House of Lords - European Union - Twenty-Second Report

Select Committee on European Union Twenty-Second Report

CHAPTER 6: ISSUES FOR GROUPS WITHIN THE LABOUR MARKET

138. As well as the broad question of the coverage of employment rights across different workers the Green Paper raises an number of specific issues relating to the contractual employment status of temporary agency workers and the self-employed.

Agency workers

139. The Green Paper asks whether there is a need for greater clarity in so-called "dual employer" relationships given that although agency workers are employed by their employment agency they are hired out to work for a client organisation often alongside that organisation's "regular" staff. Who therefore should be considered the "employer" in such circumstances, and should—as outlined in the proposed but currently dormant Directive on Temporary Agency Workers[31]—agency workers receive "no less favourable treatment" than other people working in the organisations in which they are placed.

140. In this context the Green Paper also examines the case for subsidiary liability in dual or multi-employer relationships (including those between Agencies and their clients as well as in wider sub-contracting relationships) as a way of guaranteeing that workers receive their legal entitlements.

141. The possibility of any change in the law on agency workers is a matter of particular concern to employers in the UK. Although the UK has a relatively small temporary workforce by EU standards it has a relatively large proportion of agency temps (roughly 2% of all employees) working in both the private and public sectors.[32]

142. Agency temps are mainly hired to help organisations meet unexpected fluctuations in demand, undertake short-term assignments or cover employee absence and maternity leave. We were told that improved employment rights for parents and carers were itself a cause of increasing use of agency workers. (Q 95) Agency temps were also sometimes used as a means of providing de facto "work trials" which could lead to permanent employment opportunities. This could therefore be a route via which jobless people could enter, or move in and out of, the labour market. The DTI suggested that as many as one in three agency workers were economically inactive prior to taking up work placements.[33]

143. Evidence presented to us by the Recruitment and Employment Confederation (REC) outlined the current status of temporary agency workers in the UK. These workers were deemed to be employees of their Agency for tax, national insurance and immigration purposes and workers, but not employees, of either the agency or the client employer for who they work. They were thus entitled to the statutory rights given to workers rather than those enjoyed by employees.

144. Our evidence suggested that three main concerns arose from the possibilities raised in the Green Paper: that the status of agency workers might be changed to that of employee of their Agency; that they might be deemed employees of the client employer for whom they work; and that either way agency workers might have to be given the same terms and conditions as regular employees of the employer for whom they work. (pp 192-199)

145. There was a universal consensus in our evidence that the agency should be treated as the primary employer of agency workers. However, while, agreeing with the Green Paper's references to subsidiary liability, the TUC added the rider that the hiring employer should also have joint and several liability for any breaches of employment rights. (pp 52-68)

146. This requirement was disputed by most employers' organisations. Business Europe, for example, commented that subsidiary liability placed a considerable burden on the main contractor in a dual or multi-employment relationship. This was considered a particular problem for small and medium sized businesses which did not have the time or resources to make the necessary checks and were often not in a position to control legal compliance. (pp 125-132)

147. Employers' organisations and the trade unions were also divided on which rights should be accorded to agency workers. In support of adoption of the proposed Temporary Agency Workers Directive, the TUC argued that agency workers in the UK "face discrimination on pay and other basic employment conditions". They referred to DTI estimates that agency workers earn approximately 68% of the earnings of permanent employees. (pp 52-68) It should be noted, however, that the DTI in common with other evidence we have received, pointed out that agency work was not all of low status and low paid. A quarter of agency temps worked in managerial and professional positions and could sometimes earn more than the regular employees they work alongside. (pp 85-96)

148. Despite this the CBI was especially wary of the possibility that the proposed Temporary Agency Workers Directive, as currently drafted, might require employers to offer agency temps the same pay and conditions as regular employees after only six weeks in a job. The CBI's Susan Anderson told us: "That to us does not seem a sensible provision because they will not have the experience, the skills and the competence necessary to the permanent worker employee in the user company." (Q 56)

149. The Recruitment and Employment Confederation (REC) considered the current relationship to be clear to all parties concerned. (pp 192-199) EUROCIETT (the European Confederation of Private Employment Agencies) agreed stating that there was no need for further regulation because existing relationships were already clear and comprehensively regulated by national labour law. (p 156)

150. The argument against change rested primarily on grounds that this would raise the cost of employing agency temps, either directly or indirectly via higher agency fees. The result, it was claimed, would be less agency work and probably lower employment overall since agency temps would not necessarily be replaced by additional permanent employees. This in turn would mean that both employers and agency workers would lose the flexibility that agency work offered and block off the route from unemployment and economic inactivity into the labour market that agency work sometimes provided.

Defining self-employment

151. The Green Paper asks if greater clarity is needed in Member States' legal definitions of employment and self-employment.

152. The starting premise is the possibility that some self-employment is either really "disguised employment" (whereby a person is defined as self-employed simply to reduce tax or national insurance liability) or "economically dependent work" (because the self-employed person works mainly, if not entirely, for one client). Implicit in the Green Paper is the suggestion that because some self-employed people are economically dependent they should be entitled to the same rights as dependent workers, thereby requiring a new legal category of "economically dependent worker".[34]

153. The TUC cited research suggesting that economically dependent work was a growing problem, particularly freelancers who may have been working regularly for one, or a limited number, of employers without employment protection and thus at lower cost to the organisations hiring their services. (pp 52-68).

154. BECTU (the trade union representing freelancers in the audiovisual and live entertainments sectors—excluding performers and journalists), stated in its evidence that many of its members fell into this economically dependent category even though they were taxed as self-employed and/or often had uncertain employment status. According to BECTU "the classic freelance experience is not one of independent choice but of chronic insecurity. They are, unambiguously, economically dependent workers." BECTU thus called for EU Member States to devise new inclusive definitions of "worker", allowing all so defined access to the full range of employment rights, with a statutory presumption of coverage with the burden of proof of employment status placed on the employer rather than on the worker. (pp 123-125)

Employment contracts vs. commercial contracts

155. However, a number of other organisations (including the FSB, the Institute of Interim Management and the Professional Contractors Group Ltd, the latter a representative body for freelance contractors and consultants) took a very different view. These organisations stated that, in considering this matter, it was necessary to distinguish between employment relationships (involving contracts of service) and commercial relationships (involving contracts for services). (pp 37-40) (pp 163-168) (pp 185-189)

156. In practice, in the UK the issue of self-employed status is complicated by the tax authorities sometimes adopting a narrower definition of who is self-employed than Employment Tribunals or courts. However, the consensus view was that the basic legal distinction between employment and self-employment is clear and that any problems arising from particular cases should be left to the UK authorities to resolve without the involvement of the EU.

157. As Mr Meager from the IES put it to us: "It is not clear to me that this is an issue for European labour law. It seems to me that it is an issue for the UK authorities to clarify the definition of self-employment and actually, although it is complicated it is pretty clear already: you have to have several clients, you have to exhibit some choice over when and where to work, you have to provide your own tools and equipment, otherwise there will be a presumption that you are not really self-employed, you are a dependent employee". (Q 26)

158. The Professional Contractors Group, while recognising disguised self-employment as a reality that ought to be combated when identified, argues in its evidence that the notion of "economically dependent work" as referred to in the Green Paper is actually a "red herring" once one distinguishes between employment and commercial contracts (which the Group believed the Green Paper fails to). On this argument, genuinely self-employed people should never be considered dependent and thus entitled to the same rights as workers: people who are either genuinely self-employed are independent. (pp 185-189)

159. The Institute of Interim Management expanded on this same point thus: "Where services are provided by interim/freelance workers under commercial contracts, such contracts are business to business not employment contracts, and therefore do not need employment security of social protection—that is the business risk of entrepreneurship." (pp 163-168)

160. The National Farmers Union took a similar viewpoint: "The Green Paper proposal to apply labour law to all intermediate employment statuses could render ineffective or unlawful many positive economic relationships which are not based on an imbalance of power between the parties but rational allocation of risk and autonomy. In particular, the Green Paper proposal could reduce the flexibility of workers to act as independent agricultural service providers and contractors." (pp 181-183)

161. Business Europe agreed, stating its view that there is no need for a separate category of "economically dependent worker" across Europe and added that it is strongly opposed to explicit or implicit attempts at EU level to harmonise national definitions of employment and self-employment. (pp 125-132)

162. We recommend that in the UK, the agency should continue be treated as the primary employer of agency workers and that agency workers should retain their current status in law. There is no strong case for change in the current regulation of agency work, the existence of which benefits employers, agency workers and the UK economy as a whole.

163. We conclude also that there is no strong case for any change in the definition of employment and self-employment or the extension of employment rights to those deemed genuinely self-employed. We recognise, however, that in the UK the distinction is complicated by tax authorities sometimes adopting a narrower definition of who is self-employed than Employment Tribunals or courts. We recommend that, so far as possible in practice, the Government should clarify this position.

31 Amended proposal for a Directive of the European Parliament and the Council on working conditions for temporary workers-COM (2002) 701. Back

32 DTI Report: Success at Work: Consultation on Measures to Protect Vulnerable Agency Workers, Feb 2007. p.36 Back