Report in which the committee requests to be kept informed of development - Report No 334, June 2004

1. 275. In a communication dated 10 March 2003, the Hong Kong Confederation of Trade Unions (HKCTU) submitted a complaint of violations of freedom of association against the Government of China/Hong Kong Special Administrative Region.
2. 276. The Government sent its observations in a communication dated 8 March 2004.
3. 277. China has declared the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87) applicable in the territory of Hong Kong Special Administrative Region (HKSAR) with modifications. It has declared the Right to Organise and Collective Bargaining Convention, 1949 (No. 98) as well as the Labour Relations (Public Service) Convention, 1978 (No. 151) applicable without modifications.

A. The complainant’s allegations

1. 278. In its communication dated 10 March 2003 the complainant alleges that, by enacting the Public Officers Pay Adjustment Ordinance in 2002, the Government unilaterally reduced civil service pay without proper negotiations with civil service unions and refused to settle the dispute over pay adjustment through continued dialogue or through a committee of inquiry, as provided in the 1968 Agreement between the Government and the main staff associations.
   • Unilateral reduction of civil service pay without negotiations
2. 279. The complainant initially presents the mechanism of the annual civil service pay adjustment. According to the complainant, the Net Pay Trend Indicators form the basis for the civil service pay adjustment. They are produced on the basis of a survey of private sector pay trends which is commissioned annually by the independent Pay Trend Survey Committee. The Pay Trend Survey produces three Gross Pay Trend Indicators which represent the movements in private sector pay for each (upper, middle and lower) salary band from 2 April the previous year until 1 April of the current year. The payroll costs of civil service increments are then deducted from the Gross Pay Trend Indicators to produce the Net Pay Trend Indicators. Apart from the movements in private sector pay, factors such as changes in the cost of living, the state of the economy, budgetary considerations, the staff sides’ pay claims, and the civil service morale are all taken into account when determining civil service pay adjustment.
3. 280. The complainant describes the usual procedure for deciding on the civil service pay adjustment. After taking into account the above six factors, the Chief Executive in Council puts an offer of pay adjustment for each salary band to the staff sides of the four central consultative councils, i.e., the Senior Civil Service Council (SCSC), the Model Scale 1 Staff Consultative Council (Mod 1 Council), the Disciplined Services Consultative Council (DSCC) and the Police Force Council (PFC). Having considered the views of the staff sides on the offer, the Chief Executive in Council then makes a final decision on the annual civil service pay adjustment.
4. 281. The complainant adds that the findings of the 2001-02 Pay Trend Survey were announced on 6 May 2002 and endorsed on 13 May 2002 by the Pay Trend Survey Committee. The Net Payment Trend Indicators (forming the basis for the civil service pay adjustments) were -4.42 per cent for the upper salary band, -1.64 per cent for the middle salary band, and -1.58 per cent for the lower salary band. On 15 May 2002, the staff sides of three central consultative councils (the SCSC, the Mod 1 Council and the DSCC) submitted their pay claims, urging the Government to freeze civil service pay for all salary bands despite the negative Net Payment Trend Indicators (the PFC did not submit any pay claims). On 22 May 2002 the Chief Executive in Council decided that an offer of a pay reduction of ?4.42 per cent for the upper band, -1.64 per cent for the middle band and -1.58 per cent for the lower band, with effect from 1 October 2002, should be put to the staff sides of the four central consultative councils. The Chief Executive in Council also agreed in principle that in the event of a decision to reduce civil service pay, a bill should be introduced in the Legislative Council to provide for the specified rates of adjustment. On 24 May 2002 the staff sides of the SCSC and the Mod 1 Council reiterated their original proposal of a pay freeze. On 25 May 2002 the staff side of the DSCC proposed that the civil service pay adjustment exercise be held in abeyance pending the completion of the comprehensive review of the civil service pay policy and system. All of them objected to the proposed legislative approach to implement a pay reduction. The staff council of the fourth consultative council, the PFC, did not submit any views. On 28 May 2002, after having considered the reactions of the staff sides to the pay offer, the Chief Executive in Council decided that this year’s civil pay should be reduced as originally proposed and that the Public Officers Pay Adjustment Bill (the Bill) should be introduced in the Legislative Council. The first and second readings of the Bill were then scheduled for the Legislative Council sitting of 5 June 2002. The Bill was finally passed at the Legislative Council sitting on 11 July 2002, and the Public Officers Pay Adjustment Ordinance was published in the Gazette on 19 July 2002 (copy attached).
5. 282. The complainant alleges that although there is a long-established consultative machinery within the HKSAR civil service, the role of civil service unions in determining the remunerations of civil servants is rather marginal and their participation is limited to submitting their pay claims and commenting on the pay offer made by the Chief Executive in Council. There is no negotiation, in its ordinary sense, between the Government and civil service unions during the pay adjustment exercise, and the determination of civil service pay is essentially the prerogative of the Government under the existing mechanism.
6. 283. The complainant further indicates with regard to the 2002 civil service pay adjustment exercise, that the Chief Executive in Council made the final decision just one week after putting the pay offer to the staff sides of the four central consultative councils. Thus, in a letter of 24 May 2002, the staff side of the SCSC held that the spirit of consultation had not been respected and that the normal process of consultation and negotiation to arrive at an agreement had not been conducted in an open-minded and constructive manner. According to the complainant, the undue haste with which the process had been conducted gave the clear impression that the Government had already made up its mind. It was obvious that no meaningful negotiations could have taken place in such short period of time, given the controversies of this year’s civil service pay reduction. The Public Officers Pay Adjustment Bill had been drafted and announced well before the Administration’s decision was made known to the staff side. The complainant contends that the Government’s hasty decision to cut civil service pay deprived in effect civil service unions of the right to participate in determining the remunerations of civil servants, contrary to Article 4 of Convention No. 98 and Article 7 of Convention No. 151.
   • Refusal to settle the dispute
7. 284. The complainant adds that the staff side of the Senior Civil Service Council wrote to the Chief Executive on 31 May 2002 requesting the setting up of an independent committee of inquiry under the 1968 Agreement between the Hong Kong Government and the main staff associations, to deal with the dispute over this year’s civil service pay adjustment (copy attached). This request was supported by a total of 67 civil service unions in a joint statement of 5 June 2002, in which they undertook that they would accept the outcome of the inquiry (copy attached). The complainant explains that according to clause 7 of the 1968 Agreement, a committee of inquiry can be appointed by the Chief Executive where there are no prospects of reaching agreement on a matter within the scope of the Agreement, provided that the matter in dispute is not, in the opinion of the Chief Executive, trivial, or a matter of settled public policy, or affects the security of the HKSAR. The complainant adds that on 11 June 2002 the Chief Executive decided not to appoint a committee of inquiry under the 1968 Agreement because, as indicated in his reply, he was of the opinion that it was a matter of settled public policy that in determining the size of each year’s civil service pay adjustment, the Government took into account certain factors, some of which, such as the Net Pay Trend Indicators and the cost of living, were capable of upward and downward movements. Thus, according to the Chief Executive, it was inherent in the existing mechanism that civil service pay may be increased or decreased (copy attached).
8. 285. The complainant considers this argument unacceptable because as conceded by the Government, under the existing employment contracts of most serving civil servants, the Government had no authority to reduce civil service pay unilaterally. The complainant quotes the Secretary for Civil Service (SCS) as saying before the Legislative Council on 5 June 2002 that the standard memorandum on conditions of service and the employment contracts of most serving civil servants (except for a very small number of officers recruited since June 2000) do not contain any express provision authorizing pay reduction by the Government and, on the basis of decided cases, the courts are unlikely to accept that a general power of variation could apply to such a fundamental term as the salary. The complainant alleges that it is therefore disputable whether the Government could reach a pay reduction decision unilaterally. Consequently, according to the complainant, the Chief Executive’s decision against the appointment of a committee of inquiry under clause 7 of the 1968 Agreement on the ground that the matter in dispute is a matter of settled public policy is unsubstantiated.
9. 286. With regard to the Government’s legislative approach to reduce civil service pay, the complainant notes that the Chief Executive argued that the decision to give effect to the 2002 civil service pay adjustment by legislation was a matter of implementation of a settled policy, and that whether this decision could have been implemented without legislation or whether the proposed legislation was constitutional, were questions of law which a committee of inquiry would not be able to resolve. According to the complainant, the Government’s argument that a legislative approach was but a technical means to implement the decision of pay reduction was unconvincing because it ignored its far-reaching implications on the existing regime regulating civil service pay. Prior to the enactment of the Public Officers Pay Adjustment Ordinance, civil service pay was not governed by legislation and was purely a matter of contractual relationship between the Government and civil servants. Since the enactment of the Ordinance represented a departure from the existing regime and a significant change in the conditions of service affecting all civil servants, the Government was obliged, on the basis of general legal policy on contractual relationships, to negotiate with civil service unions with a view to reaching an agreement; in the event that an agreement could not be reached, the matter in dispute should be referred to a committee of inquiry appointed under the 1968 Agreement. Consequently, the complainant contends that a legislative approach to reduce civil service pay is not a matter of settled public policy, and the Government’s refusal to appoint a committee of inquiry under the 1968 Agreement constitutes a breach of the terms of a collective agreement between the Government and the main civil service unions.
10. 287. The complainant alleges that although some Legislative Council members urged the Government to reconsider the staff sides’ request for the appointment of a committee of inquiry under the 1968 Agreement, the Government maintained its stance, pointing out that despite the undertaking by 67 civil service unions to accept the outcome of the inquiry, individual civil servants would not be bound by the recommendations of a committee of inquiry. Moreover, the SCS stated before the Legislative Council on 11 July 2002 that negotiations with civil service unions were obstructed by the existence of 300 civil service unions and 180,000 civil servants, and the impossibility to draw up a new agreement with each one of them. The complainant points out that this is exactly the reason why collective bargaining machinery, with provisions laying down objective procedures for determining the representative status of civil service unions for bargaining purposes, is essential to the good management of the civil service. Thus, the complainant suggests that the only proper way to address this problem would be to introduce legislation to give legal effect to the 1968 Agreement instead of abandoning it altogether as the Government did. The complainant is also of the view that the present impasse is evidence of the Government’s failure to take necessary measures to encourage and promote the full development and utilization of machinery for negotiation of terms and conditions of employment of civil servants with civil service unions.
11. 288. In conclusion, the complainant alleges that the Government’s refusal to extend the consultation period despite repeated calls from civil service unions for continued dialogue to resolve the differences, and its turning down of the request to refer the matter to an independent committee of inquiry, constituted a violation of Article 8 of Convention No. 151.

B. The Government’s reply

1. 289. In its communication dated 8 March 2004, the Government indicates that it does not consider that there is any violation of Conventions Nos. 98 and 151 in relation to the 2002 civil service pay adjustment.
   • Unilateral reduction of civil service pay without negotiations
2. 290. The Government first provides information on the civil service pay policy and system, the objective of which is to offer sufficient remuneration to attract, retain and motivate staff of a suitable calibre to provide the public with an effective and efficient service. In this framework, the principle of broad comparability with the private sector is an important factor and has underpinned civil service pay policy since the 1960s. As of 1974, broad comparability with pay movements in the private sector has been assessed annually through a Pay Trend Survey. The Pay Trend Survey is carried out by the independent Pay Survey and Research Unit. The results are analysed and validated by the Pay Trend Survey Committee which comprises representatives from the staff sides of the central consultative councils. The survey produces a Gross Pay Trend Indicator for each salary band, which represents the weighted average pay adjustment for all surveyed employees in the respective salary band during the survey period (from 2 April of the previous year to 1 April of the survey year). Following validation by the Pay Trend Survey Committee, the Gross Pay Trend Indicators are submitted to the Government, which in turn deducts the payroll cost of civil service increments to produce the Net Pay Trend Indicators for each salary band. The Net Pay Trend Indicators form one of the factors which the Government takes into account in determining the size of the annual civil service pay adjustment. Under the prevailing mechanism, the Government decides on the size of the annual civil service pay adjustment having regard to six factors (Net Pay Trend Indicators, state of the economy, budgetary considerations, cost of living, pay claims of the staff sides of the central consultative councils and civil service morale).
3. 291. The Government adds that in accordance with the established procedures, the Government consults the staff sides of the central consultative councils in the course of the annual civil service pay adjustment exercise. In the first place, the staff sides are represented on the abovementioned Pay Trend Survey Committee which validates the findings of the Pay Trend Survey. Moreover, following the validation, the Government invites the staff sides to submit their pay claims for that year. In the light of the staff sides’ pay claims and other relevant factors, the Chief Executive in Council then takes a view on the pay offer to be made to the staff sides. Finally, taking account of the staff sides’ comments on the Government’s pay offer and other relevant factors, the Chief Executive in Council makes a final decision on the pay adjustment for that year.
4. 292. With regard to the 2002 civil service pay adjustment in particular, the Government indicates that when the 2001-02 Pay Trend Survey was released on 6 May 2002, its results were a decrease in the Gross Pay Trend Indicators for the three salary bands (-3.39 per cent for the upper band, -0.60 per cent for the middle band and -0.79 per cent for the lower band). The Pay Trend Survey Committee discussed and validated the findings of the Survey on 13 May 2002. The results were submitted to the Government which deducted, in accordance with the established mechanism, the payroll cost of civil service increments from the Gross Pay Trend Indicators to produce the Net Pay Trend Indicators as follows: -4.42 per cent for the upper salary band, -1.64 per cent for the middle salary band and -1.58 per cent for the lower salary band. The staff sides of the four central consultative councils were invited to submit their pay claims. Three of them, namely, the Senior Civil Service Council (SCSC), the Model Scale 1 Staff Consultative Council (Mod 1 Council) and the Disciplined Services Staff Consultative Council (DSCC) submitted their claims to the Government on 15 May 2002, urging the Government to freeze civil service pay for all salary bands despite the negative pay trend indicators. The staff side of the Police Force Council (PFC) decided not to submit a pay claim.
5. 293. At the meeting of the Executive Council on 22 May 2002, it was decided, among other things, that an offer of a pay reduction of -4.42 per cent for the directorate and the upper salary band, -1.64 per cent for the middle salary band and -1.58 per cent for the lower salary band should be put to the staff sides of the four central consultative councils. The Chief Executive in Council also gave its agreement in principle to a draft Public Officers Pay Adjustment Bill to implement the proposed pay reduction. The Government specifies that in coming to this decision, the Chief Executive in Council took full account of the relevant considerations under the prevailing mechanism for civil service pay adjustment, including: (1) the Net Pay Trend Indicators which showed a downward trend; (2) the state of the economy which underwent a distinct downturn in 2001 and remained modest in 2002 with unemployment reaching a new high of 7 per cent; (3) budgetary considerations: the Government faced a structural fiscal deficit problem of HK$65.6 billion for 2001-02 and HK$45.2 billion for 2002-03 and set the target of reducing public expenditure to 20 per cent of gross domestic product by 2006-07; (4) changes in the cost of living: the composite consumer price index had declined by 1.8 per cent by 31 March 2002; (5) the staff sides’ pay claims urging the Government to freeze civil service pay; and (6) civil service morale.
6. 294. The Government attaches the text of a brief submitted to the Legislative Council in which these elements are analysed. The contractual implications of the adjustment are also carefully analysed in the brief, which provides that since the standard Memorandum on Conditions of Service (governing the employment arrangements for a civil servant) does not expressly reserve for the Government the right to reduce the salaries of civil servants, there is a risk that a decision to reduce civil service pay without legislation will be subject to a successful legal challenge; thus, the Government should seek the enactment of legislation to provide for an express reduction of civil service pay at the specified rates of adjustment for different salary bands. The text of the Public Officers Pay Adjustment Bill is attached to the brief, which is dated 22 May 2002, as its Annex A.
7. 295. The Government adds that on 22 May 2002, the staff sides of the central consultative councils were informed of the Chief Executive in Council’s decision and were invited to provide their views on the pay offer. In response, the staff sides of three consultative councils (SCSC, Mod 1 Council and DSCC) reiterated that a pay freeze would be appropriate. On 28 May 2002, the Executive Council decided that the Government should adjust civil service pay as originally proposed, and that the Public Officers Pay Adjustment Bill should be introduced into the Legislative Council. The Government adds that in coming to this decision the Chief Executive in Council took full account of the views of the staff sides of three central consultative councils (SCSC, Mod 1 Council and DSCC) as well as all the other relevant factors (the Government attaches the second brief to the Legislative Council dated 28 May 2002, in which consideration is given to these factors).
8. 296. The Government adds that following approval by the Chief Executive in Council, the Public Officers Pay Adjustment Bill was published in the Gazette on 31 May 2002 and introduced into the Legislative Council on 5 June 2002. Interested bodies, including the staff sides of the central consultative councils and the major service-wide staff unions, were invited to give their views on the Bill which was passed by the Legislative Council on 11 July 2002. The Public Officers Pay Adjustment Ordinance was published in the Gazette on 19 July 2002 (text attached).
9. 297. The Government adds that after the enactment of the Public Officers Pay Adjustment Ordinance, a number of civil service staff unions and individual civil servants applied to the court for judicial review regarding the lawfulness of the Ordinance. The Court of First Instance dismissed two lead cases on 10 June 2003 and dismissed the remaining cases on 7 November 2003. The Court did not accept the applicants’ arguments that the Government had not complied with Convention No. 151 and hence had contravened Article 39 of the Basic Law (excerpts attached).
10. 298. In response to the complainant’s allegations, the Government indicates that it has applied Convention No. 98 in full, through a well-established and extensive consultative machinery comprising four central consultative councils and 89 departmental consultative committees in 66 government bureaux and departments. Each central consultative council/departmental consultative committee comprises the official side (representing management) and the staff side (representing the relevant staff unions/associations). Through this machinery, individual civil servants and staff unions/associations are consulted on a wide range of civil service matters concerning, for instance, pay, conditions of service and the working environment. In addition to the formal machinery, informal channels of consultation are in place.
11. 299. As far as civil service pay is concerned, the Government indicates that, as noted above, the established pay adjustment mechanism has built-in procedures for staff consultation and is effective and adequate for the purpose of consulting with staff on matters relating to civil service pay. With regard to the 2002 civil service pay adjustment, the Government emphasizes that the staff sides were able to submit their pay claims which were taken into account by the Chief Executive in Council.
12. 300. As to the application of Article 7 of Convention No. 151, the Government recalls that this Article allows a degree of flexibility in the choice of procedures to be used in the determination of the terms and conditions of employment. The Government therefore holds that in compliance with Article 7, it has taken measures appropriate to the local conditions, and has established the consultative machinery which allows staff representatives to participate in the determination of terms and conditions of employment of civil servants. The pay adjustment mechanism for the civil service allows the staff side representatives to participate in the determination of adjustments to pay. In conducting the 2002 civil service pay adjustment exercise, the Government followed the established procedures for consulting the staff sides. The Court of First Instance rejected any claim that there had been a contravention of Article 7 of Convention No. 151, as the established procedure allowed for the participation of public servants.
13. 301. As to the allegation that meaningful negotiations could not have taken place in such a short period of time, the Government states that there was no material difference in the timetable for staff consultation in 2002 as compared with previous years. The tight timetable was due to the fact that the summer recess of the Legislative Council normally commences in early July.
    • Refusal to settle the dispute
14. 302. The Government indicates that on 31 May 2002, the staff side of the SCSC wrote to the Chief Executive requesting the appointment of a committee of inquiry under clause 7(1) of the 1968 Agreement signed between the Government and the main civil service staff associations (copy attached). After consideration of the request, the Chief Executive decided not to appoint a committee of inquiry and this decision was conveyed in writing to the staff side of the SCSC on 11 June 2002.
15. 303. As to the allegation of violations of Article 8 of Convention No. 151 and the 1968 Agreement, the Government indicates that to come within the scope of Article 8, the dispute must be in connection with the determination of the terms and conditions of employment and not with the method by which terms and conditions, once determined, are implemented. According to the Government, once the magnitude of the pay adjustment has been determined in accordance with machinery which is consistent with Article 7 of Convention No. 151 (through negotiation or other procedures such as mediation, conciliation and arbitration), a dispute as to the implementation of the decision does not fall within Article 8.
16. 304. With regard to the allegation of non-compliance with the terms of the 1968 Agreement between the Government and the main staff associations, the Government indicates that the 2002 civil service pay adjustment has been conducted in strict accordance with the established mechanism and that the final decision on a civil service pay reduction has taken account of all the relevant consideration factors. The Government emphasizes as an inherent feature of the prevailing pay adjustment mechanism, that civil service pay may be increased or decreased as some of the factors taken into consideration such as the Net Pay Trend Indicators and the cost of living are capable of upward and downward movements. The fact that there had been no civil service pay reduction until 2002 was a reflection of the generally favourable fiscal and economic environment over the years and was not an indication of any government policy that civil service pay should not be reduced. According to the Government, the Court of First Instance confirmed that the matter was one of settled public policy. It found that the possibility of a reduction was inherent to the working of the existing mechanism; the use of the latter was so much part of settled policy, that the possibility of a reduction in pay was itself part of settled policy. Thus, the decision to reduce civil service pay had been adopted in accordance with the established mechanism. There was no violation of Article 8 of Convention No. 151 as the established mechanism allowed for the participation of public servants. At this stage, the remaining issue in dispute were the methods through which the decision would be implemented, and this issue did not belong to the competence of the committee of inquiry.
17. 305. As to the question of implementing the 2002 civil service pay adjustment by legislation, the Government considers that this was a matter of implementation of a settled policy and that the committee of inquiry would be unable to resolve such a question. It was incumbent on the Government to implement with certainty and in a fair manner a decision which was generally supported by the community. The Court of First Instance confirmed that this matter of implementation was not encompassed within Article 8 of Convention No. 151. The Government adds that the allegation that the legislative approach is a significant departure from the existing regime regulating civil service pay is unfounded. The Public Officers Pay Adjustment Ordinance was related only to the pay adjustment and did not change the system of pay or the conditions of service for the civil servants.
18. 306. The Government further adds that even if a committee of inquiry had been set up, its recommendations would not be binding on the Government or the staff associations - parties to the 1968 Agreement - unless accepted by them. Moreover, they would not be binding on staff associations which were not parties to the 1968 Agreement or to individual civil servants. Finally, given that under clause 7(2) of the 1968 Agreement the decision of the Chief Executive on this matter shall be final, the latter was entitled to form the opinion that the 2002 civil service pay adjustment exercise was a matter of settled public policy and accordingly not to appoint a committee of inquiry.
19. 307. As to the allegation that the Government has failed to encourage and promote the full development of machinery for negotiation of terms and conditions of employment of civil servants, the Government states that there is no question of the Government abandoning the 1968 Agreement and that it has taken measures appropriate to local conditions for handling matters concerning the terms and conditions of employment of civil servants in compliance with Conventions Nos. 98 and 151.
20. 308. In conclusion, the Government notes that given the economic climate prevailing in 2002, the stringent fiscal situation and the pay adjustment trend in the private sector, its decision to reduce civil service pay was reasonable and struck a balance between the concerns of civil servants and the wider interests of the community as a whole. The adjustment exercise was conducted in accordance with the established mechanism and procedures, in compliance with Conventions Nos. 98 and 151.

C. The Committee’s conclusions

1. 309. The Committee notes that this case concerns allegations that by enacting the Public Officers Pay Adjustment Ordinance in 2002, the Government unilaterally reduced civil service pay without proper negotiations with civil service unions and refused to settle the dispute over pay adjustment through continued dialogue or through a committee of inquiry, as provided in the 1968 Agreement between the Government and the main staff associations.
   • Unilateral reduction of civil service pay without negotiations
2. 310. The Committee takes note of the facts on which both the complainant and the Government agree. The annual civil service pay adjustment is decided on the basis of six factors (Net Pay Trend Indicators, state of the economy, budgetary considerations, cost of living, staff sides’ pay claims and civil service morale). In the context of the standard procedure for determining civil service pay for the year 2002, on 6 May 2002 the Pay Trend Survey was released. This survey constitutes an important step in determining civil servants’ pay adjustment because it produces the private sector Gross Pay Trend Indicators from which the public sector Net Pay Trend Indicators will be deduced. In 2002, the survey’s results were a decrease in the Gross Pay Trend Indicators. On 13 May 2002 the results of the Pay Trend Survey were validated by the Pay Trend Survey Committee with the participation of the staff sides of the central consultative councils. The results were submitted to the Government which produced, in accordance with the established mechanism, the Net Pay Trend Indicators as follows: -4.42 per cent for the upper salary band, -1.64 per cent for the middle salary band and -1.58 per cent for the lower salary band. On 15 May 2002 the staff sides of three out of four central consultative councils (namely, the Senior Civil Service Council (SCSC), the Model Scale 1 Staff Consultative Council (Mod 1 Council) and the Disciplined Services Staff Consultative Council (DSCC)) submitted their claims to the Government, urging the latter to freeze civil service pay. On 22 May 2002 the Executive Council decided to make an offer of pay reduction at a rate identical to the decrease in that year’s Net Pay Trend Indicators. The Government also decided on the same day that the reduction in civil service pay should be implemented through legislation. The text of the Public Officers Pay Adjustment Bill was annexed to the Legislative Council brief of the same date. As explained in the brief, the adoption of legislation was necessary because the civil servants’ Memorandum on Conditions of Service and case law did not allow for a unilateral reduction of a fundamental term of the employment contract like the salary. On 25 and 26 May 2002 the staff sides of three out of four central consultative councils (SCSC, Mod 1 Council and DSCC) objected to the salary reduction and the draft Bill, and proposed in essence to maintain the status quo. On 28 May 2002 the Chief Executive in Council decided that this year’s civil service pay should be reduced as originally proposed (i.e., without any modifications) and that such reduction should be implemented through legislation. On 5 June 2002 the Public Officers Pay Adjustment Bill was introduced in the Legislative Council. On 11 July 2002 the Bill was passed by the Legislative Council. On 19 July 2002 the Public Officers Pay Adjustment Ordinance was published in the Gazette. On 10 June 2003 and 7 November 2003, the Court of First Instance rejected certain applications for judicial review regarding the lawfulness of the Ordinance. The Court did not find any violation of Convention No. 151 as the established procedure allowed for the participation of the staff sides.
3. 311. The Committee notes that according to the complainant, although there is a long-established consultative machinery within the civil service, the role of civil service unions in determining the remuneration of civil servants is rather marginal and there is no negotiation in the ordinary sense between the Government and civil service unions over civil service pay. According to the complainant, during the 2002 civil service pay adjustment exercise, there were no meaningful negotiations given the short period of time left (one week) between the pay offer and the final decision made by the Chief Executive in Council as to the pay adjustment. Moreover, the Public Officers Pay Adjustment Bill had been drafted and announced well before the Administration’s decision was known to the staff side. The Committee notes that according to the Government, the available, well-established and extensive consultative machinery is both effective and adequate for the purpose of consulting with staff on matters relating to civil service pay, in conformity with Article 4 of Convention No. 98 and Article 7 of Convention No. 151. This mechanism allows the staff sides of the central consultative councils to be represented on the Pay Trend Survey Committee, to submit their pay claims which are taken into account when the Chief Executive in Council makes a pay offer, and to make comments on the Government’s pay offer which are taken into account when making the final decision on the pay adjustment. As to the 2002 civil service pay adjustment exercise, the Government indicates that it was conducted in strict accordance with the established mechanism. The staff sides were able to submit their pay claims which were taken into account by the Chief Executive in Council. The final decision on the civil service pay reduction took account of all the relevant consideration factors. The timetable for staff consultation was the same as in other years and was determined by the fact that the summer recess of the Legislative Council normally commences in early July.
4. 312. The Committee notes that public employees are subject to the consultation mechanism in place, while those of them who are not engaged in the administration of the State cannot engage in collective bargaining. The Committee recalls that a distinction should be drawn between those public employees who are engaged in the administration of the State, who can be excluded from the scope of Convention No. 98 on the basis of Article 6, and those who are not engaged in the administration of the State and who should enjoy collective bargaining rights in accordance with Article 4 of Convention No. 98. The Committee emphasizes that it is imperative that the legislation contain specific provisions clearly and explicitly recognizing the right of organizations of public employees and officials who are not acting in the capacity of agents of the state administration to conclude collective agreements. From the point of view of the principles laid down by the supervisory bodies of the ILO in connection with Convention No. 98, this right could only be denied to officials working in the ministries and other comparable government bodies but not, for example, to persons working in public undertakings or autonomous public institutions [see Digest of decisions and principles of the Freedom of Association Committee, 4th edition, 1996, para. 795]. The Committee notes the complainant’s suggestion that legislative measures could include objective procedures for determining the representative status of civil service unions and recalls that in Case No. 1942 it had requested the Government to give serious consideration to the adoption of legislative provisions laying down objective procedures for determining the representative status of trade unions for collective bargaining purposes which respect freedom of association principles. The Committee finally takes note of the latest observation made by the Committee of Experts on the Application of Conventions and Recommendations in which the Government is requested to take all necessary measures so as to guarantee the right of public employees who are not engaged in the administration of the State, to negotiate collectively their conditions and terms of employment [see Report of the Committee of Experts on the Application of Conventions and Recommendations, ILC, 92nd Session, 1994]. The Committee therefore requests the Government to engage in consultations with the staff sides of the central consultative councils without delay with a view to taking the appropriate legislative measures so as to establish a collective bargaining mechanism allowing public employees who are not engaged in the administration of the State, to negotiate collectively their terms and conditions of employment in accordance with Article 4 of Convention No. 98, applicable in the territory of China/Hong Kong Special Administrative Region without modifications. The Committee requests to be kept informed of developments in this respect.
5. 313. With regard to the other category of public employees (those engaged in the administration of the State who have been excluded from the scope of Convention No. 98 under Article 6), the Committee considers it useful to recall that, under the terms of the Labour Relations (Public Service) Convention, 1978 (No. 151) (Article 7) "Measures appropriate to national conditions shall be taken, where necessary, to encourage and promote the full development and utilisation of machinery for negotiation of terms and conditions of employment between the public authorities concerned and public employees’ organisations, or of such other methods as will allow representatives of public employees to participate in the determination of these matters." The Committee acknowledges that Article 7 of Convention No. 151 allows a degree of flexibility in the choice of procedures to be used in the determination of the terms and conditions of employment [see Digest, op. cit., para. 923] Thus, a mechanism of consultations might enable public employees engaged in the administration of the State to participate in the determination of their terms and conditions of employment.
6. 314. The Committee observes that during the 2002 civil service pay adjustment exercise, the period of consultations lasted two weeks, from 15 May 2002 when the staff sides of the three central consultative councils proposed a pay freeze, to 28 May 2002 when the Chief Executive in Council decided that this year’s civil service pay should be reduced as originally proposed; moreover, the final decision was adopted only one week after the Government had made its initial pay offer and two to three days after the staff sides of the central consultative councils had made their counter-proposals. The outcome of the consultations was that the Government decided to maintain the original pay reduction without any modification despite categorical opposition from the staff sides. The pay reduction was identical to the decrease in that year’s Net Pay Trend Indicators, although additional factors were to be taken into account in this framework, in particular, the claims of the staff sides of the central consultative councils. It also emerges from the brief to the Legislative Council dated 22 May 2002, that the Public Officers Pay Adjustment Bill had already been drafted on 22 May 2002 when the staff sides were informed of the pay reduction offer. On the basis of these elements, it appears to the Committee that the consultations which took place during the 2002 civil service pay adjustment exercise seemed to be perfunctory.
7. 315. As the national system in place in the framework of Convention No. 151 relies on consultations rather than negotiations, the Committee emphasizes the need for genuine in-depth consultations with public employees’ organizations. The staff sides of the central consultative councils should be invited to talks with adequate advance notice and should be allowed sufficient time for consultations on their conditions of employment. They should also be consulted at sufficient length by the authorities on matters of mutual interest, including everything relating to the preparation and application of legislation concerning their terms and conditions of employment; this would contribute to more solidly founded legislation, programmes and measures that the public authorities have to adopt or apply, and to greater compliance and better implementation. The Government should, as far as possible, also aim at reaching agreement with the staff sides of the central consultative councils. The Committee expects that the staff sides of the central consultative councils will be allowed in the future to engage in full and frank consultations with the Government over the terms and conditions of employment of public employees who are engaged in the administration of the State in accordance with Article 7 of Convention No. 151, applicable in the territory of China/Hong Kong Special Administrative Region without modifications.
   • Refusal to settle the dispute
8. 316. With regard to allegations concerning the Government’s refusal to settle the dispute, the Committee takes note of the facts on which both parties agree. On 31 May 2002 the staff side of the SCSC wrote to the Chief Executive requesting the setting up of an independent committee of inquiry under the 1968 Agreement between the Government and the main staff associations, to deal with the dispute over this year’s pay adjustment. According to clause 7 of the 1968 Agreement, a committee of inquiry can be appointed by the Chief Executive where there are no prospects of reaching agreement on a matter within the scope of the Agreement, provided that the matter in dispute is not, in the opinion of the Chief Executive, trivial, or a matter of settled public policy, or a matter which affects the security of the HKSAR. On 5 June 2002, the request for the committee of inquiry was supported by a total of 67 civil service unions in a joint statement. On 11 June the Chief Executive decided against the appointment of a committee of inquiry on the ground that it was a matter of settled public policy that in determining the size of each year’s civil service pay adjustment, the Government took account of certain factors, some of which (Net Pay Trend Indicators, cost of living) were capable of downward movements and it was therefore inherent in the existing mechanism that civil service pay may be increased or decreased. Since civil service pay adjustment was a matter of settled policy, the decision to implement such adjustment through legislation was a matter of implementation of a settled policy and a committee of inquiry would be unable to resolve the questions of law as to whether this decision could have been implemented without legislation. On 10 June 2003 and 7 November 2003, the Court of First Instance found that the issue in question was one of settled public policy because the possibility of reducing civil service pay was an inherent feature of the established procedure for civil service pay adjustment. The Court did not find any violation of Convention No. 151 because the established pay adjustment procedure allowed for the participation of the staff sides. At this stage therefore, the only issue in dispute concerned the methods through which the decision would be implemented, and this matter did not belong to the competence of the committee of inquiry.
9. 317. The Committee notes that according to the complainant, the Government’s refusal to extend the consultation period and its turning down of the request to refer the matter to an independent committee of inquiry, constituted a violation of Article 8 of Convention No. 151 which provides that the settlement of disputes arising in connection with the determination of terms and conditions of employment shall be sought, as may be appropriate to national conditions, through negotiation between the parties or through independent and impartial machinery, such as mediation, conciliation and arbitration, established in such a manner as to ensure the confidence of the parties involved. The Committee notes that the Government indicates that on the contrary, the dispute did not come within the scope of Article 8 because it was not related to the determination of the terms and conditions of employment but to the method by which terms and conditions are implemented once determined. Thus, according to the Government, the Chief Executive had the authority under clause 7 of the 1968 Agreement to refuse the appointment of the committee of inquiry.
10. 318. The Committee notes that there has been a dispute between the Government and the staff sides of three central consultative councils over the decision to reduce civil service pay. The Committee observes that the Court of First Instance examined the dispute primarily from the point of view of whether a reduction in pay was possible on the basis of the established procedure. The Committee is of the view that the essential issue in dispute in this case was not so much whether civil service pay could be reduced, but whether it could be reduced without genuine consultations. The Committee observes that the Court of First Instance did not examine this issue, confining itself to noting that the established pay adjustment procedure allowed for the participation of the staff sides. It appears to the Committee therefore, that an essential issue in dispute has not been settled; an examination of this issue would fall squarely within the scope of Article 8 of Convention No. 151. The Committee is of the view that by not bringing this dispute before the committee of inquiry in accordance with the 1968 Agreement, the Government avoided the procedure in place for the settlement of disputes, putting a unilateral end to it, in violation of Article 8 of Convention No. 151 and Article 4 of Convention No. 98. Given the time which has elapsed since the 2002 civil service pay adjustment exercise, the Committee considers that it would not be realistic to insist at this stage on the appointment of the committee of inquiry. Nevertheless, the Committee expects that the authorities will accept in the future the appointment of the committee of inquiry provided in the 1968 Agreement between the Government and the main staff associations, in case of dispute over the determination of the terms and conditions of employment of public employees.
11. 319. In light of the recurrent and serious issues involved in recent cases concerning China/Hong Kong Special Administrative Region, the Committee reminds the Government that it may avail itself of the technical assistance of the Office so as to bring its law and practice into full conformity with freedom of association standards and principles.