Social dialogue in central and eastern Europe

Union recognition can be a tough battle in EU member states in central and eastern Europe.

When investing in another European Union member state, multinational companies (MNCs) can be expected to respect employees’ rights to the same extent as at home. Occasionally they do but MNCs rarely transfer good practice from their home countries voluntarily or willingly. Much more frequently, they need to be persuaded and the outcome depends on MNCs’ behaviour and on the strength and activities of trade unions as active co-creators of employment relations.

Those countries in central and eastern Europe that joined the EU between 2004 and 2013 have seen an inflow of investment by MNCs, now absolutely dominant in modern manufacturing industries. Wages and living standards did increase relative to western Europe, at least for a time, and MNCs typically do offer slightly better pay than domestically owned firms. As the graph however shows for six of those countries, the gap with Germany—source of much of the investment—remained enormous even in 2021.

Nominal compensation per employee as percentage of German level, 1991 to 2021

An obvious question is whether wages are held down by MNCs restricting union representation and collective bargaining, despite recognition of trade unions in their home bases and commitments made in global agreements with international trade union confederations. To help answer this question, a research project was undertaken on MNCs in the automotive and retail sectors in six countries of central and eastern Europe (Czechia, Hungary, Poland, Romania, Slovakia and Slovenia).

‘Opportunist adaptation’

The research found a lot of variety but the approach typical of MNCs is ‘opportunist adaptation’. They work with existing laws, albeit often finding loopholes so that ‘bending the rules is the rule’.

They have accepted union representation from the start where it already existed, as when taking over enterprises inherited from the Communist past in the early 1990s. Volkswagen’s acquisitions in Czechia, Slovakia and Poland are supreme examples. Industrial relations look more like western Europe there, with high union membership, occasional strikes—otherwise very rare in those countries—and wages somewhat above their countries’ averages.

Unions face greater difficulties with the more typical greenfield investments that came from around 2000. Even companies willing to accept union representation from the start may become more aggressive when they feel the union is weak.

An example is the French PSA group, which expanded production of small cars in Slovakia from 2003 as similar production in France was run down. It made life difficult for the unions in Slovakia but was eventually faced with a strike threat during wage bargaining in 2018.

The French management painstakingly interviewed every employee, offering a smaller pay rise than the union was demanding to individuals who formally withdrew support for the strike. The divide-and-rule tactic proved successful in reducing support and hence limiting the overall wage increase.

Hostile from the start

Asian companies have often been hostile from the start but they too can yield some ground over time. Hyundai, beginning production in Czechia in 2008, kept to the confrontational approach from its home country, arbitrarily imposing overtime at very short notice. This led to a short spontaneous work stoppage in December 2009. A subsequent visit by the Labour Inspectorate revealed the company to be in breach of 52 laws.

Hyundai was pressed into a reappraisal, including a new willingness to negotiate with a union organisation. Union membership gradually increased, thanks to the organisation’s successes in achieving a degree of adherence to employment law, modest wage rises through bargaining and additional individual benefits.

The atmosphere remained tense and in 2022 one fifth of union members were still keeping their membership secret from the management, paying dues directly rather than through automatic deductions from their salaries. Nevertheless, with increasing membership and commitment to moderation, the union was taken more seriously by the management.

Reputation for antagonism

The western-European hard-discount retail chains have a reputation for antagonism to employee representation. In one case in Hungary in 2004 the management brought in a fortune-teller to look at employee personal details and identify those to be accused of pilfering.

The intimidation attracted national media interest and even international solidarity. This contributed to a later change in the management’s approach and a collective agreement was finally signed in 2008, giving clarity on employee protections and disciplinary procedures. Cases brought to the courts rapidly declined.

At least some retail chains in five of the countries covered have been persuaded to take part in collective bargaining but their willingness depends more on the country than the company. Foreign retailers in Poland have agreed to talk to unions but no collective agreement has been signed with any of them. In Romania, where unions were weakened after changes in employment law in 2011, the French company Auchan acquired outlets from another foreign company in 2012 and then set about dismantling the union organisation, dismissing activists and ending collective bargaining.

Effective weapon

Media publicity can be a very effective union weapon, especially against retail companies that rely heavily on their reputations. It works best where unions and civil society are already strongest—bringing results especially in Slovenia, where the battle for recognition in a hard-discount chain was aided by public campaigning and new allies, including an environmental movement. That at least persuaded management to talk to the union, although full recognition has yet to be achieved.

By way of contrast, seeking media publicity is regarded as a ‘nuclear option’ in retail in Romania. Keeping the media ignorant of any protest actions can be necessary to show the goodwill necessary for gaining recognition. A number of union representatives from several countries interviewed for the study insisted that the company name not be revealed, fearing in some cases dismissal or legal action associated with accusations of giving a company bad publicity.

International solidarity can be extremely effective when the union in western Europe provides access to top managers who can be made to feel obliged to live up to claims of a progressive company culture. Indeed, the Auchan management in France, which signed a framework agreement with the UNI global union confederation, agreed in 2017 to accept a union in Romania again, although rebuilding an organisation from scratch was not easy.

Discrimination and harassment

The typical story of trade union representation in MNCs in central and eastern Europe remains one of slow beginnings, as pioneers face discrimination and harassment. By pursuing careful strategies and using all the resources at their disposal it has been possible to make progress, even against some initially very hostile employers. Even then, winning recognition does not mean an end to conflict—not least because MNCs try to concede very little more when bargaining does take place.

So it is not surprising that wages in central and eastern Europe still remain well below western-European levels.