resolution

– Social security

– Labor inspection

– Glossary of defined terms

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Contracting

• Fixed period contracts may now be for any period and renewed as many times as the parties agree (Article 9, para. 2)

• After 90 days, a worker under any form of contract accrues the rights of a worker under an indeterminate period contract (Article 9, para. 4)

• Introduction of regulated regime for Temporary Work (Article 93 et seq.)

• Extension of probationary period (período probatório) (Article 11)

• New emphasis for the piecework contract (Articles 10 and 60, para 3).

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Absences, vacation, official holidays and tolerâncias de ponto

• Fixed limit on the number of days of permitted absences (Article 52, paras. 2 and 3)

• New rules for accrual and extent of vacation time (Article 48), to bring policy closer to regional practice

• Limitation on local holidays and clarification on who gets them (Article 44)

• Regulation of tolerâncias de ponto (Article 46).

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Vacation and absences (days/year)

Paid vacation

Law 8/98 Proposal

Year 1 Subsequent Year 1 Subsequent

21 30 12 24

Permitted absences

No limit 12

Vacation days: South Africa, 21; Botswana, 15; Singapore, 7/14

1313

Rescission of labor contracts

• Reduction of statutory notice periods (pré aviso), in line with regional practice (Articles 77 and 78)

• Reduction of severence liability in line with regional practice; now directly proportional to a worker’s seniority (Article 78)

• Statutory opportunity to correct procedural errors in disciplinary processes (Articles 28 and 29)

• Elimination of double damages – a source of endless opportunistic litigation.

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Costs of rescission (indeterminate period contracts)

Cost (days)

(Law 8/98) Proposal

1 year 6.5 years 1 year 6.5 years

Notice period 90 90 7 28*

Severance 90 630 7 49* Maximum allowable

Notice period Severance

South Africa 28 28 7 49

Botswana 14 30 0 96

Singapore 7 28 0 0-91-195

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Collective bargaining

• Where the law explicitly permits, management and labor are allowed to create distinct rules governing their relationship in collective bargaining agreements (Article 4, para. 2).

• Introduction of Codes of Good Conduct – tools for management and labor to develop and negotiate sector-specific practices to meet their peculiar needs, without waiting for government to regulate.

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Dispute resolution

• Introduction of liberal labor arbitration, to permit both individual and collective labor disputes to be determined out of court (Article 131 et seq.)

• Elimination of dominant role of the Ministry of Labor in resolution of collective bargaining disputes

• Reinforcement of mandatory mediation in labor disputes

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Social security

• Social security contribution remains mandatory (Article 195)

• Opening the system to private providers, licensed and supervised by the Government (Article 190 et seq.). INSS to compete to manage and grow workers’ retirement funds.

• Workers may freely choose their initial reirement providers and transfer their retirement accounts to competitors (Article 197, paras. 4 and 5)

• Clarification of retirement rights (Article 193)

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Labor inspection

• Reemphasize educational character of Labor Inspection (Article 217, para. 2)

• New rules for professional integrity of labor inspectors, including requirement of declaration of assets, as required of senior government officials under Law nº 6/2004, the Anti-corruption Law (Article 219)

• Prohibition on sharing of fines by labor inspectors (Article 216, para. 5); all revenue from fines to go directly to General State Budget

• Once a company has been inspected and no violation found, matters inspected cannot be the object of a new inspection for one year (Article 217, para. 4)

1919

Main innovations

• Rules on Temporary Work—will allow businesses much more flexibility in organizing work to meet evolving needs

• Codes of Good Conduct—a new instrument for management and labor to regulate the work environment by sector, without depending on Government regulation

• Alternative Social Security—competitive providers will give workers a real choice in preparing for retirement and will provide market discipline to the existing monopolist. Social Security to operate as a savings system rather than as a tax on workers and employers.

2020

Next Steps