In 1996, Ghazi Kraytem, general manager
and part-owner of Soliver, found
himself in a tight spot. A manufacturer
of glass bottles, Soliver was facing all the
difficulties afflicting local industry: high real
costs, high domestic and regional tariff
barriers, corruption and a slipping economy.
But for Soliver things were more acute.
Competition in the Gulf, its main export
market, had been growing “astronomically,” says Kraytem. In two years, industrial
capacity for glass bottles there grew 600%
while demand was barely growing. “We
got hit pretty bad,” he says. “Our competition
was selling to our customers at 25% less than
our cost.” Making matters worse was the
impact plastic containers were having on
the glass bottle market. Bottles made from
PET (polyethylene terephthalate) have
become favorites of soda and bottled water
producers, because the material offers glass-
like clarity but won’t break like glass and its
lightness makes transportation cheaper.
These factors made Soliver’s future
prospects unappealing. “We had a choice of
either closing down,” says Kraytem, “or
meeting the challenge.” In order to become
competitive, both locally and internationally,
Soliver had to cut costs, replace its outdated,
labor-intensive manufacturing equipment and invest $14 million in new
high-tech machinery.
But just hold on a minute there. What was
that first bit? Cut costs? Isn’t cutting costs
just a euphemism for laying off workers, for
firing people? In Lebanon eliminating old
machinery and investing in new equipment
is fine, but firing people, that’s a different
story. And for Soliver, it was. While the
company faced no interference with its resolution to upgrade its operations, the firm’s
“reluctant” decision to lay off 70 workers
attracted a lot of government attention.
“When we informed the ministry of
labor,” says Kraytem, “they said we could
lay off workers, but not as we wanted to.”
Instead, after talks with the prime minister
and pressure from the ministry, Kraytem
says that Soliver was required to pay $1 million
in compensation for its 70 workers, on
top of their end-of-work indemnities. In
return Soliver was given promises, such
as protection from imports, lower utility and
fuel costs. “We even had a written contract
with the ministry of labor, but nothing
came of it,” he says. And what infuriated
Kraytem even more was that many of the
laborers Soliver hired were not needed in the
first place – they were employed as a result
of political pressure.
Soliver’s case is not unusual; it’s just one of
a few companies willing to go on record
about the issue. Indeed, Kraytem says he
knows of many other companies that were
forced to hire unnecessary workers and pressured
to keep them when times got tough.
The case neatly illustrates what most
industrialists or managers of any other
labor-intensive operations know: keeping staff on,
even if they are redundant, is considered
an unwritten law in Lebanon. And
implicit in this law is the understanding
that if you fire staff, it will cost you.
We say unwritten because the labor law
itself does not encompass such a meaning.
Katia Bou Assy, an attorney at Moghaizel
Law Offices, argues that the Lebanese
labor law is quite clear. “The employer or
the employee can terminate the agreement
at any time provided the conditions are
complied with,” she says. Those conditions?
Firstly, an employee should not
be dismissed unfairly. For example, notice
must be given. An employee with less than
three years’ service at a company must be
given one month’s notice, between three to
six years requires two months, between six
and 12 years three months, and finally
more than 12 years’ service requires a less
than onerous four months. Alternatively, if
the employer is particularly keen for the
employee to go, it can choose to pay in lieu
of giving notice.
Other cases of unfair dismissal include firing
someone because of membership in a
workers’ union or because the employee has
filed legal action against the employer in
order to oblige the employer to conform to
applicable laws. Finally, the employer
can’t fire a worker who is a board member
of a union; in this case the employer must
apply to the labor court, which will in turn
make the decision.
So what about a legal dismissal? By law,
if the employee is incompetent, he or she
can be fired without notice as long as the
employee is given a minimum of three
warnings or if the employee’s negligence
causes damage to the employer. In the latter
case, the employer should inform the
ministry of labor within three days of
becoming aware of the negligence before
firing the employee. If the employee is
absent from work without a legal excuse for
more than 15 days in one year, or seven days
consecutively, the employer can also fire
without notice.
But perhaps the most important clause in
the labor law has to do with terminating
employment based on a company’s financial
difficulties. The law states that a firm can lay
off employees if it is facing financial trouble,
in other words, if keeping workers
would impair or jeopardize the company’s
survival, or if it needs to upgrade technology,
operating or manufacturing systems,
a process that may involve laying off
employees. This is critical: If a company is
not free to cut costs and upgrade during a
recession and as a consequence it folds,
many more would be hurt than the few targeted
to lose their jobs.
In order to lay off employees under this
clause, the employer has to inform the
ministry of labor of those he intends to let
go and the ministry will act as a third party
between the employer and the employee to
negotiate the level of compensation.
Again, according to the law, the level of
compensation is clear. The employer is
required to pay anywhere from two to 12
months of salary in compensation; the court
determines the amount of compensation by
taking into account things like the employee’s
age, years of service and health.
But this is in theory. Nicholas Nahas is a
shareholder and director of Sibline, one of
Lebanon’s largest cement manufacturers and an employer of about 400 people. He
argues the reality is quite different and that
companies often pay much more compensation
than is stipulated under the law,
thanks to interference from the ministry of
labor. The reason, says Nahas, was the
high-inflation period during and after the
war. When inflation was sky-rocketing, at
times the lira dropped 30% a day against the
dollar, the ministry of labor was made
responsible for determining the dollar-
pound exchange rate; in effect, the amount
of compensation to be paid. The problem
with this, says Nahas, is that it opened the
window for the ministry to apply a greater
degree of influence on the private sector in
terms of employee compensation.
Additionally, Nahas argues that once the
economy had stabilized, the established
system continued.
The reason the ministry of labor has continued
to exercise influence over employer-employee
relations is not so much to do with
the simplistic and outdated belief that private
companies are merciless and out to rip
off workers given the chance, but more to
do with the deficiencies of the Lebanese
state. Since the government has not seen fit
to establish a welfare system that provides
unemployment benefits and job search services,
the ministry of labor has been forced
to act as a quasi-department of social security
at the expense of the private sector.
Fares Saad, the head of work force relations
at the ministry of labor, is unabashedly
direct about the ministry’s unofficial
role. “We cannot force any company not to
dismiss an employee; the Lebanese labor
law is clear on this point. But the first thing
we do when an employer wants to lay off
staff is to try to ensure [via negotiations with
the employer] the continuity of work, to
keep them at work,” says Saad. “For example,
if the owner wants 12 employees to go, we try to lower that to eight or less and ask
the employer to transfer the others to different
positions.” Negotiations don’t end
there, however. “If that doesn’t work,”
says Saad, “when we discuss the level of compensation with the business owners,
we try to ensure that the employee is given
more compensation than 12 months’
salary. Why? Because we can’t always
find vacancies at another company for
these employees.”
This is the reality of employer-worker
relations here. “In Lebanon,” says Saad,
“we have no retirement or end-of-service law
while at the same time we have no law for the
people who can’t find a new job. For this reason,
we make the employer pay penalties.”
That statement neatly reveals the conceptual
chasm between government officials
and Lebanon’s private firms. In the
absence of a functioning welfare system, the
ministry of labor wants the private sector to
pay; on the other hand, private companies
and institutions, like their international
counterparts, argue that social security is not
their responsibility.
“We prefer, as the ministry of labor,”
says Saad, “for Lebanese laborers to be
employed for $400 a month than for a foreigner
to be given the job for $150. But the
companies always prefer their profits.”
Indeed. Any manager of a private company
will argue that its number one priority is
delivering growth and profits and that it’s up to
the government to provide the legislative
framework and resources to protect worker
rights and ensure adequate welfare.
The logical extension of this thinking is
the type of labor relations exercised in the
United States, where companies routinely
hire and fire without government interference
and where private sector icons like
IBM, Boeing and Levi Strauss can lay off
tens of thousands of employees under
restructuring programs, a move that is
generally welcomed by investors.
This kind of labor flexibility is possible in
the context of the world’s strongest economy
and a well-developed social security system
originally put in place through lessons
learned during the Great Depression of the
1930s. It’s impossible to argue that this
could happen any time soon in Lebanon.
The bottom line is that with no welfare
system in place and the ministry of labor the
self-appointed guardian of the Lebanese
worker, laying off staff will remain an
expensive and politically difficult exercise
for local firms, which ultimately raises
their costs and undermines efficiency. If private
companies absolutely have to fire
employees on a large scale, they will face
pressure from officialdom. “I’ve lived
through several ministers of labor,” says
Nahas, “and they always have some connections.
It’s politics. So if you need to lay
off 30% of your work force, you never
know what’s going to happen. And I have
stories where it was really painful.”
The result is that a lot of firms try to lay
off carefully and quietly, or just not at all.
The over-staffed banking sector has a few
examples. Bank of Beirut managed to quietly
reduce its staff from 490 to 417 after its
merger with Transorient Bank at the end of
1998, and aims to reach 400 by the end of
2000. Banque Audi, on the other hand, doesn’t
lay off workers. Although it has a reputation
for a high overhead, it has refrained from
hiring new employees to staff its rapid
branch expansion and has instead been
attempting to transfer existing employees to
the new branch positions.
Until the government is in a financial position
to provide some sort of welfare scheme to
the unemployed, local businesses are unlikely
to see a more flexible labor market. So local
business owners or managers will have to grin
and bear the situation or think of new ways to
increase worker productivity, because the
law certainly won’t help them.
