International Labour Organization finally faces reality

Problems perceived by the regulators were many. Independent contractors were outside the design reach of most income tax withholding laws. Governments could not require businesses to send income tax to them if the worker was not an employee. In addition businesses allegedly avoided their work safety obligations if independent contractors were used. But perhaps what raised most concern was that independent contractors did and do not formally come within the reach of the organised labour collective - unions. Independent workers by definition do not engage in collective activity. These workers threaten the global institutions of unions.

These and related issues of concern were both practical and conceptual. On the practical side for example, governments need to collect tax, work must be safe and unions need to function. However there exist significant conceptual difficulties when thinking of single people as a business. Surely the reasoning goes, it’s not possible for a sole individual to be a business!

The most extreme view holds that the independent worker is in fact an employer plot to further employers' exploitation urges. It’s a scam many allege, designed to enable employers to avoid financial and social obligations. This view is translated into an academic thesis called the “dependent contractor”. It holds that someone might at law be an independent contractor but if they have only one client they are in fact “dependent” and should be treated as an employee.

The dependent contractor thesis gained strong acceptance among respected economists, statisticians and regulators by the end of the 1990s. What few realised was that they were blurring the line between employment and commercial law.

This blurring developed further with the introduction of the idea of “the problem of the triangular relationship”. This reasoned that if one party had a contract with a second person and the second person contracted further with someone else, that this was, “a problem”. When this process occurs repeatedly it’s a series of cascading commercial contracts. It might be “triangular” but it’s precisely how economies operate.

These concepts of dependent contractor and triangular relationships were not just theoretical. They appeared for example in Australia in repeated legal cases and formed the basis of several pieces of legislation. The New South Wales industrial relations unfair contracts laws are a product of these concepts. It’s why the NSW industrial relations commission has repeatedly made rulings on commercial contracts including retail tenancy leases and franchise agreements.

The issue inevitably found its way onto the ILO agenda. There was one overarching concern, namely that employment law and regulation was under threat. Workers were leaving employment to become independent contractors but many were “dependent”. The process was a sham and an employer scam to avoid obligations. The scam was highlighted by triangular relationships in which employers contracted out of their obligations through franchising, labour hire and so on. The solution it was thought was clear. Labour law needed to extend its reach to capture commercial contracts.

The ILO debates on the issue began in 1996, occurred again in 1998, had a committee of “experts” report in 2000 and reached a major “Conclusion” in 2003. It returned to the agenda in 2006 to achieve a final outcome. It has perhaps been the most protracted and difficult debate in the history of the ILO causing high anxiety and significant emotion.

The ILO result

For many years the debate was inconclusive but started to gain focus in 2003. What started to occur was a slow recognition that there is a sharp distinction between the employment contract and the commercial contract at least in policy terms.

The 2003 ILO “Conclusion”, an interim step to an end result, contained a statement that independent contractors are legitimately outside employment regulations. This was a significant development. The key part of the Conclusion read:

Self-employment and independent work based on commercial and civil contractual arrangements are by definition beyond the scope of the employment relationship.

This demonstrated that a policy understanding was slowly emerging that in economic terms the regulation of commercial contracts and employment contracts are directly opposed.