Memorandum by The Law Society of Scotland
and The Law Society
1. This response has been prepared jointly
by the Law Society of England and Wales and the Law Society of
Scotland. The Law Society of England and Wales is the representative
body of over 100,000 solicitors in England and Wales. The Society
negotiates on behalf on the profession and lobbies regulators,
government and others. The Law Society of Scotland is the governing
body for Scottish solicitors. It promotes the interests of the
solicitors' profession and those of the public in relation to
the profession.
2. Both Societies regularly comment on domestic
UK legislation, as well as EU legislative initiatives through
their joint Brussels office. This position paper has been prepared
with input from the Employment Law Committees of both Societies.
These Committees are composed of practitioners with an expertise
in the field of employment law. This response is based on the
views given in our response to the Commission's Green Paper, which
is limited to issues of employment law, rather than broader issues
of economic and social policy. As such, we have not answered all
the questions posed.
INTRODUCTION
3. We endorse the Commission's introductory
comments that the original purpose of labour law was to offset
the inherent economic and social inequality within the employment
relationship. That is an inequality which exists between the worker
and the employer. However, what the Green Paper goes on to conclude
is that the original purpose is no longer appropriate and that
the traditional model has the effect of disadvantaging newcomers
and jobseekers. In our opinion, the Green Paper erroneously seeks
to re-focus the economic and social inequality of employment as
one between workers with secure employment status and those without.
We believe that it is important to restate the original purpose
of labour law by reference to an inherent tension in the employment
relationship which legislation should seek to mediate.
4. Also of concern is the peripheral role
in the debate given to collective labour law. The stated purpose
of the Green Paper is to focus on individual labour law. The debate
should be re-balanced to attach appropriate importance to issues
of collective labour law. EU decision makers have already recognised
firstly the importance of social dialogue in modernising Europe's
economy and labour markets and secondly that for many, individual
employment operates through a framework of collective bargaining.[108]
Question 1
5. In our response to the Commission we
noted that it was not clear in the Green Paper exactly what "flexibility"
was actually sought or envisaged. We would not, for instance,
endorse flexibility which aimed to increase the use of zero-hour
contracts; such contracts do not, in general, provide an adequate
level of security.
Question 3
6. We noted that there is an inherent contradiction
within the term "flexicurity". It is difficult to envisage
how measures can be adopted which will on the one hand preserve
security and existing rights, and, on the other, provide for increased
flexibility for employers. This contradiction is not addressed
in the Green Paper.
7. As for changing existing arrangements
for employment security, the priorities for a meaningful labour
law reform agenda should include giving appropriate emphasis to
collective as well as individual rights. If transition from one
employment status to another is to be considered, then the role
of collective labour law should not be overlooked. There are numerous
instances, for example in relation to working time, where increased
flexibility has been achieved through the use of workforce and
collective agreements. These models should be fully considered
in any labour law reform agenda.
8. It is also difficult to envisage meaningful
advances in the employment model by considering labour law (collective
or individual) in isolation. Priority must be given to related
social security and economic factors which necessarily impact
upon the employment relationship and the relative security of
workers.
Questions 4 and 5
9. As to the challenges in the labour market,
greater clarity is certainly needed in the UK to determine the
legal distinction not only between employment and self-employment,
but also between employment and the wider "worker" category
protected by directive-derived worker rights. The current uncertainty
about which employment/worker rights apply, the appropriate tax
treatment, and ownership of related risks and responsibilities
(particularly in relation to personal injury and other health
and safety issues) militates against flexible transition between
these key, different, working relationships. Particular difficulties
include:
(a) Different findings of status depending
on the forum. For example, HMRC (Her Majesty's Revenue and Customs)
findings on the tax status of an individual will not necessarily
be binding on an Employment Tribunal, and vice versa.
(b) Since each case turns on its own facts,
preliminary hearings by Employment Tribunals on employment status
(as a pre-condition of enforcing statutory employment rights)
will not be binding on other Tribunals, which leads to something
of a Tribunal lottery for the parties involved.
(c) For the same reason, currently there
are many examples of where "hard cases make bad law",
where advantage is taken of the legal uncertainty to widen the
parameters of protection (eg for health and safety protection
as in Lane v. Shire Roofing Co (Oxford) Ltd [1995] IRLR
493, where the Court of Appeal pointed out there are "good
policy reasons in the safety at work field to ensure that the
law properly categorises between employees and independent contractors",
but then interpreted the law broadly to give the injured worker
health and safety protections).
(d) The plethora of, inevitably costly, higher
court cases continues to develop the tests to be applied when
determining employment status and means that this becomes increasingly
complex and uncertain. In a recent example (the 2006 decision
in Ministry of Defence HQ Defence Dental Service v. Kettle,
[2007] UKEAT 0308-06-3101 (31 January 2007)) the Employment
Appeal Tribunal (EAT) added an additional requirement when considering
the weight to be attached to contractual documentation, namely
to decide whether the parties intended the documents to be an
exclusive record of their agreement, and, if not, to look at other
relevant material, including oral exchanges and conduct, to determine
employment status.
(e) HMRC's stricter test to accept the self-employed
status of a former employee working for their former employer
(eg the 2005 HMRC Commissioner's decision in Demibourne Ltd
v. HMRC [2005] UKSPC SPC00486, emphasising the need for a
clear distinction between the old and new relationships, but again
very much turning on individual facts). Again, the consequent
uncertainty about the tax position going forward acts against
easy transition from employed to self-employed status, even on
moving to a consultancy position on retirement (as in the Demibourne
case).
(f) The added difficulty of distinguishing
self-employment from the third, "worker", category,
as indicated by recent case law (Bacica v. Muir (2005,
IRLR 35), regarding whether a supposedly self-employed painter
was a "worker" under the Working Time Regulations),
and the different tests to be applied.
10. Plainly such uncertainty not only militates
against smooth transition from employed to self-employed status
in the UK, but facilitates scope for non-bona fide transitions.
In particular, it encourages those seeking to avoid employment,
and tax, and health and safety obligations, to press those in
less strong negotiating positions to move to less secure, ostensibly
self-employed, status. This leaves these same individuals with
the onus of subsequently proving employment protection before
being able to claim attendant employment rights.
11. We would suggest, therefore, that this
is a key area for legal reform within the UK (the same basic rules
applying both in Scotland and the rest of the UK). Although the
legal definitions and associated problems will differ in other
Member States, plainly moves towards harmonisation, as well as
clarity, at the Community level will inevitably assist cross-border
transitions, and so in turn provide greater flexibility in the
EU labour market.
12. There is also often uncertainty as to
the employment status of temporary agency workers and an abundance
of case law on the question. If, is currently possible that an
agency worker whose contract is with the agency and who is supplied
to a client business may be an employee of both or either business
or not be an employee at all. This obviously has important implications
for the employment rights, such as protection against unfair dismissal,
which is dependent on the worker having the status of employee.
13. While case law suggests that the worker
might often be an employee of the client business, this is not
automatic. Indeed in recent cases, the Employment Appeal Tribunal
has itself called on government to clarify the position of such
workers (James v. Greenwich Council, [2006] UKEAT 0006_06_1812
(18 December 2006)), noting that "many agency workers are
highly vulnerable and need to be protected from the abuse of economic
power by the end users".
14. We also comment in relation to such
workers, that there are a number of factors that affect transitions
from temporary to permanent positions. For instance "temp-to-perm"
fees often have the effect of hindering a possible transition
from a temporary agency position to a permanent position in the
agency's client company. Likewise other terms and conditions of
the agency worker's engagement might make it more attractive from
the client business's perspective (or indeed the worker's) for
him or her to remain in a temporary post. It should be recognised,
however, that other factors must also be borne in mind when considering
the merits of agency work and the rules pertaining to it.
15. If additional protections were afforded
to agency workers, care should be taken so that such measures
do not affect adversely the employment market. There are high
rates of agency employment in the UK and it is often argued that
"Day 1" protection could have adverse consequences for
the amount of available employment.
Questions 6
16. The principle of a "floor of rights"
is undoubtedly attractive to workers, particularly vulnerable
workers who may enjoy few, if any, of the rights associated with
the traditional model of full-time employment. For instance, those
on zero-hour contracts are not considered to be employees under
English law, and may not be workers either (Carmichael v. National
Power [1999] UKHL 47). Although there will undoubtedly be
cost implications for those who employ them, there may be some
benefit associated with a simplification of the current system
arising from granting certain basic rights to all workers. It
may also remove the unfair competitive advantage enjoyed by those
who seek to exploit workers by disguised employment. There are
however serious obstacles to the notion of a floor of rights for
all workers.
(a) Given the variety of labour market conditions
and employment protection rights throughout the expanded EU, it
will be very difficult to provide for measures affecting all workers
that will operate successfully in all Member States.
(b) Identifying those who will benefit from
the protection of a floor of rights is a very complex and perhaps
impossible task. It is often very difficult to distinguish between
genuine self-employment and disguised self-employment. The variety
of tests developed by courts and tribunals in the UK gives some
indication of the difficulties that exist in this area of law.
Disguised self-employment is often used as a mechanism by unscrupulous
employers to prevent the worker from enjoying the protection to
which he or she would otherwise be entitled. However, self-employment,
whether genuine or otherwise, may also be attractive to the individual
for tax or other reasons. The extension of a substantial number
of rights enjoyed by workers to the genuinely self-employed would
undoubtedly impose unacceptable costs upon those appointing them
and give rise to loss of employment. It would therefore be unacceptable
to business.
17. One of the most compelling arguments
in favour of regulation of the employment relationship is that
the parties enter into that relationship on an unequal footing.
That notion of inequality is perhaps best illustrated in the context
of vulnerable workers. Workers may be vulnerable on account of
inexperience of the labour market, language difficulties, or inability
to obtain or pursue traditional models of employment. Homeworkers,
agency workers, migrant workers, those on zero-hour contracts
and young workers are all categories of workers who are at particular
risk of exploitation. As noted above, moves towards harmonisation
and greater clarity of terms, such as that of "worker",
at the Community level will inevitably assist cross-border transitions,
and so in turn provide greater flexibility in the EU labour market.
However EU-wide measures could be adopted to protect vulnerable
workers as they will exist throughout the EU and will often be
subject to the same pressures and difficulties. While not endorsing
specifically any of the following, a variety of measures could
provide increased protection for these vulnerable groups and might
merit further consideration.
(a) The introduction of a legal presumption
of either employee or worker status in the case of vulnerable
groups of workers or workers employed in industries or sectors
where exploitation or disguised employment is commonplace. The
onus of proof would lie on the employer to demonstrate that some
other relationship existed (for instance, worker instead of employee
status or self-employed rather than worker). The decision as to
the categories of workers or sectors in which the legal presumption
should operate could be left to individual Member States to determine,
in accordance with the principle of subsidiarity.
(b) The creation of stronger disincentives
for employers to deny basic rights for workers. These could include
penalties for employers who seek to impose self-employed status
on staff in order to avoid the additional costs and protection
that follow from employment or worker status. These could follow
the models for penalties already in place, where employers fail
to consult on collective redundancies or TUPE transfers. Alternatively,
awards made by tribunals could be subject to uplifts in the manner
provided for by the Statutory Disciplinary and Grievance Procedures.
(c) The imposition of additional obligations
upon end-users of agency workers in order to remove the insecurity
and poorer rates of pay experienced by agency workers. This could
include a statutorily imposed equality clause on all agency workers,
in the same manner already provided by the Equal Pay Act 1970,
or an obligation upon end-users to notify all agency workers of
suitable vacancies, as provided by the Temporary and Agency Workers
(Prevention of Less Favourable Treatment) Bill.
April 2007
108 See for example the Communication from the Commission,
"The European social dialogue, a force for innovation and
change" (COM (2002) 341 final). Back
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