22ND REPORT: MODERNISING EUROPEAN LABOUR
LAW: HAS THE UK ANYTHING TO GAIN?
Letter from Pat McFadden MP, Minister
of State for Employment Relations and Postal Affairs, Department
for Business, Enterprise and Regulatory Reform to the Chairman
I am pleased to enclose the UK Government response
to the European Union Committee's report Modernising European
Union Labour law: has the UK anything to gain? published on
27 June 2007.
28 September 2007
GOVERNMENT RESPONSE
The Government welcomes the Committee's Report
on European Labour Law.
Detailed responses to the Committee's specific
conclusions and recommendations are set out below but the Government
welcomes the Committee's general endorsement of its approach to
the European labour law debate and its assessment that it is for
individual Member States to pursue employment law reform consistent
with their very different structures and traditions. Whilst the
EU has agreed (or has under discussion) a framework of minimum
employment standards there is no "one-size fits all"
model of employment law that could be applied across the EU and
we see little appetite for major new employment law initiatives
at the EU level. However the Government welcomes the Committee's
emphasis on the potential benefits of sharing best practice and
experiences of labour law working in practice across European
Member States. In our view, this is an area where the EU could
add real value.
Since publication of the Committee's Report,
we have learned that the European Commission has received over
400 responses to its open consultation on the Green Paper on Labour
Law. The European Commission is expected to issue a summary report
on the responses received in October/November. We will keep the
Committee updated on further developments and stand ready to provide
further information as required.
THE CONCLUSIONS
AND RECOMMENDATIONS
OF THE
COMMITIEE
Chapter 2: The development of 21st century labour
markets
We conclude that most of the issues raised in
the Green Paper are already adequately addressed within UK labour
law where the labour market is relatively lightly regulated in
comparison with some other Member States.
In consequence, we recommend that it would not
be helpful to introduce new EU wide changes to labour law since
this would not meet the specific circumstances of the UK nor of
other individual Member States.
We consider, nevertheless, that the Green Paper
provides valuable insights into the role of labour law in promoting
labour market flexibility and in enhancing the genuine employment
security that comes from helping people to cope with structural
change. In addition, we welcome the focus it provides on what
Individual Member States might learn from the experience of others
when deciding what reform of labour law of other employment and
welfare policies might best help them to meet the economic and
social challenges of the early 21st century.
(Paragraphs 45-47)
The Government agrees with the Committee
that employment law reform is primarily a matter for individual
Member States who are able to tailor approaches to their own labour
market systems, practices and culture.
The Government also agrees that the EU
has a valuable role in helping Member States share experiences
and best practice. The UK Government is very actively involved
in the existing processes based on the Lisbon National Reform
Programmes and the National Report on Strategies for Social Protection
and Social Inclusion through which Member States learn from each
other about what works well in delivering shared economic and
social outcomes.
Chapter 3: Labour law and the UK economy
We accept the evidence that the UK's relatively
light employment protection legislation, by facilitating a high
degree of numerical labour market flexibility, has benefited the
UK economy (although we recognise that this has not necessarily
been a major factor in the improved performance of the economy
In recent decades). This has helped the UK to avoid the high unemployment
and labour market segmentation witnessed In some other EU Member
States, notwithstanding the problems of structural unemployment
and social disadvantage suffered by some people in this country.
We recommend, however, based on evidence to
the Inquiry discussed later in this, report. that the problems
of structural unemployment and social disadvantage in the UK need
primarily to be addressed by measures directed at tackling poor
skills and social inequality, and by enforcing existing labour
law where this is being flouted, rather than by changes to labour
law.
(Paragraphs 72-73)
The Government agrees with the Committee
that tackling poor skills is a top priority for dealing with the
problems of structural unemployment and social disadvantage. That
is why following Lord Leitch's review we published "World
Class Skills" (the Government's skills implementation
plan), as well as a Green Paper on next steps to full employment.
In particular, the Government is aiming to improve adult participation
in training at basic, intermediate and higher skill levels, through
Train to Gain and other measures, especially by putting
employers at the heart of the system and meeting the needs of
disadvantaged individuals.
We are also taking additional steps to
ensure that the framework of workplace rights and standards we
have put in place is properly enforced. An update on the Government's
activities in this field, including the recent consultation on
National Minimum Wage enforcement and strengthening the powers
of the Employment Agencies Standards Inspectorate, can be found
in the response below to the conclusions under Chapter 7 of the
Committee's report.
It was clear from our evidence that, whatever
the overall success of the economy,there remains a major problem
for the UK in relation to labour productivity. Our view is that
significant changes in labour law can have either a positive or
a negative, but only marginal, effect on productivity. We conclude
that, to improve the UK's productivity performance appreciably,
the priority needs are:
— to raise levels of investment in
physical capital and in research and development;
— to improve skills at all levels;
— to assist the innovation process;
and
— to increase the standard of people
management and development in the work place.
(Paragraph 74)
The Government agrees that whilst labour
market flexibility clearly contributes to overall economic success,
tackling productivity goes much wider than questions of labour
law.
Improving the UK's productivity performance
is a long-term challenge—it takes time for workers, businesses
and consumers to respond to economic reforms and for the impacts
to feed through into the productivity data. However, available
data suggests that the UK's productivity growth has improved in
recent years and these improvements in productivity have coincided
with strong employment performance. Progress has been made under
all drivers of productivity identified under the Government's
framework for improving performance investment, innovation, skills,
enterprise and competition—but there is still scope for
improvement.
Progress is monitored and presented under
the five driver framework in the joint HM Treasury/BERR annual
report on UK Productivity and Competitiveness Indicators,
which compares the UK's economic performance with that of other
advanced economics.
Chapter 4: Flexibility and employment security—"flexicurity"
We commend the Commission for starting, in the
Green Paper and elsewhere, an important policy debate on how labour
market flexibility and employment security might be combined and
reinforced to the benefit of both employers and workers and in
furtherance of the common good.
However, we recommend that the purpose of this
debate should be primarily to share information and examples of
good practice, recognising the diversity of circumstances between
Member States identified by the report of the Commission's Expert
Group on Flexicurity. Any common principles of flexicurity agreed
at EU level should therefore be interpreted as guidelines rather
than as obligations.
We recommend also, that as far as the UK is
concerned, progress toward enhancing flexicurity requires action
on skills and welfare to work measures rather than changes in
labour law.
(Paragraphs 93-95)
The Government agrees that Flexicurity
Principles to be agreed at EU level should provide broad guidelines
rather than specific detailed obligations—so we welcome
that the recent Commission Communication on Flexicurity (10255/07,
4 July) recognises that Member States have different approaches
to suit national needs, and that the EU level focus is the Treaty
based exchange of good practice through Integrated Guidelines
and National Reform Programmes.
As far as the Government's approach to
flexicurity in the UK is concerned, the current primary focus
is on "work first" including enhancing skills and helping
the most disadvantaged. While it would not be appropriate to pre-empt
what we will set out in the 2008 National Reform Programme we
will want to say more on the Leitch skills implementation plan
and welfare reform Green Paper, all of which is in line with the
Committee recommendation.
Chapter 5: The need for labour law reform and
the role of the EU
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".
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.
(Paragraphs 132-133)
The Government agrees with the Committee
that having put a platform of employment rights in place the key
focus of attention should be on informing workers of their rights
and enforcing existing entitlements. This is particularly important
with regard to vulnerable workers. That is why we have created
an the Employees section on the directgov website which serves
as a one-stop shop to provide a single source of employment law
information for individuals. In addition, ACAS (the Advisory,
Conciliation and Arbitration Service) provides a major source
of information and advice for employers and workers and organisations
such as the TUC and Business Link have helpful initiatives to
assist employers in fulfilling their obligations. Further detail
on specific initiatives for vulnerable workers can be found in
our response to the conclusions under Chapter 7 of the Committee's
report along with an update on the Government's enforcement-related
activities, including the recent consultation on National Minimum
Wage enforcement and strengthening the powers of the Employment
Agencies Standards Inspectorate.
We recognise the important role played by trade
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.
(Paragraph 134)
The Government agrees that there is no
need for EU level action in this area. It is an issue for Member
States.
We fully appreciate the particuiar pressures
facing smaller businesses in coping with an increasing amount
of laoour 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.
(Paragraph 135)
The Government recognises the particular
situation of small businesses and has therefore strengthened the
Small Firms Impact Test to continue to further embed the "think
small first" principle into all new and amended policy development—thereby
targeting regulation only where it is needed. Government has committed
to conduct a Small Firms Impact Test on all measures affecting
business and makes every effort to involve them and their representative
organsations in policy discussions and formal consultations on
employment law and more broadly. As outlined in our written evidence
to the Committee, our approach to successfully combining a flexible
labour market with a fair framework of rights for workers without
overburdening business lies in the application of better regulation
principles, including consultation and high quality impact assessment.
Guidance is an essential part of giving clarity and thereby reducing
costs, increasing confidence and encouraging compliance. Businesslink.gov.uk—the
cross government website designed especially to help small business
cope with regulation—offers an employment law checklist
and a No-Nonsense Guide to regulations which apply when businesses
employ people. This is designed to make it easier for smaller
businesses without professional HR departments to understand and
comply with employment regulations.
Other elements of our better regulation
approach to help minimize burdens on business include two common
commencement dates (CCDs) per year, 6 April and 1 October, for
all domestic legislation across Government that bears on business
and the publication at the start of each year of annual statements
by departments. This initiative gives businesses early notification
of what is coming in and when, allowing them to plan ahead. To
save small business time and money and help with compliance, www.businesslink.gov.uk/ccds
offers a summary of regulations due to come into force on a CCD,
which links to plain English guides. To continue to keep up-to-date,
businesses can sign up for free email alerts about forthcoming
new and changing domestic and European regulations at www.businesslink.gov.uk/regulationupdates.
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 fioor of rights covering all workers and any
changes to this legislative floor should be left for the UK to
decide for itself.
(Paragraph 136)
The UK Govemment agrees with the Committee.
A harmonised EU level definition of worker is neither practical
nor necessary. The question of a "floor of rights" is
a matter for individual Member States to determine; the UK has
in place a framework of core rights that are applied to all workers
not just employees.
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.
(Paragraph 137)
The Government welcomes this recommendation
and, as stated previously, believes this is where EU level action
can add real value.
Chapter 6: issues for groups within the labour
market
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.
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.
(Paragraphs 162-163)
The Government agrees that there is no
strong case for change to the current framework of employment
rights and employment status. The Govemment considered the current
framework as part of its review of employment status and the conclusions
were published as part of the policy statement Success at Work:
protecting vulnerable workers, supporting good employers in
March 2006. In relation to employment rights, the courts have
devised a number of tests to establish an individual's employment
status. These tests enable the court to consider all aspects of
the relationship, including what a contract may say or what it
does not say. Once a court judgment on a particular type of arrangement
is made, and not successfully appealed, that interpretation will
stand.
As part of Success at Work, the
Government is committed to improving the guidance on employment
status, and to developing an interactive tool on the employee
pages of direct.gov, so that individuals have a much clearer idea
of their legal position and are not tricked out of their rights.
On a point of clarification, agency workers
do not necessarily have a contract of employment whereby the agency
is the employer but a contract for personal performance of services.
However, the agency is generally responsible for ensuring that
agency workers receive their employment rights such as the National
Minimum Wage and Working Time entitlements including paid annual
leave.
Chapter 7: Addressing labour market disadvantage
We have noted the high rate of transitions between
different forms of employment and contractual status within the
UK labour market. We conclude that whatever market segmentation
does exist is explained primarily by social disadvantage, caused
by lack of basic skills and qualifications, rather than by barriers
created by labour law.
In the UK context, therefore, we recommend that
measures to improve employability, rather than modernisation of
labour law. should be the main priority of government policy toward
the labour market.
(Paragraphs 184-185)
The Government agrees with the Committee's
recommendation on improving employability. As above, the Government
is working to increase the participation of low-skilled adults
in training. Part of our response to the Leitch report is to ensure
that an integrated employment and skills service meets the needs
of disadvantaged individuals, including benefit claimants, by
focusing on sustainable employment and progression as an outcome.
In addition, our latest Green Paper on setting out pathways towards
full employment is based on core principles which include that
employment support should be focused not just on job-entry but
also on retention and progression.
We are greatly concerned by evidence of the
exploitation in the UK of vulnerable groups, especially migrant
workers. We conclude, however that the appropriate course is to
tackle abuse where it occurs and to provide vulnerable and migrant
workers with information about their existing legal entitlements.
We welcome the action taken by the Government
during our Inquiry to consult on the introduction of measures
which would help to strengthen the employment protection in the
UK of vulnerable groups of workers by creating better enforced
and more effective penalties for employers' non-compliance with
National Minimum Wage legislation and the Employment Agencies
Act. We will take a close interest in the outcome of this consultation
and in the effectiveness of any new measures which result from
it.
(Paragraph 186-187)
The Government fully agrees with the Committee's
conclusion. Our vulnerable worker strategy has five strands: maintaining
a fair legal framework; raising worker awareness of rights and
remedies; helping businesses understand and comply; joined up,
effective and targeted enforcement; and helping vulnerable workers
develop skills to strengthen their position in the labour market.
Initiatives under these strands include
the two vulnerable worker pilots mentioned by Jim Fitzpatrick
in his oral evidence to the Committee in May 2007. Launched on
1 June 2007, they aim to identify and test practical ways of improving
the advice and support available to vulnerable workers and their
employers at a local level. They will build on the services that
unions, advice bodies, community and business groups; enforcement
agencies and others already provide. The TUC is leading a pilot
in the City of London and Tower Hamlets focused on the cleaning
sector; Marketing Birmingham is leading the second pilot focused
on the hospitality sector.
In addition, a Vulnerable Worker Enforcement
Forum was established on 1 June 2007 to bring together front line
unions and other interested parties, including the enforcement
agencies, business groups and advice bodies, to consider evidence
on the nature and extent of abuse of legal worker rights and legislation.
Chaired by the Employment Relations Minister, the Forum will move
on to consider whether abuses can be tackled using the existing
enforcement regime and whether improvements are needed. It is
expected to conclude its work by March 2008. A dedicated mailbox:
vulnerable.workers@berr.gsi.gov.uk—has been setup to help
collect evidence about the abuse of vulnerable workers.
As highlighted in Jim Fitzpatrick's oral
evidence to the Committee in May 2007,the Government also published
a consultation document earlier this year on measures to protect
vulnerable agency workers, including giving workers the right
to withdraw from services provided by an agency, such as accommodation
and transport without suffering any detriment, and providing advice
on living in Britain (including the cost of living) to distribute
to migrant workers coming from EU states before they come to Britain.
The consultation closed on 31 May. We are currently analysing
the responses and will make an announcement shortly.
Awareness of workplace rights is another
key element of the strategy, particularly for migrant workers.
BERR has produced a one page leaflet Working in the UK: Know
your rights and where to get help and advice available in
Bulgarian, English, Latvian, Lithuanian, Polish, Romanian and
Slovakian. This is available on BERR's website and The Home Office
is sending the leaflet to all workers registering under the worker
registration schemes for recent EU accession countries. In addition,
Know Before You Go leaflets are being distributed to Lithuanian
and Polish nationals before they leave for the UK.
On enforcing the law, we are taking a tougher
approach to the enforcement of the National Minimum Wage and other
workplace rights. The consultation exercise the Committee refers
to, on a new penalty for employers who fail to pay the National
Minimum Wage (NMW) and a fairer way to calculate NMW arrears and
proposals to strengthen the investigative powers of the Employment
Agency Standards Inspectorate (EASI), closed in August 2007. The
Government is currently considering the responses received and
changes to the law will be included in a Bill on employment simplification,
expected in the incoming Parliamentary session.
The consultation proposals on the NMW built
on the announcement in January 2007 that a penalty notice will
be issued in virtually all cases where an employer does not comply
with a national minimum wage enforcement notice. The first successful
criminal prosecution occurred in August 2007 where an employer
who was guilty of obstruction was fined £2,500 and £500
costs. The budget for National Minimum Wage enforcement has been
increased by 50% for the next four years and a rolling programme
of NMW targeted enforcement is also in place targeting low pay
sectors in turn. The hotel sector is being targeted in 2007-08;
the wider hospitality sector in 2008-09. These are both sectors
where there are large numbers of migrant workers.
Chapter 8: EU legislation: its formulation in
Brussels and its implementation in the UK
We are persuaded that the current social partnership
consultation arrangements for formulating EU legislation have
an exclusive "two sides of industry" feel.
We recommend, therefore, that the Government
should support UK small business organisations in finding means
to ensure that social dialogue in the EU includes a wider representation
of interests, in particular representatives of the small business
sector. This would seem the most appropriate way of making sure
that the EU matches up to the spirit of its treaties which state
that the EU should avoid imposing administrative, financial and
legal constraints on small and medium sized enterprises.
(Paragraphs 199-200)
As stated in the supplementary memorandum
sent to the Committee by Jim Fitzpatrick on 15 May 2007, the Government
agrees that it is important for small firms should be engaged
in social dialogue at EU level. While small business interests
fall within the overall remit of Business Europe, which counts
small businesses among its members, we remain unaware of any intentions
by UK small business organisations to join UEAPME, the European
level organiszation representing SMEs with recognised Social Partner
status.
However, the Government notes that by choosing
to have an open consultation on the Green Paper on Labour Law
the European Commission opened the debate to all interested parties
and we welcome that small firm organisations took the opportunity
to make their views known. The Government also recognises efforts
by the European Commission to engage small businesses in aspects
of European policy making for example, through establishing the
European Small Firms Envoy and European Commission initiatives
such as the European Business Test Panel; a virtual, representative
group of businesses from across the EU generally canvassed at
the very early stages of policy formulation. In addition, the
strengthened impact assessment process used by the European Commission
since 2004 requires policy makers to consider particular impacts
on SMEs and new EU level targets to cut administrative burdens
stemming from existing EU regulation were announced in 2006, although
reforms will take time to flow down to operational level.
We recognise that the perception remains strong
that the UK "gold plates" EC directives relating to
employment. However, we have seen no conclusive evidence to support
this view and indeed the final report of the Davidson review suggests
that the perception is exaggerated. We recommend no further action
on this matter.
(Paragraph 201)
It is Government policy to avoid "gold
plating" in all areas of legislation. Sometimes UK transposition
involves a larger number of pages of legislation than in other
EU countries but in most cases this provides vital clarity and
does not add burdens to business. If the UK did regularly gold
plate, it would be a less attractive place to do business than
other Member States—international surveys show this is not
the case—and, as the Committee recognises, the Davidson
Review of the implementation of European legislation published
on the 28 November 2006 found no evidence of "gold plating"
in BERR policy. The Committee may wish to note that the Government
launched new guidance for officials to improve implementation
of EU law on 6 September 2007.
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