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28 November 2018

Latvia: president refers a reform of the labour legislation back to parliament

A broad package of amendments to labour legislation aiming to tackle Latvia’s shadow economy and encourage workers to stay in the country have been put on ice by the country’s presidency. He argued that the amendments, which were adopted by the parliament, had to be assessed on proportionality and consistency.

In early November 2018 Latvia’s parliament approved amendments to the Labour Law in a final reading. The outgoing government had made several proposals for reform in an attempt to tackle the shadow economy. However, the country’s president referred the amended Labour Law back to Saeima (the country’s parliament) for a revision. He asked it to assess the proportionality of the regulations and find a balanced solution in line with the Constitution.

Whilst the presidency praised the Latvian Employers Confederation, the Confederation of Free Trade Unions of Latvia, the Partnership of Latvian Construction Entrepreneurs and the Cabinet of Minister for their efforts aimed at combating the shadow economy and promoting the conclusion of general collective agreements, he argued that the amendments to the Labour Law were too fragmentary and incomplete and stated that it was not acceptable to try to fight unreported business activity in one sector without assessing the risks that new regulations can pose to other sectors. In his opinion, the amendments could lead to regulations that would give businesses leaving the shadow economy an advantage over those that are already paying their due taxes and contributing to financing the common needs of society. The parliament has reopened its deliberations and it is expected that there will be a vote on the amendments in December 2018.

The amendments that passed the final reading on 1 November 2018 would allow employers to decrease extra pay for overtime work by 50% if the employees in a given industry had concluded a collective general agreement, which in turn would increased the minimum hourly wage in the industry. Under the current regulations, the extra pay for each hour of overtime work is 100% of the standard hourly wage. Other amendments discussed in parliament are intended to encourage Latvians to stay in Latvia and to promote repatriation, with the argument that the growth of potential GDP is negatively affected by the decrease in labour force supply due to the unfavourable demographic trend and migration.

These amendments included aspects with no direct link with the improvement of primary working conditions or workers’ rights. For instance, one amendment, which was backed by a majority, stipulated that employers have no right to demand their employees speak foreign languages unless such language skills are necessary in their jobs. Another proposed amendment, that employees doing their job may communicate only in Latvian with other citizens, non-citizens or persons who have received a residence permit, was not supported.

The objective of tackling the shadow economy has been discussed for years. As far back as January 2016 a ‘Shadow economy control strategy for 2016-2020’ was adopted with a mix of compliance and tax morale issues addressed. In that strategy, it was proposed to criminalise the payment of envelope wages and to make employers who use them subject to fines.

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