Labour Law and Informal Workers: The WIEGO Perspective

Historically, around the world, the “employment relationship” has represented the cornerstone – the central legal concept – around which labour law and collective bargaining agreements have sought to recognize and protect the rights of workers. Whatever its precise definition in different national contexts, it has represented “a universal notion which creates a link between a person, called the 'employee' (frequently referred to as ‘the worker’) with another person, called the 'employer', to whom she or he provides labour or services under certain conditions in return for remuneration” (ILO 2003: 2).

The concept of employment relationship has always excluded those workers who are self-employed. But, increasingly, some categories of dependent workers have found themselves to be, in effect, without labour protection because their employment relationship is disguised, ambiguous, or not clearly defined. The net result is that a large and increasing share of workers worldwide is not protected under labour law or collective bargaining agreements.

Recent Debates on the Employment Relationship

Since its foundation in 1919, the International Labour Organization (ILO) has been engaged in promoting the protection of workers through the adoption of a wide range of instruments and policies. In recent years, there has been a series of debates at the International Labour Conference (the annual meeting of the ILO) on dependent workers who do not have protection. In 1995, in recognition of the growing number of workers who work under various types of contractual arrangements without labour protection, the Governing Body of the International Labour Organization (ILO) decided to place “contract labour” on the Agenda of the 1997 International Labour Conference. In so doing, it designated “contract labour” as a standard-setting item which would require a “double discussion” procedure (over two consecutive ILCs) leading to a Convention and/or Recommendation.

At the 1998 International Labour Conference, during the second reading of the text, the tripartite Committee on Contract Labour failed to reach consensus on a standard on “contract labour.” There were several reasons for this failure, including terminological difficulties: in particular, the meaning of terms like “contract labour” and “contract worker” is not legally precise or the same in different languages. Many worker and government representatives were concerned that a third category of worker, between employee and self-employed, would be recognized in law. Most employers were strongly opposed to any consideration of the boundary between labour law and commercial law, out of concern that the ILO might start regulating commercial relationships. Although the Committee could not reach consensus on a standard, it was able to adopt a Resolution, at the ILC 1998, that “invite(d) the Governing Body of the ILO to place these issues on the agenda of a future session of the International Labour Conference with a view to the possible adoption of a Convention supplemented by a Recommendation if such adoption is, according to the normal procedures, considered necessary by that Conference.”
Following up on the 1998 Resolution, and building on the work commenced by the Committee on Contract Work, the International Labour Office has undertaken a variety of measures, including: commissioning 39 national studies (1999/2000); convening a series of informal regional meetings (1999); and convening a tripartite meeting of experts on “Workers in Situations Needing Protection” (May 2000). In 2001, the ILO Governing Body decided to place “The Scope of the Employment Relationship” on the Agenda of the 2003 ILC. In preparation for this General Discussion, the ILO produced a comprehensive Report summarizing the findings of the national studies and the perspectives of the various experts (ILO 2003).

The Employment Relationship and Protection of Workers

The rise in the number of dependent workers who lack labour protection is attributed to one or another or a mix of the following factors:

Legal Factors

  • the scope of the application of the law is too narrow (or too narrowly interpreted)
  • the law is ambiguously formulated or applied
  • the law is not enforced or complied with

Empirical Reality

  • the employment relationship is deliberately disguised by giving it the appearance of a relationship of a different legal nature (e.g. commercial)
  • the employment relationship is objectively ambiguous so there is doubt about whether or not an employment relationship really exists
  • the employment relationship clearly exists but it is not clear who the employer is, what rights the worker has, and who is responsible for securing these rights

Clearly, there are short-comings in labour law relating variously to how labour law defines and classifies employment relationships; how the definitions/classifications encoded in labour law are interpreted and applied; and whether the law, as interpreted, is enforced or complied with. Equally clearly, there are deliberate efforts by employers to disguise or mask the employment relationship. And, finally, there are objectively ambiguous employment relationships.

Disguised Employment Relationships

“To disguise an employment relationship is to create an appearance different from the underlying reality, for the purpose of extinguishing or attenuating the legal protection” (ILO 2003: 28). Deliberately hiding or disguising the employment relationship can be done in several ways, including cloaking it in another legal guise or giving it another form where the worker has less protection. The most radical way is to give the appearance of a relationship of a different legal nature: most notably, by giving the appearance of a commercial relationship rather than an employment relationship. The other way is to manipulate the existing employment contract so as to deny rights and benefits to dependent workers: for example, by revising the contract to limit it to a determined period or to a specific task but then repeatedly renewing the contract. A third way is to mask or disguise the identity of the employer (see “triangular relationships” below).

Objectively Ambiguous Employment Relationships

There are also many cases where the employment relationship is not deliberately disguised but where the main elements that characterize the employment relationship – notably subordination and dependence – are not readily apparent. Doubts about the employment relationship arise in two basic types of instances: when dependent workers gain some autonomy or when self-employed workers become economically dependent. For example, some dependent workers perform work at a physical distance from the enterprise that employs them, while using the equipment and/or raw materials of the enterprise, following its instructions, and being subject to its control (over the quality of goods produced and the method of payment) but having full autonomy as to how to organize the work. And, it may be added, often having full responsibility for many non-wage costs of production: workspace, utilities, and maintenance of equipment. “Economically dependent” workers – that is, ostensibly self-employed workers who are permanently dependent on one or two clients – are found in the most diverse sectors, including: health professionals who work for health centers; sales representatives; newspaper distribution workers; taxi-drivers; skilled homeworkers, involved in information communication technology; as well as technical and professional consultants. The set of national studies commissioned by the International Labour Office indicates that this latter phenomenon – “dependency within independence” – is widespread and appears to be on the rise.

It is also the case that dependent workers may be forced, by their former employer, to “transfer” to working for contractors or “convert” to being self-employed. These related phenomena are quite widespread in the transport industry whereby truck drivers in transport firms are given little choice other than to work for a sub-contracting firm or to become self-employed. This has resulted in a marked rise in the number of so-called “owner drivers” driving trucks on behalf of another person or a firm under a so-called “transport” contract (such owner drivers are often then classified in the service sector, rather than the transport sector).


“Triangular” Employment Relationships

Whereas the employment relationship has traditionally been thought to concern two persons – the employee and the employer – there are more complex situations in which a third party or multiple parties are involved. In such situations, the employees of one enterprise (the “provider” enterprise) provide services or labour to another enterprise (the “user” enterprise). Such “triangular” or “multilateral” relationships have always existed but seem to be on the rise (ILO 2003: 42). The best known examples are the use of contractors and private employment agencies. Another popular arrangement is franchising under which the franchiser normally exercises substantial control over the franchised business, including its employment policy and finances. Whereas many such relationships involve a civil or commercial contract between the user and the provider enterprises, this is not always the case.

For the employee in such “triangular” or “multilateral” relationships, the questions become: who is my employer? what are my rights? and who is responsible for ensuring them? From a legal standpoint, it is not always clear what the answers to these questions are: this is because both the “provider” and the “user” enterprise assume certain functions of a traditional employer. Providing answers to these questions is further complicated if the so-called user-provider relationship reflects an attempt to conceal the user’s identity as the real employer. For instance, in some such cases, the provider is actually an “intermediary” of the supposed user.

In summary, worker protection is centered mainly on the employment relationship, whose essential characteristics have a universal dimension under labour law and collective bargaining agreements. However, there is growing uncertainty as to the legal status – dependent versus independent – of many workers which, in turn, leaves many dependent workers outside the protection of labour law or collective bargaining agreements. The specific focus of the ILC 2003 General Discussion on “The Scope of the Employment Relationship” was the growing phenomenon of dependent workers who lack labour protection. The fundamental purpose of the 2003 General Discussion is “to help to achieve more clarity in employment relationships and, ultimately, adequate and effective labour protection for dependent workers who are unprotected” (ILO 2003: 58).

Closing the Gap between Law and Reality

Given the changing nature of the employment relationship, there has been a growing gap between the scope or coverage of labour law and the reality of work today. To ensure that a greater share of workers is protected, there is a need to close this gap.

The General Discussion at the ILC 2003 was designed to help close this gap for dependent workers. In its Report for the General Discussion, the International Labour Office has formulated a four-prong approach to closing this gap:

1. Clarifying the Scope of the Employment Relationship

The first part of the strategy is to clarify and to supplement, as needed, the scope of the application of labour law. To do so, the most common forms of disguised, ambiguous, and multilateral employment relationships needed to be identified and examined. These forms should then be compared and contrasted with the scope of the employment relationship under existing labour law to identify which cases fall within or outside the existing scope of the law. This would serve to isolate the technical gaps between the law and the reality and to determine whether the gaps are due to the law per se or to interpretations of the law. It is the case that, in many countries, labour lawyers tend to default to the more conservative interpretation of the law.

2. Adjusting the Boundaries of the Legislation

For those cases that do not fall within the scope of the existing law, efforts should then be made to extend the boundaries of the law to include them. This would involve delineating more clearly and appropriately the boundary between dependent and independent work and, then, reclassifying certain types of work (e.g. homework) that fall in the “gray” middle between the two. In the case of ambiguous employment relationships, where some or all of the elements of the employment relationship are obscured or missing, the law would need to be adjusted to enable a clearer identification of where and when the employment relationship exists. Related to these questions, there is a parallel debate as to whether to encode these changes in the law or in voluntary codes of conduct (developed through consensus by representative bodies of employers and workers).

3. Regulating “Triangular” Employment Relationships

In a typical “triangular” employment relationship, the employee has several interlocutors. The central question is which of these should be considered the employer. Different countries answer this question in different ways: some have defined the “user” as the employer: others have defined the “provider” as the employer; while still others hold the “user” legally responsible for the non-compliance of the “provider.” A related question is what are the “user” and “provider” responsible for: payment of wages, provision of benefits, contributions to social protection? Again, different countries have answered these questions in different ways.

4. Promoting Compliance and Enforcement

The fourth part of the strategy would be to promote application of existing or newly-revised labour law by tackling both the deliberate avoidance of the law and the failure to enforce the law. This could be done through providing information and consultation on the status of workers; imposing penalties for deception or fraud regarding the identity of the employer; promoting collective legal mechanisms; and strengthening of labour inspection.

The ILO Report on “The Scope of the Employment Relationship” summarizes a range of recent national strategies along these lines as detailed in the 39 country studies. These examples illustrate the possibility of pursuing, at the national level, a mixed approach combining the various strategies outlined above. In the concluding section of its report, the ILO provides some guidelines for future national and international action. At the national level, each member State is asked to examine the growing difficulties caused by disguised, objectively ambiguous, and triangular employment relationships and to develop solutions and apply relevant standards suited to their own situation. At the international level, coordination between member States is encouraged. To assist member States and to promote coordination between member States, the report recognized that the ILO can play a major role by collecting and exchanging information and promoting good practices; providing technical cooperation, assistance, and guidance; and promoting the adoption of instruments by the ILC. The goal of future action at all levels should be to develop policies to ensure that laws regulating the employment relationship cover as many dependent workers needing protection as possible.

Significance of the Topic

Links with Debate on Informal Employment

At the 2002 ILC, there was a General Discussion on Informal Employment. In its Report on Informal Employment and Decent Work, the ILO endorsed a new broad definition of informal employment that includes both: self-employed workers in informal enterprises (defined as small unregistered enterprises) and dependent workers in informal jobs (defined as those without protection). This new broader definition should serve as a unified framework that includes not only unprotected informal workers in the South but also unprotected non-standard workers in the North.

The 2003 ILC General Discussion on the Scope of the Employment Relationship focused on a sub-set of informal and non-standard workers: namely, dependent workers in informal jobs (i.e., those without protection). It did not focus on self-employed workers who lack protection. It should be noted, however, that the tripartite Committee on Informal Employment at the 2002 ILC drew an important distinction between two types of self-employed workers: employers or owner-operators who hire others; and own account workers who do not hire others. In drawing this distinction, the Committee on Informal Employment noted in its Conclusions that own account work is often precarious and that own account workers are often unprotected (see clause 4 of the Conclusions).1 Future efforts to extend protection to unprotected workers will need to address the issue of unprotected own account workers.

In brief, many of those who work in the informal economy, be they disguised dependent workers or own account workers in economically poor and dependent situations, would be greatly helped by forms of social protection that are not exclusively – or are less exclusively – linked to employee-status.

In sum, the following points are of particular importance for both unprotected non-standard workers in the North and unprotected informal workers in the South.

  • In most countries in the world, social security protection and other forms of social protection are linked to employee-status –  
  • this means that whoever is not considered to be an employee very often lacks any social protection. However –
  • given the costs of social security premiums (especially in developed economies and social systems), employers often seek to evade their obligations as employers by disguising the employer-employee relationship. Therefore –
  • the solution to the lack of social protection is not to make everybody into an employee (which in any case is not possible). Rather –
  • other solutions are necessary to extend social protection to as many workers as possible.

Example: Changes in US Employment Relationships

Disguised, ambiguous, and multilateral employment relationships are common around the world, in both developing and developed countries. One of the country studies commissioned by the International Labour Office as background documents for its Report on “The Scope of the Employment Relationship” was on the USA (Hyde 2002). That paper provides ample evidence that the issues addressed at the ILC 2003 General Discussion are highly relevant to the world of work in the USA today. Most notably, there is an on-going debate around the distinction between “career” jobs and “contingent” jobs. Both categories are occupied mainly by dependent workers whose status as employees is not disputed; however, their rights to protection under the law are. Contingent work represents a form of contract manipulation that excludes the worker from the benefits of labour legislation and collective bargaining provided to regular employees. This is also the case with many forms of contract work.

In the USA, over the past two decades or so, there has been a significant change in the employment relationship for many once-regular employees. Katherine Stone of Cornell University has studied the ways in which the employment relationship has been transformed and the implications of this transformation for the laws that govern social protection, workplace discrimination, and employee representation. Stone documents the types of changes that have taken place in the employment relationship. Her starting point is the regular job with a single firm and a long-term “psychological contract” between the employee and the firm: in return for loyalty to the firm, the employee was guaranteed job security, promotion opportunities, and longevity-linked pay and benefits. Such jobs and firm-employee loyalty emerged during the industrial era in the USA and other developed countries.2

What then have been the major changes in the employment relationship in the USA over the past two decades? The main change is from long-term firm-worker attachment towards short-term employment relationships. Between 1983 and 2002, for all men over 20, there have been dramatic declines in job tenure and in the numbers who had been with their current employer for 10 years or more. These declines were particularly significant for men in the age groups over 45, precisely the group who were the beneficiaries of the old long-term employment relationship. Because women were not generally part of the long-term employment system, they have not experienced such marked declines and even a modest rise in some age groups. However, the overall percentage of women working for ten years or more for the same employer is significantly lower than men in every age-group (Stone 2005).

There are several common defining features of the new employment relationship. First, employers promise their employees employability, not job security. More specifically, they promise learning opportunities, not long-term employment. Second, they promise networking opportunities (with customers, suppliers, and even competitors), not promotion opportunities. Thirdly, they do not keep employees on the payroll when the demand for their products or services decreases. Rather, much of the risk faced by the firm is placed squarely on the employee.

What Risks, Previously Borne by Firms, have Been Shifted to Employees?

What are the new risks and vulnerabilities associated with this new employment relationship? In addition to job insecurity, there is greater wage uncertainty and inequality. Under the old employment relationship, wages were set by internal firm-related factors such as seniority and longevity. Now they are pegged to individual performance and responsive to market fluctuations. Thirdly, older employees face the risk of having their labour market skills becoming obsolete and having to compete with younger newly-trained employees, as jobs are continuously being redesigned to provide greater flexibility. Fourth, the new employment relationship involves the dissolution of unemployment compensation, workplace accident insurance, health insurance, old-age pensions, and social welfare benefits: as the eligibility requirements and overall design of these systems are premised on the old employment relationship, notably job longevity. In regard to old-age pensions, most employers have shifted from defined benefit plans to defined contribution plans, passing on the risk of the market and bad investment decisions to their employees. And, in regard to health insurance, there has been a marked shift from large risk pools with standard benefits to small risk pools with ultra-flexible benefits.

The new employment relationship has many implications for labour and employment regulation. The prevailing labour law regime in the USA – which provides legal support for collective bargaining, mandates minimum terms of employment, and prohibits employment discrimination – is premised on the industrial era employment relationship. The new employment relationship renders many features of the existing labour regulation obsolete. In the absence of new, more appropriate regulation, the new employment relationship has serious implications for worker security, including: use of intellectual property law by employers to stop ex-employees from sharing knowledge with their new employers; new forms of discrimination (e.g. ostracism and subtle forms of harassment of newcomers by cliques, patronage networks, buddy systems) that require different remedies; and the undermining of unionization due both to resistance by employers and the inability of unions to adapt to the new boundary-less jobs and workplaces. These and other risks associated with the new work practices have contributed, Stone argues, to rising pay gaps and income inequality.

What Reforms Are Required?

What types of reforms are required to regulate the new employment relationship and address the associated risks? Stone proposes several types of legal reforms: benefit portability and broader safety nets; new anti-discrimination strategies; the legal right to organize across employer units; and broader notions of bargaining units. In concluding, Stone calls for labour organizations that operate across-industries and across-firms in local or regional geographic areas.

 


 

1 Clause 4 of the Conclusions to the ILC 2002 General Discussion on Decent Work and the Informal Economy reads: “Workers in the informal economy include both wage workers and own-account workers. Most own-account workers are as insecure and vulnerable as wage workers and move from one situation to the other. Because they lack protection, rights and representation, these workers often remain trapped in poverty.”

2  It should be noted that these so-called standard jobs were predominant only in the 1950s and 1960s in North America and Europe, and that it was mainly white men, not women and minorities, who held such jobs. So many of the new forms of work are either old forms of work that have persisted among women and minorities, or old forms of work that have re-emerged.