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Needed: A New Labor Consensus

Local Labor Laws Are Scaring Off Businesses, Yet Labor Unions Want More Benefits. We Have To Solve This Dilemma For The Benefit Of All.


September 30, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

A new social contract

New dialogue between workers and management is needed for the local economy to remain competitive

The labor climate in Puerto Rico is boiling–and it isn’t just because there is an election around the corner. The ongoing dispute between the Puerto Rico Aqueduct & Sewer Authority and its main union, the Authentic Independent Union (UIA by its Spanish acronym), over employees’ medical coverage and other issues in their collective bargaining agreement has stirred up other labor unions.

The increased activism by labor unions comes at a time when Puerto Rico has been struggling to attract new investment to the island and the economy is at a standstill. Experts say the time has come to engage in wide-ranging dialogue to adjust labor-management relations on the island to the new circumstances created by globalization.

"There will be shows of solidarity with the UIA; campaigns in the media; and demands that greater communication be established between the union and the government, that labor agreements be respected, and that a space be opened for dialogue," said Federico Torres Montalvo, president of the Puerto Rican Workers Central.

This era of economic globalization is presenting a series of challenges that are straining relations between labor and management in Puerto Rico. In the meantime, other jurisdictions are becoming increasingly competitive in terms of their business climate, including their labor costs, and are running away with the lion’s share of new investment worldwide.

In Puerto Rico, management is saying the high cost of doing business on the island is scaring off investment, while labor unions are complaining that cost-cutting measures by businesses are hurting workers. Both sides, however, agree on the need to establish a new set of game rules to put Puerto Rico on the track to competitiveness.

"I think we’re going to find there is a wide space for consensus in areas where people initially might not think there’s room for agreement," said New Progressive Party Sen. Kenneth McClintock.

Both Torres Montalvo and Jose Rodriguez Baez, president of the Federation of Workers of Puerto Rico, said unions in Puerto Rico are anxious to begin the dialogue process. "Such dialogue could be an instrument for all sectors of society to advance their interests," said Rodriguez Baez.

Neither workers nor management satisfied with laws

Business groups say the myriad labor laws designed to protect workers’ rights are scaring off companies who are spooked by stories of high rates of employee absenteeism, a tangled bureaucracy to process worker claims against employers, and wage and overtime rules that work against the normal work-hours of modern business.

Labor unions, for their part, say the laws allow employers to hire part-timers in order to avoid paying for health insurance and other benefits and no longer provide for a graduated minimum wage based on job category.

Alfredo Hopgood, head of the labor-law practice at the McConnell Valdes law firm, said he has represented several clients who have decided to set up shop elsewhere because of the work environment created by the local labor laws. Citing attorney-client privilege, he declined to identify the companies.

"These are laws that don’t foment better relations between labor and management," said Hopgood. "The companies come to the conclusion that this is a country that is hostile to business."

Miguel Soto, executive director of the Center for the New Economy, a local nonpartisan think tank, said the time has come for labor, management, and the government to sit down and negotiate a new set of rules to modernize Puerto Rico’s workplace. "Both sides will have to compromise to make Puerto Rico more competitive," he said.

Both sides, he added, have more to gain than to lose since making Puerto Rico more attractive to investment means more and better-paying jobs.

Soto noted that the new workplace, in industries with some of the best, highest-paying jobs, is a lot more flexible than is possible with Puerto Rico’s current labor laws. The Internet, for example, has allowed more and more people to work from home. Younger employees are demanding more-flexible hours and periodic time off to pursue their own interests.

Demand for this more flexible and dynamic workplace is expected to grow as the baby boomers retire and are replaced by the younger generations. These circumstances, said Soto, require Puerto Rico’s labor laws to evolve.

He cited as an example Ireland, a major competitor of Puerto Rico, where collaboration between the unions, management, the government, and community groups helped to spark an economic boom. "The result is that Ireland has more, better, and better-paying jobs," said Soto.

Labor laws out of date

Some attribute the difficult labor-management relations to the fact that many of the labor laws date to when Puerto Rico was an entirely agrarian society. The laws were written to protect workers from the abusive environment on the sugarcane plantations, said one labor lawyer who asked not to be identified.

"The pendulum has never swung back," he said.

Among the laws that are unfriendly to business, said Hopgood, is the Work Hours & Days Act, which provides for overtime for employees who work more than eight hours in any 24-hour period. "This puts businesses in a straightjacket in terms of how they can schedule their shifts," he said. Soto added that the law particularly affects the hotel and manufacturing sectors, which rely on scheduling shifts at odd hours.

Another business-unfriendly law, said Hopgood, is the one establishing the summary grievance procedure, which gives employees up to eight years to file a grievance with the Department of Labor & Human Resource’s Bureau of Work Claims. Employers, meanwhile, have only 10 days to respond. If the employer in the case doesn’t respond, the bureau automatically judges in favor of the worker, with no further recourse provided for the employer.

Hopgood also cited a number of laws that give license to a high degree of absenteeism. Laws protecting workers’ rights to sick leave are too often abused, he said. "Every month, employees can miss one or two days of work and the employer can do nothing about it. Absenteeism has a direct impact on the cost of production," he said.

Laws against discrimination are weighted heavily against employers, said Hopgood. "Even the suspicion of discrimination can be the basis for a complaint. The burden lies with the company to prove it isn’t discriminating against the employee," he said. This leads to a lot of costly, frivolous lawsuits behind which incompetent employees hide.

Rodriguez Baez said laws protect certain hard-won rights that workers aren’t willing to give up. "These rights were won...with blood," he said.

He added that in recent years, rights have been taken from workers by legislation designed to cut the costs of businesses. One law passed in 1995, for example, did away with the Minimum Wage Board, which set minimum wages based on an evaluation of job categories. Since then, the federal minimum wage law has applied in Puerto Rico. Other legislation now requires a worker to work more than 115 hours a month to qualify for one day of vacation. "These rights ought to be restored," he said.

Torres Montalvo said unions are working on a draft reform of Law 45, which regulates the negotiating power of public-sector unions. The current law is too restrictive, he said, considering public employees don’t have the right to strike.

Genoveva Valentin of the United Public Servants Union of Puerto Rico complained that Law 80 allows employers to fire workers without the opportunity to appeal. She said limitations in the laws force unions to seek redress in collective bargaining.

Andres Espinoza, a lawyer with the Labor & Human Resources Department, said the government has moved on several fronts to shore up labor laws. Gov. Calderon recently signed into law a bill that established an office of mediation, which will be able to adjudicate salary claims and give free legal representation to workers seeking redress. The office will direct claims through administrative channels and curtail lawsuits, said Espinoza. In addition, the agency is reviewing Rule 13 to determine how the local minimum-wage law must be altered given the recent federal action to better define the job descriptions that are exempt from minimum wage and overtime pay, as defined in Part 541 of the Fair Labor Standards Act.

Sen. McClintock said the government should make another effort to institute flextime, whereby employees have some leeway in how they schedule their regular 40-hour workweek. Instead of working five eight-hour days, for example, they could work four 10-hour days. He noted that working odd hours is becoming the norm in many industries, and employees appreciate being able to manage their time in a way that allows them to pursue other interests.

Many employers support flextime, especially those in the tourism industry, where odd shifts are common. Unions, however, have opposed the idea because it would require reforming minimum-wage regulations, which require employers to pay overtime to those who work more than eight hours in any 24-hour period.

McClintock also said legislation must be passed to provide benefits to part-time workers. One idea is to provide tax incentives to employers that offer healthcare benefits to part-timers. He said labor reform should be directed toward giving more benefits to employees in exchange for increased productivity.

The need for labor reform in Puerto Rico is particularly pressing in this era of globalization and increased competition.

"One of the problems is that the need to generate high levels of competitiveness doesn’t fit with some of the premises that come from a different era," said Manuel Maldonado of Quality for Business Success, a management-training firm. "How can we create the new social contract, with high economic performance, equal opportunities for all, development of infrastructure, and an appropriate role for government?"

Arguments over the desirability of globalization are moot, said Maldonado. "It has already arrived," he said.

Soto said that besides being detrimental to business, the labor laws end up being detrimental to employees, unions, and the community at large because they work against the creation of jobs. "There isn’t much point to having laws that protect labor if there are no jobs," he said.

Ireland took up the gauntlet

Ireland found itself in a similar situation in the late 1980s and early 1990s, when its economy was stagnant and unemployment levels were high. Local community groups organized around the issues of unemployment and poverty. The groups told the unions, which had traditionally spoken for these constituencies, that they wanted to represent themselves.

The clamor of the groups gave birth to community social partnerships through which the community groups, the trade unions, the private sector, and the government sat down to address the different trade-offs between and within the interest groups. In exchange for a place at the negotiating table, the trade unions gave up all demands except the demand for a nominal wage increase. What the unions gained in return was a say in formulating the national economic policy.

The unions also found along the way that they could champion other causes, such as for programs to provide job training and alleviate poverty. Thus, they were able to go beyond the narrow interests of their memberships and make good on their oft-repeated claims of defending the interests of the poor.

"The creation of local programs that dealt with unemployment, training, and poverty relief was seen as partial compensation for the forgone wage increases, since the problems affecting the country were at times too close to home [a substantial number of union members and their families were unemployed and impoverished]," said Deepak Lamba, research director of the Center for the New Economy. "As researchers have pointed out, in making themselves defenders of the poor and unemployed, the unions projected themselves as defenders and representatives of the national interests and not just of a select few."

The formation of the partnerships created an environment of innovation that also helped the Irish government attract foreign investment in the high-tech sector, which was partially responsible for the country’s economic boom in the 1990s. "The question for Puerto Rico is when are we going to have that kind of cooperation among sectors so everyone can contribute to an economic development that is integrated," said Lamba.

A call for dialogue in Puerto Rico

Rodriguez Baez said he thinks a similar solution could bear fruit in Puerto Rico. "We should establish some kind of forum that allows for a dialogue that would make us much more productive and efficient, one that includes a discussion of workers’ rights," he said.

He said a possible model for this forum is the recent Social Summit, which the unions sponsored and brought together labor groups, civic groups, and industrial organizations to discuss ways to reduce violence in Puerto Rico. "This forum would allow communication between the sectors and advance the benefits and proposals to help the various sectors of society," said Rodriguez Baez.

The Puerto Rico Chamber of Commerce played an active role in the Social Summit, which chamber spokesman Cirilo Cruz agreed would be a good model for a forum on economic issues. He said the dialogue enabled by such a forum is needed because much legislation has been passed without considering the economic impact on society.

"The possibility that the legislation could cost someone his or her job isn’t taken into account," said Cruz. He also said that employers must take into account their responsibility to create an atmosphere for workers that promotes social well-being.

Torres Montalvo of the Puerto Rican Workers Central also urges dialogue. "What is needed is a forum to discuss the most important problems," he said. "Almost all countries have a tripartite committee of government, business, and workers." But Torres Montalvo said that might be difficult since he has found that, despite statements to the contrary, the government’s doors are closed to the unions.

Manuel Melendez of the United Public Servants of Puerto Rico said ensuring employees’ well-being should be paramount in any dialogue to change the game rules in labor-management relations. "[Change should not come] at the cost of the lives, health, and security of workers. There has to be justice and equality that allow workers to be more productive," he said.

McClintock said that a New Progressive Party-controlled Senate next year would create such a forum and convene hearings to find areas where consensus can be reached among the parties.

Popular Democratic Party (PDP) Sen. Eudaldo Baez Galib said a dialogue would be business as usual unless it was connected with an intention to draft a new labor code. "The appropriate launch pad for dialogue is the drafting of a labor code, as it would bring out all the issues involved and result in concrete action codified in the law," he said.

Torres Montalvo noted that in talks with union representatives, PDP gubernatorial candidate Anibal Acevedo Vila committed to creating a forum for dialogue if he wins the election.

In its campaign platform for 2004, the Puerto Rican Independence Party advocates the creation of a worker-management-government committee to discuss changes in the workplace in response to globalization. According to the party, such committees have been successful in European Union countries.

Benefits by jurisdiction

Oregon / United Kingdom / Ireland / Puerto Rico

Minimum wage: $7.50 / $9.06 / $8.93 / $5.15

Vacation days: 10.2* / 11 / 8 / 9

Holidays: 11 / 8 / 9 / 22

Sick leave: 12 days / None # / None # / 12 days

Disability: Up to 52 weeks** / Up to 28 weeks / Up to 52 weeks / Up to 52 weeks

Maternity leave: 12 weeks / 18 weeks (90% pay) / 8 weeks (70% pay) / 12 weeks

Christmas bonus: None / None / One-week pay / $200

*National average

#Sick leave covered by disability

**Federal Social Security

Sources: U.K. Dept. of Social Development; U.K. Dept. of Social & Community Affairs; Oregon Department of Human Services, U.S. Department of Labor, Bloomberg

This Caribbean Business article appears courtesy of Casiano Communications.
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