International Labour Organization finally faces reality

Commercial contract regulation has as a primary objective the stopping of collusive activity that tries to achieve price fixing and monopoly. In comparison, employment contract regulation facilitates collusive activity to achieve (labour) price fixing by delivering monopoly bargaining power to the labour collective. If employment regulation intrudes into commercial contracts, price fixing and monopoly inevitable become sanctified in the broader economy but by stealth. This is economically dangerous. And once the line has been crossed containment is not possible.

Independent contractors (self-employed) are the line. They are people who by definition earn their living through the commercial contract. To treat these people as employees it’s necessary for legislation to declare a commercial contract an employment contract.

This is what the Queensland Industrial Relations Act allows. When using the Act to declare a corporation to be an employee in 2000, the Queensland Commission said something to the effect, “it troubles us to declare something to be what it is not but given the Act requires us to do so, we must.” In short, the Queensland Act creates legal and economic nonsense and confusion. It distorts reality.

The next ILO development was a first-ever global survey of employment definitions. Key to the debate for a long time was the view that the definition of employment and independent contracting was unclear. In surveying about 80 countries the ILO found the reverse. The 2005 ILO report expressed surprise to find substantial “convergence between the legal systems of different countries” in the way they define the difference between employees and independent contractors. Contrary to many allegations, courts world-wide know exactly what they are looking for.

The ILO found that the distinguishing difference is that employees are legally dependent and independent contractors are not dependent.

In lay language the easiest understanding is that employees are dependent because they do not have the right to control the terms of their work contracts. Independent contractors are not dependent because they share control of the terms of their work contracts with the other party.

Further, the ILO report recognised the illegitimacy of the term “dependent contractor” and instead emphasised three key terms. “Worker” is a generic term in which “employees” and “independent contractors” are subsets. The ILO stated that a “dependent worker” is an employee.

This new level of authoritative definitional clarity set the scene for the 2006. What emerged was historic.

In June 2006, the ILO passed a recommendation. The key clause is clause 8 which reads as follows:

National policy for protection of workers in an employment relationship should not interfere with true civil and commercial relationships, while at the same time ensuring that individuals in an employment relationship have the protection they are due.

This is a new ILO labour standard. It recognises the necessity to keep the line between the employment contract and the commercial contract distinct. It strikes a balance between protecting employees and protecting those who work through the commercial contract. (NB:The other 22 clauses in the ILO Recommendation encourage national processes for locking down definitional clarity.)

The importance

The simplicity of language in this new ILO labour standard understates the huge significance of the 2006 development.