Memorandum by the Institute of Interim
Management
We are writing as an Institute in response to
the request for feedback in the above consultation paper.
The Institute of Interim Management (the "IIM")
is established as a membership organisation for professional Interim
Managers ("IM"s), with the principle aims of establishing
quality standards and best practice for its members, including
a Code of Conduct regulating the way in which they source and
fulfil assignments on behalf of their clients. Its membership
is drawn mainly from Interim Managers resident in the UK (although
their assignments can take them world-wide), with a small number
of overseas members, principally from other EU Member States.
Interim Managers are experienced business executives,
usually professionally qualified, who deliberately choose to work
as independent suppliers of specific skills & knowledge to
fee paying clients, either for a period of time or for defined
scopes of work. Contractually, IMs operate through contracts for
services (commercial contracts), rather than contracts of service
(employment). Although not employees, IMs form part of (or possibly
even lead) the client's management team, and expect to have delegated
and to exercise the appropriate line authority required to fulfil
their role. Depending on the circumstances of the client and the
assignment, this can include becoming an officer of the company
through formal appointment as director and/or company secretary
for the duration of the assignment.
It will be appreciated that IMs are a specialised
sector of the economy, occupying a niche section of the much larger
self-employed/freelancer/independent contractor market. On the
one hand, their own personal businesses are small. However, because
of the roles they undertake at their clients, IMs will, at any
given moment, have line authority for aggregate turnovers of billions
of pounds, may be based internationally, and will be balancing
the needs of a variety of stakeholders, including thousands of
employees.
Estimates of the size of the Interim Management
market vary, but the figures most commonly quoted in the media
are that fees earned in the UK are of the order of £400 to
£500 million, with the same again in total for the remainder
of the EU Member States. Interim Management has long been an established
feature in Holland and Belgium, and the Institute has an established
Chapter in Italy serving IMs there—however, given recent
changes in employment legislation, the IM market in other EU countries
is believed to be growing rapidly.
QUESTIONS
1. What would you consider to be the priorities
for a meaningful labour law reform agenda?
The diverse labour law and practices across
the EU Member States, which are reinforced by different national
cultures and psyches relating to employment, mean that it is very
unlikely that any centrally imposed overarching structure will
be acceptable at local level.
The most important objectives for all legislation
must be clarity of purpose and clarity of definition. In the context
of labour law, there is a tendency to use employment law to interfere
with genuine, business to business, commercial arrangements between
the self-employed and their customers/clients, especially where
the supply is of services rather than goods. In this context it
is essential to recognise that the terms "employee"
and "worker" are not interchangeable, because many workers
provide their services under commercial contracts, not employment
contracts.
2. Can the adaptation of labour law and collective
agreements contribute to improved flexibility and employment security
and a reduction in labour market segmentation? If yes, then how?
Is labour market segmentation the bad thing
the question implies? Jobs are only secure if the businesses providing
those jobs can survive long term; survival requires businesses
to be both competitive and profitable. With the business environment
changing ever more rapidly as a result of technological change
and globalisation, businesses and organisations in both the private
and public sectors need to be able to make rapid adjustment to
the size and skills balance of their workforce.
There will always be a need for the core "permanent"
staff, and rightly, such staff are entitled to the long term rights
and benefits that their relationship with the employer demands.
Within this, "internal" mobility of permanent staff
within businesses/organisations through redeployment and/or retraining
should of course be preferred options, ahead of redundancy.
Equally important, there will frequently be
occasions where the skill requirement is urgently needed but only
for a limited time, or is specialised but not needed long term.
In these circumstances, recruitment/ redeployment of permanent
staff is inappropriate—indeed, to offer "permanent"
contracts where there is only a time limited skills need would
be dishonest on the part of the employer, because it creates unrealistic/unrealisable
expectations in the mind of the employees that they are being
offered long term job security. Businesses and organisations rightly
therefore need to be able to turn to the self employed Interim/freelancer
market to draw in the required resource.
In addition, if businesses and organisations
are to behave in a responsible fashion when they implement social
policies such as parental leave following the birth of a child,
they have to have access to a pool of resource available on a
short term basis—relying on the remaining staff to "cover"
for parental leave absences of others may be unreasonable, and
their raised stress levels may even give rise to health and safety
issues. And it will be appreciated that the pool of short term
resource needs to encompass all levels from the boardroom downwards.
This problem of "cover" is particularly
difficult for SMEs, which have limited staff numbers (so to have
even one absent is significant), and are usually not as well placed
financially to fund a temporary replacement whilst at the same
time paying for parental leave.
On the Commission's own figures, those operating
under "non-standard" contracts of employment (ie the
self-employed, temporary workers, etc) had reached nearly 40 per
cent of the EU-25 workforce in 2005. There needs to be greater
recognition on the part of the Commission and national governments
that a thriving market for these "non-standard contractors"
is an essential feature of a flexible and yet socially responsible
market economy. At 40 per cent of the total, they are as much
a "standard' feature as the "standard contract"
permanent employees with whom they are compared; to refer to "atypical"
workers and "outsiders" is unhelpful and represents
a distorted view and misunderstanding of the labour market and
its workings.
3. Do existing regulations, whether in the
form of law and/or collective agreements, hinder or stimulate
enterprises and employees seeking to avail of opportunities to
increase productivity and adjust to the introduction of new technologies
and changes linked to international competition? How can improvements
be made in the quality of regulations affecting SMEs, while preserving
their objectives?
The SME sector in the UK makes a significant
contribution to the UK economy, and yet over 60 per cent of those
SMEs are "one-person" businesses consisting solely of
the proprietor. Many of these are highly skilled and experienced
"knowledge" businesses, who take the risk and operate
outside the "corporate umbrella" out of choice, because
they enjoy the challenges and risks of entrepreneurship, and the
flexibility of being their own boss. For this large and growing
body of people, this represents a positive life-style choice.
In order that their clients, and thus the economy,
can benefit to the full, these knowledge businesses need the ability
to go from client to client providing their services on a business
to business basis under commercial contracts, not contracts of
employment. However, so far as the UK is concerned, lack of clarity
in the law over employment status make it difficult for businesses
to take on such workers with any certainty for either party that
the contracts entered into on an arms length basis will be honoured
by the taxation authorities or the courts.
As commercial businesses, the self-employed
recognise the need to make their own financial provision for pensions,
training, holidays, and sickness—and self-provision of these
is their preferred option. Were their clients obliged to treat
them as employees, the result would be that they would build up
a fragmented and, in monetary value, small series of employment
benefits across a number of different organisations—keeping
track of benefits and claiming them would develop into an administrative
nightmare.
In the UK however, the self-employed may find
themselves in the worst of all possible worlds in the event that
they fall foul of IR35, a tax provision which attempts to treat
one-person knowledge businesses not as self-employed, but rather
as disguised employees, taxing them as if employees but at the
same time denying them tax relief for the expenditure of providing
certain of their own "employee" benefits—benefits
which, had they been paid for by the client as "employer"
would have attracted tax relief in the employer's hands. In consequence
for example, knowledge businesses who find themselves in this
position find that they have to undertake the relevant training
to keep their skills on which their businesses depend up to date
at their own expense, and yet get no tax relief for incurring
that expenditure.
4. How might recruitment under permanent and
temporary contracts be facilitated, whether by law or collective
agreement, so as to allow for more flexibility within the framework
of these contracts while ensuring adequate standards of employment
security and social protection at the same time?
As has already been mentioned, permanent contracts
bring with them long term rights and obligations, including employment
security and social protection, which, by definition, conflict
with the flexibility to "hire and fire" at short notice.
So far as temporary contracts are concerned,
there needs to be recognition of the difference between temporary
employees who are under the control and supervision of the employer,
and Interim/freelance workers who are providing their services
under commercial contracts. 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 or social protection—that is
the business risk of entrepreneurship.
This is a core understanding that underpins
a large number of people's prosperity, and it is crucial that
any changes to employment law do not interfere with this choice.
It is hoped that this submission makes it clear that the large
numbers of people working as Interims/freelancers do this from
choice. They are not directly interested in employment law and
employee rights. There is only concern that they do not become
the unwitting recipients of "rights" they do not seek
and would confuse an entire industry and way of life.
5. Would it be useful to consider a combination
of more flexible employment protection legislation and a high
level of assistance to the unemployed, both in the form of income
compensation (ie passive labour market policies) and active labour
market policies?
Such matters should be left to Member States,
because what is appropriate depends on a variety of factors, including
where they are in their economic cycles, national culture, etc.
However, allowing companies to discard and take
on employees without penalty should encourage the hiring process
and therefore reduce the numbers of unemployed. Whether it is
beneficial to offer a high level of monetary assistance to the
unemployed for anything other than a short period is less clear.
There needs to be an appropriate counterbalance to reduced job
security, but not to the extent that it discourages the unemployed
from seeking work. The UK is currently staffing its skills shortage
from other EU countries and elsewhere, whilst at the same time
many thousands of UK nationals are claiming benefit and not taking
up the jobs available.
6. What role might law and/or collective agreements
negotiated between the social partners play in promoting access
to training and transitions between different contractual forms
for upward mobility over the course of a fully active working
life?
With the decline in large scale manufacturing
and the shift to high value added people skills—whether
in technology, financial or service sectors—the importance
of collective agreements is diminishing, and there is probably
a need for greater representation of SME organisations in the
social dialogue. At the very basic level, national governments
must ensure that no one should be unemployable through illiteracy
or inadequate communications skills, and must provide a safety
net of skills training to equip the unemployed to get into (or
back into) work, provided such training is genuine re-skilling
and not merely a device for removing those not in work from the
unemployment statistics. Beyond that, governments must create
the right legislative framework, economic environment, and taxation
incentives, to encourage and enable businesses to invest in people,
and to foster entrepreneurship in individuals, as envisaged by
the Lisbon Accord.
An important feature of this environment is
ensuring that regulation does not of itself prevent individuals
from making the transition between contractual forms whenever
it is appropriate to move. Interim managers, for example, do not
normally enter the sector until their 40s, by which time they
have built up considerable skills and experience during their
career as employees, and have achieved a degree of financial independence
which allows them to take on the risk and rewards of working for
themselves without compromising family responsibilities. To make
the transition successfully, they need a legislative framework
which allows them to set up their new business rapidly and at
minimal cost, but no collective agreements or other external intervention
is required. For this growing sector of workers, any additional
regulation imposes extra administration where it is unnecessary
and not wanted.
7. Is greater clarity needed in Member States'
legal definitions of employment and self-employment to facilitate
bona fide transitions from employment to self-employment
and vice versa?
Any attempt to clarify the definition of employment
and self-employment should be principles based, not based on arbitrary
criteria of the sort of presumptive rules referred to in the Green
Paper, such as those found in the Dutch Flexibility and Social
Security Act.
In the UK, such principles include mutuality
of obligation (whether the employer has a duty to provide work
and the employee a duty to accept that work), the degree of supervision
and control exercised by the organisation, who bears the financial
risk if the work is not properly performed, whether the contractor
has a right to substitute himself with a colleague or to involve
subcontractors, use of own tools, etc. Although not normally included
in the tests in the UK, one might also ask whether the organisation
provides any employment rights—inappropriate in a commercial
contract with an Interim/freelance worker.
8. Is there a need for a "floor of rights"
dealing with the working conditions of all workers regardless
of the form of their work contract? What, in your view, would
be the impact of such minimum requirements on job creation as
well as on the protection of workers?
One of the difficulties in the Green Paper is
that the terms "worker" and "employee" are
used interchangeably, when in fact they have different meanings.
A self employed worker enjoys the same general protections as
the overall population—for example, to do with discrimination
on the grounds of race, disability, sex etc. However, he is responsible
for providing his own "floor of rights" as he is his
own employer and therefore responsible for providing his own "employee"
benefits.
The self-employed would not want an obligation
imposed on their clients to provide a floor of rights—it
would only serve to make them a less competitive resource, and,
as previously mentioned, would lead to a plethora of fragmented
and, in monetary value, small series of employment benefits across
a number of different organisations. The imposition of a floor
of rights would simply add more cost to the client organisations
to provide something that is not needed or wanted.
9. Do you think the responsibilities of the
various parties within multiple employment relationships should
be clarified to determine who is accountable for compliance with
employment rights? Would subsidiary liability be an effective
and feasible way to establish that responsibility in the case
of sub-contractors? If not, do you see other ways to ensure adequate
protection of workers in "three-way relationships"?
There is a need for clarity in multiple employment
relationships as to who is the employer responsible for providing
the employee with their employment rights, possibly by imposing
a statutory presumption that the end user is the employer, or
by imposing a requirement on end user and agency intermediary
to provide the employee with a binding written statement at the
commencement of the employment contract as to which of them is
the employer.
Where the relationships of workers (rather than
employees), clients and intermediaries are governed by commercial
contracts, then there is no need to identify the employer—all
rights and obligations flow from the commercial contracts, rather
than being imposed by statute.
10. Is there a need to clarify the employment
status of temporary agency workers?
No comments, other than those already given
to Question 9.
11. How could minimum requirements concerning
the organization of working time be modified in order to provide
greater flexibility for both employers and employees, while ensuring
a high standard of protection of workers' health and safety? What
aspects of the organization of working time should be tackled
as a matter of priority by the Community?
No comments, provided no change is made which
would affect the current exemption from the working time rules
of Interims/freelancers as self-employed or as otherwise being
able to determine for themselves what hours to work.
12. How can the employment rights of workers
operating in a transnational context, including in particular
frontier workers, be assured throughout the Community? Do you
see a need for more convergent definitions of "worker"
in EU Directives in the interests of ensuring that these workers
can exercise their employment rights, regardless of the Member
State where they work? Or do you believe that Member States should
retain their discretion in this matter?
Member states should retain their discretion
in this matter, recognising that it is an issue for employers
and employees, not for organisations and workers whose relationships
are governed by commercial contracts.
13. Do you think it is necessary to reinforce
administrative co-operation between the relevant authorities to
boost their effectiveness in enforcing Community labour law? Do
you see a role for social partners in such cooperation?
Illegal immigration and people trafficking remain
cross-borders issues which are fuelled by and impact on labour
markets, and require cross-border co-operation.
14. Do you consider that further initiatives
are needed at an EU level to support action by the Member States
to combat undeclared work?
Undeclared work occurs for a number of reasons,
including high levels of taxation (a matter for Member States)
and illegal immigration (see the answer to question 13). A consequence
of undeclared work can be over-regulation of legitimate businesses/organisations
and workers, which has a negative impact on the economy generally.
30 march 2007
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