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Wednesday, 2 November 2011

Impossible to employ

Published on Halsbury's Law Exchange here.

Last week Stephen Levinson wrote about the law making process, and in particular the problems which bedevil the creation of employment law.

Mr Levinson identified four structural reasons behind the problems with employment law making: (i) responsibility for employment law is spread between four separate departments; (ii) civil servants continuously move between departments, denuding them of knowledge and experience; (iii) new statutes are almost invariably followed by statutory instrument after statutory instrument; and (iv) there is often inadequate consultation.

These are all valid points, and no doubt applicable to many other areas of law. I would venture to add two further points. The first is that much employment law is now made in Europe. Complex directives have to be transposed into national law. The last say on their interpretation is not that of the domestic courts but rather the European Courts. Whether they make good or bad decisions, the fact remains that the process by which employment laws are made, and by which answers to employment questions are reached, is rendered more complex, slow and expensive by an extra layer of regulation emanating from the European Union. For large companies able to retain expensive advice this may be manageable, if inefficient; for smaller firms it may be unmanageable and a disincentive to hire more staff. For both employers and employees it will make knowing their rights all the more difficult.

The second point is the most fundamental as well as the most obvious: it is policy that produces complexity. Employment law is overly complex because lawmakers are always tempted to try and micromanage employment relations. No doubt this is (usually) done with good intentions. One often hears employment rights being described as “fundamental”. In many instances I would not disagree – it is not as though anyone would or should advocate returning to a Victorianesque world of chimney sweep wages and conditions set entirely by the free market. I would however make three observations.

First, all employment rights, fundamental or otherwise, are wholly irrelevant to a substantial portion of workers, namely the self-employed. The likes of public holidays, sickness and maternity leave, the minimum wage, working time regulations and so forth mean nothing to the self-employed. Of course that does not undermine the need for protection of those who are employed from being exploited. But the more complex and costly it becomes to hire someone will, as mentioned, make employers more reluctant to hire new staff.

Secondly, complex provisions harm, not help, vulnerable workers. They will not be able to afford the increasingly expensive advice about their rights, nor will any employment litigation be resolved as quickly or efficiently as it might be otherwise. They will find it harder to obtain work because many employers cannot face the red tape and uncertainty that complex employment law brings and will decide against expansion accordingly.

Thirdly, it is not as simple for the state to play Robin Hood as some recent employment decisions seem to assume. For example, the European Courts ruled recently that employees who are sick during their holidays should be able to claim the time as sick leave, thus preserving their holidays. One can see the superficial attraction: if a certain amount of paid leave (holiday) is considered a “fundamental right”, then ensuring that employees retain the benefit that leave irrespective of the misfortune of illness is a logical step. However, a right can only exist if someone else assumes a corresponding duty, and in this case obviously the duty has to be that of the employer. The employer must therefore assume a greater duty.

The problem is of course that employment relations are not static. Employers can be expected to respond to the increased (but uncertain) costs that they will face by any or all of the following measures: negotiating lower wages, paying shareholders lower dividends, or raising prices. At least two of those will affect employees directly (with their own wages, plus the fact that, as consumers, they will have to pay higher prices that other companies impose in response to the ruling) and all three will as well in the case of employees who are also shareholders. It also gives dishonest employees an incentive to claim sickness at opportune moments in order to extend their holiday entitlement, which of course will be at the expense of the honest employees who will be left sharing the increased costs and also covering for the unscrupulous. Arguably, therefore, it would have been better for the state not to have intervened at all in that case.

As Mr Levinson concludes there is no silver bullet. But one does hope that his suggestion for greater thought to be given to the law making process is taken on board by the Cabinet Office. Improving employment law is a difficult task, but that makes it more, not less important.

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