Memorandum by Professor M R Freedland
FBA and Dr N Kountouris
FLEXIBILITY OF
THE LABOUR
MARKET
1. How flexible is the labour market in the
UK? What could be the benefits of making it more flexible, and
how could this be achieved? In which ways, if any, could changes
in labour law help with this?
Defining the level of flexibility of the British
labour market is not a simple exercise, as it requires a preliminary
definition of the term "flexibility", which is by no
means unambiguous. Tentative definitions of this concept range
from a simple understanding of "flexibility" as the
cost borne by employers seeking to adjust their workforce to labour
market changes (for instance unexpected downturns) to some very
articulate and multifaceted notions including numerous quantitative
and qualitative components (see for instance the very articulate
definition used by HM Treasury in the 2003 study "EMU and
Labour Market Flexibility", and the ones discussed in the
Employment in Europe 2006 report, published by the European
Commission). In any case, whatever definition is employed, our
labour market consistently ranks as one of the most flexible in
Europe and in the world (see Chapter 2 in OECD, Employment
Outlook 2004 (Paris, 2004)). One of the authors of the present
submission has recently argued (P L Davies and M R Freedland,
Towards a Flexible Labour Market (OUP, 2007)) that this
is partly due to an explicit policy preference by recent Governments
for "light regulation" and—in some instances—"de-regulation"
with the aim of increasing "managerial flexibility in personal
work relations", coupled with more targeted "re-regulatory"
interventions in those spheres of employment and labour market
regulation that are perceived as being conducive to a more inclusive
labour market.
EMPLOYMENT SECURITY
2. What is the extent of employment security
in the UK? What could be the benefits of changing the present
arrangements for employment security? In which ways, if any, could
changes in labour law help with this?
The concept of employment "security"
is also very complex. An up-to-date discussion of the various
notions of flexibility and security can be found in Chapter 2
of Employment in Europe 2006, available at http://ec.europa.eu/employment_social/employment_analysis/eie/eie2006_chap2_en.pdf.
At the very least the concept should be seen as applying within
the employment relationship, and outside or beyond the employment
relationship. The idea of security within the employment relationship
suggests that working persons receive some (substantive and/or
procedural, individual and/or collective) protections against
the termination of work relationships. Conversely the concept
of security outside or beyond the employment relationship indicates
that workers may well be exposed to the sudden loss of work, but
should be offered and receive a series of guarantees in terms
of training and re-training, income support, employment and employability
opportunities, all effectively geared to re-inserting them in
the labour market. If this basic definition is taken into account,
British labour market regulation would appear to offer a comparatively
low degree of security within the employment relationship and
a relatively higher degree of security outside or beyond it. This
point can best be exemplified by reference to recent reforms in
the area of unfair dismissal and active labour market polices.
The adoption of the Employment Act 2002 (Dispute Resolution) Regulations
2004 adequately exemplifies the approach of recent governments
in respect of numerical flexibility, whereby the "proceduralisation"
of unfair dismissal legislation became an opportunity to limit
the substantial impact of unfair dismissal legislation upon managerial
flexibility, without also directly altering its substantive aspects
(see further Chapter 2 in Davies and Freedland (2007) quoted above).
On the other hand the stream of "Welfare to Work" initiatives,
adopted by successive governments since 1997, adequately exemplify
the British approach to promoting security outside or beyond the
employment relationship through "New Deal" and other
employability measures, and "making work pay" initiatives
whilst at the same time trying to render our labour market more
inclusive by means of anti-discrimination measures.
THE CONCEPT
OF "FLEXICURITY"
3. How helpful do you think is the Commission's
concept of "flexicurity" seeking to combine the ideals
of a flexible labour market with those of employment security?
How practical could it be to strike a balance between these two
ideals and where should such a balance be struck? In which ways,
if any, could changes in labour law help with this?
The major problem with the Commission definition
of "flexicurity' is its lack of clarity, partly due to the
lack of a Community or even nation-wide consensus over the definition
of "flexibility" and "security". The EC has
only started expressly using this term in the "Explanatory
Memorandum" accompanying the 2006 "Proposal for a Council
Decision Guidelines for the Employment Policies in the Member
States" (COM(2006) 32 final). More recently, the Commission
Green Paper of 2006 announced a "Commission Communication
on flexicurity (... ) which will set out to develop the arguments
in favour of the "flexicurity" approach and to outline
a set of common principles by the end of 2007 to help Member States
steer the reform efforts'.[78]
It is very likely that the Communication will not be very prescriptive
as to the substance of the notion of "flexicurity".
In fact in recent months the Community has modified its rhetoric
and has started talking about "flexicurity" in procedural
rather than substantive terms. So, for instance, in the February
2007 Employment and Social Affairs Council Meeting, the Council
concluded that "To proceed with the structural improvement
of employment performance, Member States should enhance flexicurity
as a method' and the Commission was asked to "prepar[e] a
range of flexicurity pathways to find the right mix of policies
tailored to labour market needs" (see 6226/07 (Presse 23)).
On the other hand it is likely that while focusing on process,
the Commission will still seek to influence outcomes particularly
by suggesting that greater flexibility for those on permanent
contracts is necessary (see December 2006 Progress Report COM(2006)
816 final, at 9).
OTHER LABOUR
MARKET CHALLENGES
4. What other challenges are facing those
involved in the labour market? Respondents may wish to comment
on their knowledge of a variety of different types of "subordinate"
employment contracts and/or on their knowledge of the challenges
faced by those in self-employment, "economically-dependent"
self-employment and agency work. To what extent could changes
in labour law help to address these challenges?
Perhaps the single most important and overarching
challenge currently faced by workers in the United Kingdom is
that of ascertaining their employment status for the purposes
of application of employment protection legislation. In recent
months it has become increasingly evident that our present regulatory
framework is struggling to provide adequate answers in respect
of this important issue vis-a"-vis several types of personal
work relationships. This is particularly evident in the context
of work relationships involving multiple parties, as most recently
highlighted by two decisions of the Employment Appeal Tribunal
where both Elias J and Bean J actively advocated an intervention
by Parliament to clarify the status of workers providing services
through an agency (see James v Greenwich Council
[2007] IRLR 168 and Craigie v London Borough of Haringey,
UKEAT/0556/06/JOJ, not yet reported at the time of writing). Recent
cases have also highlighted the fact that a considerably degree
of uncertainty pervades labour only sub-contracting practices
(compare the status of the intermediary entity in Hudson Contract
Services Ltd v Revenue and Customs Commissioners [2007] EWHC
73 (Ch) and in Redrow Homes (Yorkshire) Ltd v Wright and
Roberts and others [2004] EWCA Civ 469) and in the context
of personal work provided through a service company. There is
hardly any point in introducing legislative measures aimed at
providing more or less flexibility and security in personal work
relationships if the legal framework is unable to define with
some degree of clarity and legal certainty the personal scope
of these measures.
GROUPS COVERED
BY LABOUR
LAW
5. To which categories of workers should labour
law apply? Are any workers currently excluded that ought, in your
view, to be included? What is your view of the issues raised by
the Green Paper about the applicability of labour law to groups
of workers whose employment status is intermediate between that
of employee and self-employed?
The authors of the present submission believe
that the current scope of application of labour law suffers from
two main deficiencies. Firstly, as suggested above, there is a
lack of clarity as to the exact definition of the persons and
relationships to which labour law should apply. Secondly, employment
protection legislation is increasingly emerging as a multilayered
body of law where different types of rights (for instance protection
against unfair dismissal, working time and minimum wage entitlements,
anti-discrimination and health and safety legislation) are awarded
or denied to different categories of workers without an adequate
justification and, without a sufficient degree of certainty and
predictability. These two deficiencies are further aggravated
by the growing interaction between national and Community legislation
in the areas of free movement of workers and services, citizenship
of the Union, and employment law and policy. The present authors
believe that a more adequate allocation of the protection afforded
by employment legislation would require its reconfiguration around
a new notion of the "personal work contract", broader
than the notion of "contract of employment", with special
provisions and regulatory regimes applying to personal work relationships
which in various ways depart from the definitional parameters
of the "contract of employment" notion, while not falling
squarely outside it and into the province of "commercial
contracts for services".
ROLE OF
EU REGULATION
6. What is the role of regulation at the EU-level
in achieving a modernised system of labour law? Are there any
specific pieces of EU legislation that need either to be repealed
or to be introduced? Do you consider that the Green Paper's proposed
"Floor of Rights" for all workers is a viable one? In
order to promote worker mobility, would a Community-wide definition
of "worker" be useful?
There are numerous areas of labour market regulation,
where EU law and policy interact with and influence several points
touched upon by the Green Paper. This is rather obvious in respect
of the various regulations and directives adopted over the past
decades in areas as different as the coordination of social security
systems and the regulation of working time, health and safety,
and the working conditions of standard and "atypical"
workers. It is also increasingly clear and documented that "soft
law" initiatives, such as those developing under the aegis
of the European Employment Strategy and the Open Method of Coordination,
are extremely relevant in changing some national concepts of flexibility
and security in the labour market.
What is less obvious, but no less important,
is the impact that EC fundamental economic freedoms, and in particular
free movement of persons and services, are having in respect of
national labour markets in general and in respect of the notion
of "employment status" in particular, most visibly since
EU enlargement in 2004 and 2007. It is increasingly perceived
that national provisions aimed at limiting the free movement of
workers from some of the new Member States are easily by-passed
through the use of "sham self-employment", and fictitious
service provision and sub-contracting' (see COM(2006) 48 final,
at 8), that exploit the loopholes in the EC and national definitions
of the notion of "worker" and "self-employed".
On the other hand the European Court of Justice has shown some
clear signs of hostility in respect of some national legal devices
aimed precisely at clarifying the (national) definition and notion
of "worker", for instance by means of legal presumptions
of status (see Case C-255/04, Commission v France [2006]
ECR I-05251), and other important decisions by the ECJ are currently
being debated by the Court (for instance the Laval case
C-341/05). While these pressures may justify in the long run some
sort of EU-level regulatory intervention, at present the Green
Paper reiterates the suggestion advanced by the Commission that
the notion of disguised employment should be dealt primarily at
a national level.
27 March 2007
78 Ibid, at 4. Back
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