Belgium : Salary freeze in 2011 and 2012

Salary increases are strongly limited as Belgian government imposes maximum margin for salary costs increases for 2011 and 2012.

Every two years, the maximum margin for the increase of salary costs should be fixed in Belgium at national level. This obligation was laid down in the Belgian Act of 26 July 1996 (the “1996 Act”) regarding employment promotion and competitiveness protection. The maximum margin is determined by taking into account the average salary development in Belgium compared to Germany, France and the Netherlands.

The maximum margin is, in principle, fixed by the social partners at national level in the twice-yearly so-called “inter-professional” agreement regarding salary and labour conditions. Industry sectors and employers can subsequently enter into collective bargaining agreements regarding salary conditions within this margin. However, as the social partners did not come to an agreement for 2011 and 2012, the maximum margin has been imposed by the Belgian government by the Royal Decree of 28 March 2011.

The maximum margin for the increase of salary costs is fixed at 0% for 2011 and 0.3% for 2012. Increases as a result of indexation and salary scale changes are not taken into account. This is also the case for profit sharing schemes, increases in the number of employees (expressed in full time equivalents), employees’ participation schemes, employers’ contributions to “social” supplementary pension schemes and the “innovation premium”.

The 1996 Act stipulates that the maximum margin may not be exceeded by collective bargaining agreements entered into at industry sector or company level or by individual agreements. The Act does however not explicitly provide whether the maximum margin must be observed at inter-professional, industry, company or individual level.

It is therefore unclear whether an employer can award a salary increase and/or an additional benefit to its employees in 2011 and only 0.3% more in 2012 on the basis of a collective bargaining agreement or individual agreement. Some authors are of the opinion that an individual salary increase is allowed to the extent that the maximum margin is observed at “macro-economic” level. This, however, is not explicitly set out in the 1996 Act. Moreover, it is impossible for an employer to know whether an individual or collective salary increase will impact the fixed margin at inter-professional or industry level or not.

It is important to note that the 1996 Act provides for the imposition of administrative fines of between EUR 250 and EUR 5,000 for employers who exceed the maximum margin. Where the maximum margin is laid down in collective bargaining agreements entered into at national or industry level, non-compliance could also be subject to criminal sanctions.

We are not aware of any litigation regarding the enforcement of the maximum margin in the past. As there is no case law or administrative position paper in this regard, it is not known how the labour courts and social inspectorate will interpret this legislation, or how strictly they will enforce or apply it for 2011 and 2012.

The maximum margin for the increase of salary costs does however not entirely prevent employers from awarding salary increases and/or additional benefits. Employers can still create a margin for salary increases and/or additional benefits by optimizing current salary components and therefore reduce salary costs. Several possibilities could be considered.