Select Committee on European Union Twenty-Second Report


CHAPTER 5: THE NEED FOR LABOUR LAW REFORM AND THE ROLE OF THE EU

96.  A central theme of the Green Paper is the question of how well frameworks of labour law in Member States deal with people with standard and non-standard work contracts.

97.  The Green Paper asks in particular if there a need for a "floor of rights" covering all workers regardless of the form of their work contract and also whether there ought to be a convergent definition of "worker" in EU directives to guarantee the rights of people working in the EU in Member States other than their own. In addition, the Green Paper asks how minimum requirements concerning the organisation of working time might be modified in order to provide greater flexibility for employers and workers without compromising health and safety.

98.  This chapter considers the views presented to us on the broad framework of UK labour reform, whether there is any need for reform, and what if any role the EU should play in promoting reform. Specific issues related to temporary agency workers and the self-employed are considered in more detail in Chapter 6.

The UK's "targeted approach" to labour law

99.  The Green Paper highlights the UK's so-called "targeted approach" to labour law. This involves a legal distinction between "employees" and "workers". "Employees" are people who work for an employer under the terms of a contract of employment. "Workers" are people who work for an employer whether or not under a contract of employment.[25]

100.  Workers without employment contracts include temporary agency workers, casual workers and some freelance workers but not genuinely self-employed people. Under UK labour law therefore all employees are workers but not all workers are employees, and the genuinely self-employed are not deemed to be "workers". It may be for an Employment Tribunal or higher court to decide a person's contractual status in cases where this may be disputed. Such disputes can be significant to those involved because the rights of employees and workers differ.

101.  All "workers" are entitled to certain rights: equality of opportunities (non-discrimination), the national minimum wage, health and safety, working time entitlements such as paid annual leave, daily and weekly rest breaks, protection against unlawful deductions from wages and the right to be a member of a trade union.

102.  However, certain other rights, including amongst others those relating to unfair dismissal, redundancy and some parental leave rights, are restricted to employees. This is largely because these rights confer entitlements that are considered appropriate only to permanent employment relationships or require a person to have worked for an employer for longer than a specified period of time (or "qualifying period"). By the same token workers do not have the same legal responsibilities as employees (in principle being able to choose when and whether to work etc.).

103.  The UK distinction between employees and workers does not parallel the distinction between the terms "standard" and "non-standard" employment as discussed in the Green Paper. For example, people with part-time employment contracts or working on a fixed-term contract with an employer are employees even though they are non-standard workers. In the UK context it can therefore be misleading to suggest that there is an imbalance of employment rights between "standard" and "non-standard" forms of work. The relevant distinction, to be made in considering any such imbalance, is that between workers and employees.

104.  The DTI informed us of the Government's consultation on the differing legal rights and responsibilities of employees and workers, the results of which were published in the DTI document Success at Work.[26] The Government's conclusion was that the current framework was appropriate, that workers were not unfairly disadvantaged in comparison with employees, and that changes to the framework could damage overall labour market flexibility and employment prospects. The Government acknowledges that some people are denied their legal rights at work, but this is because of abuse or lack of awareness rather than their legal status and thus needed to be addressed by way of better enforcement or better information about existing entitlements rather than changes to the legislative framework. (pp 85-96)

105.  The DTI's conclusion was questioned by the TUC in its written evidence to us which described the distinction between employees and workers as "significant" and argued that there should be a legal presumption that all workers would qualify for the full range of EU and domestic employment rights. Far from harming employers, the TUC contended, equal treatment for all people at work would make non-standard work more attractive and expand the pool of workers available. (pp 52-68)

106.  Despite the TUC's argument, however, on this matter the DTI gained the overwhelming support of all the employer and business organisations from which we took evidence. These gave solid approval to the UK's "targeted approach" to individual employment rights and the restriction of some rights to employees only, which was thought justifiable given the variable levels of responsibilities in different employment relationships. (pp 144-156) In addition, contended the British Retail Consortium, "extending employment rights to 'workers' would not actually deliver employment security because, in our view, true employment security does not come from employment rights." (pp 119-122)

107.  The sole major concern of employers' groups—raised amongst others by the EEF—was that guidance to employers concerning employment status should be as clear as possible and that court decisions based on the existing definitions of employee, worker and self-employed sometimes gave rise to uncertainty. (pp 144-156)

A "floor of rights" for workers?

108.  In view of this it is not surprising that we heard little support for a floor of rights covering all workers. The consensus was that the UK already in effect has a reasonable "floor of rights" covering workers, the main concern on this issue being to ensure that references to such a floor within the Green Paper did not translate into an attempt by the Commission to establish a common floor of rights for workers that would operate across the EU.

109.  The Chartered Institute of Personnel and Development (CIPD)—the UK membership body for professionals working in human resources—told us that it would be "wholly resistant" to any such EU wide floor of rights. (pp 132-137) This was consistent with the views of the DTI, CBI, EEF, FSB, and most other bodies we heard from, that, following the principle of subsidiarity, it should be a matter for individual Member States to decide what, if any, floor of rights should be to reflect their national circumstances. (pp 85-96, pp 16-28, pp 144-156, pp 37-40) As the FSB's Mr Tyrrell told us: "We firmly believe that each state should look after its own in this respect and the role of the Commission should be to deal with cross-border aspects." (Q 100)

110.  This widely held view generally reflected practical considerations, rather than ideological objections to EU intervention. For example, the Law Society described the principle of a floor of rights as "undoubtedly attractive" but concluded "It will be very difficult to provide for measures affecting all workers that will operate successfully in all Member States". (pp 176-179)

111.  The general consensus of opinion was that this left little practical room for EU level regulation but that there was a potential role for the Commission through processes and procedures (such as the Open Method of Co-ordination) to influence what happens in Member States by means of education and the sharing of best practice. This could amount to the application of "soft" EU law although, as written evidence from Catherine Barnard and Simon Deakin of Cambridge University suggested, co-ordination in this way tended to be more effective at influencing employment policies in Member States as opposed to employment law. (pp 113-115)

More convergent definitions of "worker"

112.  The concerns expressed to us about the possibility of the Commission advocating a common floor of rights stemmed, not from anything the Green Paper stated directly on this matter, but rather from references to whether more convergent definitions of worker are needed in EU directives relating to so-called frontier and posted workers, or short-term migrant workers more generally. Frontier workers are those who live in one Member State but work in another, while posted workers are usually people who work for an employer in one Member State but are sent on an assignment to another Member State.

113.  The DTI in its submission to us (pp 85-96) stated that a convergent definition of worker is neither necessary nor practical, a view shared by amongst other the CBI, the EEF and Business Europe. (pp 125-132, pp 16-28, pp 144-156). In her written evidence Liz Lynne MEP warned that "Any definition would be extremely difficult to draft and would inevitably have negative consequences for the flexibility of the UK's labour market." (pp 179-181)

114.  We were told that frontier workers were covered by the law and collective agreements operating in their home country, the terms of which should be left to individual Member States to determine. There is already an EU Directive that adequately dealt with the issue of posted work.[27] Moreover, any differential treatment of workers in these situations was mostly due to cross border differences in tax and social security rules, and the consensus was that the EU should not seek harmonisation on these matters. It was clear that increased migration within the EU, especially of less skilled Central and Eastern Europeans following enlargement, raised new issues. These, however, stemmed mostly from abuse of existing labour laws rather than from an absence of legal rights (a matter we discuss further in chapter 7).

Collective labour law

115.  The TUC and Amicus also questioned the notion of a floor of rights, but from a markedly different viewpoint from that of the employers' organisations. The TUC said it would not generally support the idea because of the risk that it might in effect translate into a "ceiling of rights" leading to a levelling down of current best practice. (pp 108-110, pp 52-68) However, what most concerned the trade unions about the Green Paper was its focus on individual employment rights rather than collective rights, especially since what the unions consider the most progressive model of flexicurity—Denmark's—is based on collective agreements and social dialogue.

116.  This point of view was best summed up in evidence presented to us by the trade union backed Institute of Employment Rights (IER). Its submission stated that "the purpose of labour law is to restore a balance of power in the employment relationship. Flexibility is only a threat if an individualised, segmented workforce is not protected and regulated within a collective framework. Modernisation of labour law to meet the challenges of the 21st century starts with the collective dimension not, as in the Green Paper, with individual employment law." (pp 159-163)

117.  The Law Society took a similar view: "As for changing existing arrangements for employment security the priorities for a meaningful labour law agenda should include giving appropriate emphasis to collective as well as individual rights". (pp 176-179) The TUC agreed, arguing that collective bargaining and worker representation offer the best means of building high trust, high skilled workplaces, in the process improving both working time flexibility and functional flexibility. (pp 52-68)

118.  Ms Hannah Reed, Senior Policy Adviser at the TUC told us that, in its response to the Commission on the Green Paper, the TUC had called for examination of the case for extending collective rights across Europe, particularly in the area of information and consultation in the context of restructuring.

119.  Ms Reed thought this would help prevent what she described as "cornflake redundancies": "Where employers will announce over the radio first thing in the morning that a plant is closing and thousands of jobs will be lost." (Q 113) Mr Reed told us that before any such action was taken employers should be required to consult with trade unions to consider alternative options. Her colleague Richard Exell added that while the TUC was not saying "Let's get off the world, we want it to stop", such consultation helped countries such as Denmark, in the face of the evident challenges of globalisation, by encouraging joint action by unions, employers and government to discuss innovative responses to restructuring. (Q 125)

120.  However, the Employment Minister Mr Fitzpatrick told us that he did not see the Green Paper as an attack on collective bargaining or trade union organisation. Its focus on individual labour law, he said, was merely a reflection of the fact that the Commission "do not have competence to legislate in the area of industrial relations". As for our country, he stated the Government's view that "We think that the collective arrangements that we have in the UK are serving us well". (QQ 155-156) The Minister saw a role for trades unions in helping individuals to benefit from the employment rights introduced by the Government, alongside their role in protecting collective rights. In relation to the latter role, he observed that "Only six and a half million of our 27.28 million people in work are formally members of trades unions affiliated to the TUC, so it is a minority position …" (Q 155)

Small businesses and the "proportionality" of labour law

121.  The degree of regret displayed by the TUC and some others about the underplaying of collective rights in the Green Paper was matched on another matter by the complaint of the FSB about the scant attention given by the Green Paper to the importance of proportionality in labour law. According to Mr Tyrrell from the FSB, this had a significant negative impact on the small business sector. What was proportionate for large organisations with HR departments was not proportionate for small businesses, yet both EU and UK labour law tended to apply a one-size fits all approach. (Q 63)

122.  This raised the possibility of there being a case for small businesses, or at least micro businesses with very few staff, to be exempt from some if not all employment regulations. Professor Shackleton, for example, told us of a recent German reform along these lines: "Businesses with ten or fewer full-time equivalent people are actually exempted from some of the employment protection legislation which is very strong in Germany." (Q 21)

123.  The Employment Minister Mr Fitzpatrick acknowledged the particular problems faced by small businesses and indeed reminded us that statutory trade union recognition procedure does not cover companies with fewer than 20 employees.

124.  Mr Fitzpatrick nonetheless told us that in general circumstances individual employment rights should apply to all workplaces, regardless of size, and said that the Government's priority was to help small employers to cope better with this. He said "We are working very hard with our on-line guidance, with the tools that we are providing through Business Link, with the assistance that we are giving and working hard on the simplification programme and trying to identify those areas where it could be more pressure on small companies and to make life as easy for them as possible." The Minister also mentioned that regulations are now only ever introduced on two dates in the year 1 April and 1 October. (QQ 150, 171)

125.  The view that small businesses were necessarily hard done by when it comes to labour law was, however, challenged by the TUC's Hannah Reed, who told us that employment rights introduced in recent years had benefited employers, large and small, as well as workers "We are not convinced that there is any real evidence at present that the current level of employment law within the UK does impact on the ability of small businesses to compete." (Q 117)

Regulation of working time

126.  Working time in the UK has traditionally been determined by voluntary negotiations between employers and individual employees, sometimes influenced by collective agreements. The EU Working Time Directive[28], first implemented in the UK in 1998, represented a significant departure from this tradition by providing employees with certain basic legal entitlements and protections, covering such matters as a guaranteed minimum number of days of paid leave, required rest periods and a limit of an average of 48 hours on the working week.

127.  The Working Time Directive was adopted primarily on health and safety grounds, though there was an underlying economic rationale for regulating working time based on the assumption that this would be beneficial for productivity. The evidence we heard to support this rationale was mixed.

128.  Professor Shackleton noted that, other things being equal, legal reductions in hours of work would require organisations to hire more staff in order to maintain any given level of output, thereby reducing productivity per worker employed. (Q 8) Mr Meager, by contrast, suggested that other things may not be equal. He pointed to evidence indicating that restrictions on working time provide an incentive to organisations to produce more output from their existing workforce in order to lower unit labour costs rather than take more people on. This was often achieved by means of reducing overtime, which was often worked unnecessarily for reasons of custom and practice in order that employees might benefit from higher rates of pay for overtime hours. (Q 9)

129.  Whatever the merit of this particular argument, there is, however, an opt-out clause to the 48 hour week limit enabling employees to voluntarily work longer. The opt-out clause—which is used relatively more extensively in the UK than in other Member States—has been a source of controversy both within the EU and the UK. The TUC told us they would like the opt-out removed whereas employers' organisations, including the Confederation of West Midlands Chambers of Commerce, stated that for many UK businesses the retention of the opt-out was critical to their ability to remain competitive. (pp 52-68, pp 137-142)

130.  Attempts within the EU to secure removal of the opt-out have to date been unsuccessful—being opposed by the UK government amongst others—but judgements by the European Court of Justice in the cases of SiMAP and Jaeger[29] have, at the very least, opened up consideration of the need for clarification of the 48 hour work limit. The result of these judgements is that time spent "on-call" on an employer's premises constitute hours of work for the purposes of calculating the limit regardless of whether any work is actually done during this time. This has particular implications for such essential services as hospitals and fire-fighting. These issues were covered in greater detail in the European Union Committee's Report HL Paper 67.[30]

131.  The Employment Minister Mr Fitzpatrick told us he was not sure what would happen next on this matter but was adamant that the UK would oppose any attempt to remove the opt-out. He stated that working time is not a health and safety issue for the UK which has a very good health and safety record by EU standards. Moreover, the opportunity voluntarily to choose the opt out preserved employment flexibility for employers and freedom of choice for people in work without reinforcing a long-hours culture: "The vast majority of our people are happy, and companies are happy, and the average hours worked for UK workers since 1997 have come down from 33 to 32 hours. So, we are working less in the UK notwithstanding we do use the opt-out. We will fiercely defend the opt-out, and our European partners know that." (Q 172)

132.  We conclude that the present framework of individual labour law in the UK strikes a fair, efficient and sensible balance between the rights and responsibilities of "employees" and "workers".

133.  We agree with the Government that any change in this framework would create difficulties for employers without providing any substantive advantage to workers and possibly harm employment prospects. The focus of attention should therefore be on informing all workers of their rights and enforcing existing entitlements.

134.  We recognise the important role played by trades unions and collective machinery in helping to ensure people are treated fairly at work, are able to exercise their legal rights, and can make a productive contribution in the workplace. However, we see no need for action at an EU level to alter directly the scope of collective labour law in the UK or other Member States.

135.  We fully appreciate the particular pressures facing smaller businesses in coping with an increasing amount of labour law which may seriously hamper their ability to create jobs and improve their performance. We therefore recommend that the Government should pay serious attention to the concerns of small businesses about the impact of employment protection provisions on their operations. We would not, however, wish to see any groups of workers, including those working in the smallest businesses, left without the employment protection which is afforded to workers in larger organisations.

136.  We do not believe there is need for more convergent definitions of worker in EU directives. We also firmly reject any suggestion of a common floor of rights, although we do not consider this to be the intention of the Green Paper. The UK already provides a sensible floor of rights covering all workers and any changes to this legislative floor should be left for the UK to decide for itself.

137.  We recommend that efforts at EU level to affect the broad frameworks of labour law within Member States should be planned to promote the sharing of experience and good practice, rather than to introduce new legislation.





25   op. cit. page 12 Back

26   DTI publication: Success at Work-protecting vulnerable workers, supporting good employers, March 2006 Back

27   Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services Back

28   Council Directive 93/104/EC of 23 November 1993 concerning certain aspects of the organisation of working time, as amended by Directive 2000/34/EC of the European Parliament and of the Council of 22 June 2000. Back

29   European Court of Justice: Case C-303/98, Sindicato de Médicos de Asistencia Pública (Simap) and Conselleria de Sanidad y Consumo de la Generalidad Valenciana, SIMAP [2000] ECR I-7963; Case C-151/02, Landeshauptstadt Kiel and Norbert Jaeger, Jaeger [2003] ECR I-8389 Back

30   House of Lords European Union Committee Report: The Working Time Directive: a response to the European Commission's Review, April 2004 Back


 
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