Cyprus: General Labour Market Trends And Latest/Likely Trends In Employment Litigation

Introduction and economic background

General

Cyprus is the third-largest island in the Mediterranean Sea, with an area of 9,251 square kilometres. It is strategically located in the Eastern Mediterranean at the crossroads of Europe, Asia and Africa. Its total population is estimated at 1.1 million, of whom approximately 840,000 live in the area controlled by the Republic of Cyprus according to the 2011 census. Up-to-date information for the occupied area is unavailable.

From 1878 to 1960 Cyprus was under British rule and much of its infrastructure and institutions, including its legal system, is still heavily influenced by that legacy. It achieved independence in 1960. The island was invaded in 1974 by the Turkish army and about 37% of the territory remains under Turkish occupation. The so-called Turkish Republic of North Cyprus is recognised only by Turkey, and all the references in this chapter relate to the legitimate government of the Republic of Cyprus. While political uncertainty continues to surround "the Cyprus problem", and it is hoped that there will be a satisfactory resolution in the near future, day-to-day business life is unaffected by the issue.

Cyprus is very well placed as an international business and financial centre. Apart from its strategic geographical location, relaxed way of life and attractive climate, it offers an excellent commercial infrastructure, a highly educated English-speaking labour force, a business-friendly environment, particularly in the area of taxation, a high standard of living and a low rate of crime. Living costs are moderate, while euro-zone membership, good airline connections and telecommunications, and an increasing alignment with the European position in matters of culture and trade make it an effective bridge between West and East. Its time zone is seven hours ahead of New York, two hours ahead of London, one hour behind Moscow and five hours behind Beijing. The official languages are Greek and Turkish, but English is the lingua franca of business.

Modern Cyprus is an independent, sovereign republic with a presidential system of government and a written constitution which safeguards the rule of law, political stability, human rights and the ownership of private property. It has been a member of the European Union since 2004. In preparation for EU membership Cyprus made significant structural and economic reforms that transformed its economic landscape and created a modern, open and dynamic business environment. Since accession, it has successfully faced the challenge of European integration, and has established itself as the natural portal for inward and outward investment between the EU and the rest of the world, particularly the rapidly-growing economies of Russia, Eastern Europe, India and China. Cyprus is a member of the Commonwealth, the Council of Europe, the IMF, the UN, the World Bank and the WTO, and a founder member of the Organization for Security and Co-operation in Europe. On 1 January 2008 Cyprus adopted the euro as its currency. The legal system, modelled on the English common law system, is harmonised with the acquis communautaire of the EU. Cyprus is a signatory to a large number of international conventions and treaties, including an extensive network of more than 50 double taxation treaties.

The Cyprus economy and the labour market

The Cyprus economy achieved enviable progress in the 50 years following independence. The traditional agricultural economy of the early 1960s was gradually transformed into one characterised by a high standard of living, based on tourism, property development and a dynamic financial sector. Per capita income rose from €290 in 1960 to €21,700, representing 89% of the EU average, in 2010.

Throughout the period there was strong growth in the size of the workforce. According to a study by the Central Bank of Cyprus, the workforce increased by an average of 2.4% per year during the period 1960 to 2010. At the same time there was a substantial change in the composition of the workforce, with increased female participation (the proportion of employed women rose from below 50% in the late 1980s to almost 70% by 2010) and an influx of foreign workers, particularly after Cyprus joined the EU. Between 2002 and 2010 the workforce grew by an average 2.7% per year. There was a marked contrast between Cypriot and foreign workers, with the average growth in the number of Cypriot employees being 1.2% and the average increase in foreign workers in the same period being 12.4%. By 2010, more than 21% of the workforce was non-Cypriot.

The quality of the Cyprus workforce, in terms of education and skills, also improved substantially over the period. By 2010 more than 35% of the population had benefited from tertiary education, compared with just over 29% in 2004 and fewer than 10% in 1976. The educational level of the workforce is high by international standards: the 35% tertiary education proportion for 2010 is the highest in the EU and almost 40% higher than the EU average of 25.6%. The improvement in education and skills allowed the economy to diversify into more demanding sectors of economic activity, such as accounting, legal and financial services, with a corresponding decline in agriculture and manufacturing. The decline in agriculture, combined with demand from overseas for second homes, helped fuel a property boom in the years before and following the millennium, adding further fuel to the economy. It is now apparent that much of the economic growth, particularly in the latter years, was unsustainable and that the economy had become unbalanced and over-reliant on certain sectors, particularly property development and construction. In 2012 the government was forced to apply for international financial support and the "bail-in" of March 2013 led to the forced recapitalisation of the island's largest commercial bank and closure of the second-largest, with customer funds in excess of €100,000 being used to recapitalise the banks. Many individuals lost their life savings and retirement provision, and many businesses lost all their reserves.

Even prior to the financial crisis, unemployment had been rising. In 2008 the average number of registered unemployed persons was 11,541: by 2011 it had more than doubled to 28,276 and by February 2014 it had almost doubled again, to 53,204. The general unemployment rate was 16.9% and youth unemployment 39.6%.

Originally published in 'Global Legal Insights – Employment and Labour Law' - third edition – December 2014

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