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Wednesday, April 17, 2013

Addressing Substantial Legal Restrictions on Freedom of Association in Equator Principles Projects

Freedom of Association may be substantially restricted by law in some countries. This reality creates complex challenges for Equator Principles (EP) implementation, since the requirements of the Equator Principles require compliance with host country laws and in some cases addressing the overlapping and interrelating requirements of the IFC Performance Standards on Environmental & Social Sustainability (IFC Performance Standards). 

As we discuss in this article, the IFC Performance Standards establish standards for the protection of Freedom of Association rights, even in circumstances where the law substantially interferes with those rights.

Worker Organization and Collective Bargaining in the IFC Performance Standards and EP

Freedom of Association is dealt with in Performance Standard 2 (PS 2) under the topic heading "Workers' Organizations". Under this section, a “workers’ organization” is defined as any organization of workers for the purpose of furthering and defending the interests of workers with regard to working conditions and terms of employment. This would typically include trade unions or associations. PS 2 defines this phrase to exclude organizations which are not freely chosen by the represented workers or that are under the influence or control of the employer or State entities. As such, an employer selected or controlled union or government controlled union would not be considered a legitimate workers’ organization under PS 2.

PS 2 identifies national laws as the starting obligation of an Equator Principles Financial Institution (EPFI) and their clients (Clients) in respect of workers’ organizations, freedom of association and collective bargaining. Where a host country jurisdiction “recognizes workers’ rights to form and to join workers’ organizations of their choosing without interference and to bargain collectively,” such laws will be mostly determinative of the Client’s obligations. Where national laws do not provide for or permit workers’ organizations, companies are expected to implement the requirements of PS 2 so as not to interfere in any manner with worker organizing efforts or otherwise seek to control collective efforts to express worker grievances and bargain with their employer.

One integral function of a workers’ organization is to engage in collective bargaining with the employer on the terms and conditions of employment. For the purposes of PS 2, “collective bargaining” is said to consist of discussions and negotiations between the employer and representatives of workers’ organizations with the aim of determining working conditions and terms of employment, by joint agreement. This process may result in the establishment of a Collective Bargaining Agreement (CBA) governing the working conditions and terms of employment of workers. A "legitimate" CBA is one that is developed through collective bargaining between an employer and a legitimate workers’ organization. To be legitimate, a CBA must fundamentally comply with national law and the requirements of PS 2.

Where some workers are covered by a CBA and some are not, the Clients must apply substantially equivalent terms to non-unionized employees. Clear communication of worker rights to collective bargaining must be provided including through PS 2 related policies. Regular training must be given on worker-manager communications in the context of workers’ organizations. Regular meetings between management and worker representatives should also take place which are documented by the Client. Moreover, meetings with local unions and nongovernmental organizations (NGOs) relating to labour issues are encouraged and should also be recorded and documented. PS 2 requires that workers not be discouraged from joining or forming a workers’ organization. Discrimination, retaliation, refusal to hire, demotion, reassignment, outsourcing, shifting work, or other retaliation in response to union activities is prohibited by PS 2. Ultimately, this aspect of PS 2 is oriented towards the promotion of the right of workers to organize and collectively represent their interests vis-à-vis their employer.

Freedom of Association in the IFC Performance Standards and EP

PS 2 requires that workers be free to choose representatives to speak with management, inspect working conditions without disrupting productivity and carrying out other organized activities. Clients are required to provide access for representatives of workers’ organizations to carry out these activities. Employees should not be prohibited from meeting to discuss workplace issues during scheduled breaks and before and after work.

The extent and scope of freedom of association is a complex topic in labour relations law in domestic jurisdictions. In emerging markets, where weak governance in the area of employment relations exists or where strong State authorities are the norm, labour organizing may face substantial interference. Organizing employees may also be subject to harmful consequences for such activities, including infringements upon personal dignity and even physical violence or coercion.

Within this context, the PS 2 protections of freedom of association can be seen as a prohibition on retaliation and interference with workers’ freedom of association, where such rights are not otherwise protected by law.

That being the case, in more developed jurisdictions where workers’ rights to organize are protected by law, it should be understood that rights to freedom of association may have legitimate limits. For example, in some highly developed jurisdictions it may be permissible for employers to prohibit union organizing on company property. It may also be entirely legitimate for employers to oppose unionization in the workplace, without any obligation on theemployer to remain “neutral” in an organizing drive. Labour laws in such jurisdictions may nevertheless prohibit interference by an employer in the formation of trade unions. For example, employers may be prohibited from retaliation against workers for union activities, or from engaging in unfair labour practices including threats, intimidation, coercion, promises of gain, or the use of surveillance to intimidate employees.

However, beyond such limitations, it may be and often is permissible for employers to take a position opposing unionization that can be communicated to employees through a campaign of information even in the midst of organizing efforts. In other jurisdictions however, neutrality of the employer may be the expectation. Employers must be cognizant of these variances amongst legal jurisdictions and use them to inform how PS 2 ought to be applied in a given jurisdiction. The fact of these divergences, even between highly developed legal systems, suggests that the question of whether a legal system “recognizes” workers’ rights to a sufficient extent to apply domestic law instead of PS 2 may be a challenging question. Answering that question will necessitate an analysis of the particular circumstances of a given jurisdiction in comparison with the overall requirements of PS 2.

Substantial Legal Restrictions on Freedom of Association

States may completely prohibit unions or union activity, or require that all workers’ organizations be controlled by the State. Alternatively, protections for workers’ organizations may not be enforced, meaning that union activity is stifled or prevented, or only permitted to develop with employer interference and support.

Where these types of restrictions manifest, PS 2 requires EPFI Clients to take steps to engage with workers to address issues relating to their working conditions and terms of employment, to the extent permissible by law. PS 2 provides that where national laws “substantially restrict” workers’ organizations, IFC Clients must not impede workers from developing “alternative mechanisms” to express their grievances and protect their rights regarding working conditions and terms of employment.

Alternative mechanisms include recognizing worker committees and allowing workers to choose their own representatives for dialogue and negotiation over terms and conditions of employment in a manner that does not contravene national law. Such mechanisms must be free from interference, influence or control by employers. Unless specifically prohibited by national laws, PS 2 requires that the EPFI Client not discourage workers from electing worker representatives, forming or joining workers’ organizations of their choosing, or from bargaining collectively.

EPFI Clients are also required not to discriminate or retaliate against workers who participate or seek to participate in such organizations and collective bargaining. Furthermore, the Client is required to engage with workers’ appointed representatives and legitimate workers’ organizations, providing them with any information needed for meaningful negotiations, in a timely manner. Where the law is silent on workers’ freedoms or collective bargaining rights but does not prohibit them, EPFI Clients must similarly engage with workers, recognize workers’ organizations that workers choose to form, and engage in collective bargaining or “meaningful negotiations”.

PS 2 requires employers, at a minimum, to engage with workers’ representatives and provide them with information to allow them to engage in “meaningful negotiations” where workers’ rights to organize are restricted by law - although that concept is not clearly defined in the IFC Performance Standards. The purpose behind this requirement would be to ensure that worker efforts at organizing are respected and not undermined by employers possessing disproportionate information and bargaining power, in jurisdictions that prohibit or interfere with workers’ organizing efforts. How that is applied in practice will be highly context specific and must take into consideration legal requirements, culture, the nature of the workplace and other contextual factors. 

Grievance Mechanisms

A grievance mechanism is also expressly required by PS 2 for workers and workers’ organizations to raise workplace concerns. In a workplace context, a grievance mechanism must address complaints and communications from internal stakeholders, namely workers.

The establishment of such a mechanism ensures matters of worker concern are brought to management’s attention and addressed expeditiously. Such a mechanism must be developed with an awareness of judicial and administrative mechanisms available in the country for resolution of workplace disputes and should not impede access to these judicial mechanisms.

Where substantial legal restrictions on freedom of expression exist, such grievance mechanisms will be particularly important as a method for employees to raise concerns to their employer.  The objective for the employer is to provide a legitimate and credible outlet for employees (including direct workers as well as contract workers) to express their concerns without reprisal.


The application of PS 2 in practice is quite challenging and necessitates clear comprehension of legal and regulatory requirements, including international legal obligations, as well as the requirements of the IFC Performance Standards, which have been designed to fill in the gaps or address shortcomings in legal and regulatory requirements.  EPFI, acting in their role as private regulator of their clients will have to balance all of these issues in determining the best way forward to ensure the sustainability of the project from a Labour and Working Conditions standpoint.  This is a challenging task, but some guidance is given from these elements of PS 2 we have discussed.

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