Tenth Anniversary Conference

Beyond Employment: The Next Agenda

Ken Phillips

My objective this morning is to explain the complex legal entity known as employment and to demonstrate how the legal state of employment adversely impacts on all citizens. I want to reveal the alternative of non-employment, discuss why it is viable and show how non-employment is in many respects a superior form of human relationship in work, to employment. Moving beyond employment is, I propose, the next agenda.

People who haven't studied the highly specialised field of employment law are often surprised to discover the legal definitions of employment.

Most people don't understand that when they become employed they enter a legal state of being in which the employer has the "right to control" them.

When Australian industrial relations courts consider issues they first ensure that employment exists. The courts, in determining the legal existence of employment, apply several tests, the major one being the "control test". If an employer has no demonstrable "right to control an employee", no legal employment status will be said to exist.

This legal right of employers to "control" employees is a throwback to medieval times of feudal England and results in strange behaviours and regulations.

A condensed history lesson would show us that prior to the signing of the Magna Carta by King John in 1215 the people who lived and worked in the King's forests were at law the King's chattels. The Magna Carta contractually constrained the King, initially to the benefit of the Lords, but over generations contractual rights were delivered to all citizens limiting the unfettered abuse of the common person.

By the time of the industrial revolution people were no longer chattels of the King, but during working hours the master-servant relationship entrenched similar ownership and control powers. Workers were at law "servants", who were effectively controlled by the "master".

The progress of common law since the early days of the industrial revolution has diminished the master-servant relationship to the status of the employer-employee relationship where "control" has been reduced to the "right to control".

Because employment equates to a legal right to control, social concern over the abuse that can occur when one person has the legal right to control another has caused legislators and institutions to limit and regulate employer power. Trade unions and the industrial relations club find the moral justification for their existence in this legal "right to control" of employment.

The greatest understanding of the legalities of employment occurs when the details of employment regulations are studied.

I have chosen a small number of extracts from four current awards to demonstrate the minute detail in which employment regulation is involved showing some interesting, amusing, absurd, nonsensical, antiquated and disturbing peculiarities.

People who have never read an award may be surprised to find that as employees we can have a legal obligation to work overtime and to take holidays.

Awards impose an obligation to work and to take holidays

" ....employees shall comply with reasonable and lawful orders of the employer as to working overtime including the working of overtime on Saturday"

"...obligation of an employer to give (and) employee to take annual leave ....."

"The annual leave provided for by this clause shall be allowed and shall be taken...."

Awards regulate locations

"Employees working in ......coffee palaces shall be paid time and a half for all work done in excess of the number of hours fixed for an ordinary week's work."

Awards Ensure Training Occurs

"Employees nominated by the union have paid leave to attend Trade union training."

Awards Provide Definitions

"Casual employee shall mean an employee engaged and paid as such."

"Float shall mean any horse drawn vehicle on two or more wheels generally used for carrying plate glass or other heavy material"

Awards Classify Work

Classification No 2

"Employee driving a mechanical horse....shall be paid ......$327-20 per week"

Awards Stipulate Additional Payments

"Where a driver provides stabling for his horse or horses, he shall be paid $2 per week for each horse stabled in addition to the minimum rate of wages prescribed."

Awards Outlaw Bad Practices

" .... the practice of "one for all" shall not apply."

Heavy articles maximum weights to be lifted

Female 16 to 18 yrs 11.25 kg

Female 18+ yrs 16 kg

Male 16 to 18 yrs 18 kg

Male 18+ yrs 82 kg

Awards Limit and Prohibit Employee Earnings

"..no weekly employee shall work for more than one employer during any one week nor shall an employee make or assist in the production of goods for sale on his own account."

"No employee during any period of paid leave provided for by this award shall engage in any employment for hire or reward with an employer known to him or her to be bound by this award."

Surely if these income prohibitions were included in a contract between two companies it would be considered an illegal restraint of trade. Yet this income suppression mechanism is an integral part of the employment system.

We have to ask, how is it that in a supposedly civilised society one area of the law aims to enforce income suppression, delivers legal supremacy of one individual over another and consequently institutionalises class stratification?

Why, in a society obsessed with equality, is such blatant inequality tolerated and even institutionally enforced?

I talk of beyond employment being the next agenda because in the politically charged debate which occurs in Australia on employment and industrial relations issues, the combatants limit their discussion to the degree of constraint to be imposed on employer control. None of the combatants question the appropriateness of the control powers of employment as a work arrangement.

The bigger question which should be asked and be part of the next agenda, is why is this employer-employee power relationship sustained and why should employment remain as the dominant form of work organisation? I provide some perspective's.

Usually unions are blamed for problems associated with the employment and industrial relations system. Yet my experience has led me to propose that unions are largely irrelevant to the change equation when other more important matters are taken into consideration.

Forces other than unions are more significant in causing the industrial relations system to be sustained and present the greatest barriers to any reform efforts including the efforts of the current Federal Government.

The first of these forces relate to commercial considerations. Employment and its regulation system limits commercial competition and delivers near monopoly privileges to commercial organisations adept at dealing within the official and unofficial regulatory environment. Many large and apparently conservative institutions in Australia have commercial vested interests in maintaining the status quo or near status quo of employment.

Few conservative politicians realise the extent to which employment regulation aids monopoly creation and acts to suppress commercial competition..

Let me demonstrate.

The following diagram shows a common form of organisational structure used for many major construction projects in Australia. The people paying the money contract a management firm to organise the construction who in turn invite contracting and subcontracting companies to submit competitive tenders for work. Choice of successful tenders is based on price and ability to perform. Notionally the people paying should achieve the best price possible under a competitive system. That is until the industrial relations club becomes involved.

Industrial relations club players convince the project payers that any overall industrial relations site agreement setting wages and work practices must be established to enable the project to proceed. One current fad word being used is "Island Agreement". This site agreement becomes an instruction to the bidders as to the labour price to be paid and labour usage to prevail, effectively enabling labour to be removed as a competitive factor in the tender process. From my observation of such site agreements, it is rare that the beneficiaries are the workers, the minor subcontractors or the project payers. It is a competition rorting system under the guise of "industrial relations reality". Some call it the "set, forget and lets do lunch" approach to people management issues.

A further development on this competition suppression system is the geographic carving up of the nation. For example, Melbourne is divided into regions under industrial relations understandings for the purposes of bidding, winning and doing work. A company located in the eastern suburbs which has been branded a "plumbing" company for the purposes of industrial relations coverage in the western suburbs, knows that it cannot submit a bid for fitting and turning work in the western suburbs even if it regularly does fitting and turning work in the eastern suburbs.

In the food industry I have come across instances where small but growing firms have had a competitive edge over larger businesses. Unions, who have never shown their face on site suddenly turn up demanding that all sorts of work practice restrictions be imposed which equate to that of the less competitive larger firm. The wishes of the workers are not relevant. The impact is the creation of an anti-competitive playing field. The smaller firm ceases to be a competitive threat to the larger business.

These competition suppression and monopoly creation systems operate unofficially and vary in their complexity, application and structure. Perhaps the most common however, are the private CEO and high level union leader lunches which occur regularly.

Apart from these commercial Machiavellian realities, the greater forces causing the retention of employment are attitudinal. The people who run the system, including most managers, are locked into a mental attitude linked to production processes predicated on the need for unequal power relationships between people.

Managers have difficulty understanding how they can achieve output if they don't have a legally dominant power relationship, no matter how constrained is that power. Managers feel the need to be able to issue commands. They feel they must be in control. Managers feel that they need subordinates who can be ordered to undertake certain actions. The law reinforces and sustains this psychological perception.

Beyond these attitudes are concerns of security, safety, confidentiality and corporate survival. There is a common fear in businesses and organisations of losing trained and talented people, of corporate skills going to rivals, of industrial and commercial espionage and of accountability in the event of accidents. There is a sense that to overcome these concerns and to ensure organisational survival some type of hold or ownership of people is necessary.

To achieve ownership many organisations go to great lengths to create a corporate ethos or vision and to motivate people to the goals of the organisation beyond monetary matters. Bonding of people to each other and the organisation is fostered through the psychology of loyalty.

This need for ownership of people is usually expressed in benevolent, kindly language and the use of the term "ownership" is viewed as being harsh and inappropriate. But ownership is the best description of the attitude and at its crudest entails a relationship which facilitates power of one group in the organisation over another. The master-servant/power underpinning's of employment neatly fits this need for ownership hence the desire by managers to retain employment.

The negative side for organisations in wanting to "own" their people is that circumstances change and things go wrong. Commercial reality causes organisational bonding through ownership to collapse. A downturn in a business, or a corporate take over will mean that promises implied to individuals as part of the ownership creation exercise cannot be met.

A major but ignored problem in this loyalty/ownership/power relationship is that in a vast number of workplaces the employer is only a legal figment. Only occasionally does it occur and usually in small businesses, that the employer is a living human. Mostly employers are companies, corporations or government departments where ownership is by distant shareholders or the public and the employer function is managerial, undertaken by selected company employees.

In these instances the employer-employee relationship is, in reality, an employee-employee relationship, where one group of employees are accorded special controlling rights over another group of employees in the work process. The employees deemed to be the employer are in turn subject to control by another special group of employees in a hierarchy chain. It is a structure in which no individual is the actual employer, held individually accountable for the employer side of the employment relationship.

This workplace legal charade creates group dynamics which do not fit the master-servant assumptions of the employment/industrial relations system. In this employee-employee reality, the "deemed employer" employees suffer from the contradictory nature of their position. How do these employees represent the interests of the legal employer when as employees they privately have more in common with other employees?

Employment regulation provides the remedy to this contradiction. It is an avoidance system. The industrial relations system pretends that a master-servant/employer-employee relationship exists and then externally regulates the relationship in a structured and legalistic manner. Organisations where, in truth an employee-employee relationship exists, are delivered a system which enables the avoidance of people management issues. Australian management suffers as a result.

You may remember the Karpin Report which exposed poor Australian management practices. Terry McCrann in commenting on Karpin said

".. you can't talk about management skills without talking about industrial relations."

My argument is that poor management is sustained by the legalities of employment. Poor management is encouraged by the employee-employee charade, the ego pumping control test, the desire for ownership through loyalty, and the income and competition suppression and monopoly creation aspects of employment. These are the forces which present the greatest barriers to reform of and improvement to work arrangements.

Can the current situation be sustained? I suggest that our society will ultimately mature beyond employment. But like the Berlin Wall, the collapse can be a long time in coming.

My observation however, is that the global shift occurring in the work structures of developed economies is so substantial as to ensure that Australia will have no choice but to change.

One United States commentator has claimed that the work change happening internationally is as significant as that of the industrial revolution. Employment as a dominant organisational and social structure is collapsing.

The international shift is demonstrated by looking at specific examples. I quote without comment from a study called "Jobshift" by W Bridges 1995 and from Fortune Magazine January 1994.

The Worldwide Shift in work.

The end of permanency

"Analysts are predicting that by the year 2000, 50% of all Americans will be contract workers."

"The Bank of America has estimated that soon only 19% of the bank's employees will work full time."

"AT&T until recently a job based outfit if ever there was one has stopped referring to any of its positions as permanent ones."

"Japanese companies are already beginning to break their patterns of lifetime employment."

Business Examples

Manpower

The private US company that engages more personnel than any other is the temporary placement agency Manpower with 560,000 in the workforce.

This compares to General Motors at 365,000

and IBM at 330,000

Home Corporation

Alabama's Home Corporation, the owner manager of apartment complexes scattered through ten states has leased its entire 500 person property management staff from Action Staffing.

FI Group

The British information-technology firm FI Group employs 250 people in traditional full time jobs, but contracts with 5,000 "freelance associates" to do much of the work.

Microsoft

You won't last at Microsoft if your job is just a job. No regular hours, building open to workers 24 hours day. No tracking of hours but with everyone watching output. Work is on project results. No standardised career routes. People move onto a new project taking with them the reputation they earned at their last project.

On Work Attitudes

On Loyalty

"Working in corporate America is no longer a loyalty game."

"Loyalty is really a dependency that grows from an inability of the individual to be self sufficient."

"In the new environment it is loyalty to ones craft."

On Dinosaurs

Social Change

"Employment security is going through one of those fundamental redefinitions that marks a societal turning point. Now security resides in the person rather than the position."

"It is one of those shifts in the socio-economic environment guaranteed to render obsolete the people and institutions that deny it."

I believe that in Australia, we are big into denial!

The topic of my discussion is "Beyond-Employment. The Next Agenda." I have sought to demonstrate the socially counter productive features of employment, how employment is failing to serve us and to give an indication of the incomprehensively massive change in play. I now want to explain what I believe to be a viable alternative to employment, namely non-employment.

My comments and conclusions on employment have developed significantly because of my involvement with a unique and innovative non-employment system, The Agency Contracting System. It is this alternate non-employment system I shall proceed to explore and which provides an insight into how non-employment can work..

Agency Contracting is the only independent contractor system, of which I am aware, which has been endorsed by the High Court of Australia. As a result, Agency Contracting is legally beyond party political machinations. During the later term of Federal Labour, Agency Contractor non-employees worked for a federal government body.

The following summary sheet provides an overview of the system.

AGENCY CONTRACTING SYSTEM

Legalities

Operates in compliance with Odco High Court Ruling of 1991.

At law

  • No employer - employee relationship exists. No "right to control".
  • No contractual relationship between business and independent contractor.
  • IRC and unions do not have jurisdiction.
  • No award constraints or unfair dismissal.

Operation

  • Three parties exist - the independent contractor, the agency and the business/organisation.
  • The contractor has a contract with the agency to supply work.
  • The agency supplies the contractor to the business on a daily hire basis.
  • The business has the right to "direct" the work.
  • The business pays the agency one fee.
  • The agency pays the contractor and administers all statutory obligations related to personnel administration.
  • The system is voluntary by all parties.
  • The contractor is paid above "award" rates and receives higher pay for quality work.

Agency Contracting is an individual contracting system in which people are supplied as contractors to businesses through an administrative agency. At law, no party has a right to control another party hence, employment does not exist. Consequently, the industrial relations system does not have constitutional jurisdiction. Unions do not have a right to be involved.

Agency Contracting was born in the building industry and in 1991 the Odco High Court Rulings cemented the legalities of this non-employment system. In 1994 the decision was made to commercially apply Agency Contracting beyond the building industry.

Today I can report rapid growth, and a substantial penetration of the system into businesses and industries across Australia. At present, contractors working under the system range from farm hands to doctors and all sorts in between. When considering the entire Australian economy, Agency Contracting is in its comparative embryonic stage as a business application, but it is already managerially and financially strong enough to have a self perpetuating momentum. Many would be surprised to discover the breadth, range and profile of the businesses either currently using the system or undertaking detailed cost and management analysis in preparation for use.

Agency Contracting as a business venture is available to anyone who understands the Odco High Court Rulings. No one has a monopoly on what is publicly available knowledge. The companies I contract to happen to be the Australian experts on the legalities and the commercial application of Agency Contracting. They operate a nationally licensed service ensuring that the legal integrity of the system is maintained and protected.

In presenting Agency Contracting to both private and public businesses and organisations, it is not assumed that Agency Contracting is the answer to all problems. One question is asked of each organisation, namely, what is it that they need to achieve in relation to labour usage to attain best possible practice. Most in the industrial relations club miss the point, that to business viability, it is not the price of labour which is paramount but the usage. Our analysis of the application of Agency Contracting to each business begins from that position. On occasions our conclusion is that there is no advantage. Sometimes Agency Contracting can be used for all staffing or a mix of Agency Contracting and employment is desirable. There is often an extensive lead time, between a business first hearing about the system and using agency contractors. There is much to be considered and the application potential is specific to the circumstances of each organisation.

When it comes to the setting of the contract terms, the business user makes the decision on both labour price and usage. Agency Contractors are paid better than award rates. The major role of the agency is to ensure contract compliance with the High Court Rulings and to administer payments. The agency facilitates rapid contract renegotiation where desired, enabling high level flexibility. Agency Contracting overcomes the high transaction costs thought to inhibit work contracts.

The contract offer to the contractors is by the agency not the business user of the labour. The agency is legally liable for all payments to the contractors even if the business user fails to pay the agency. The agency is not a defacto union or industrial relations court and does not represent an outside, interfering third party. Both the contractor and the business user can walk away at any time.

The agency can cease to deal with contractors and business users who fail to comply with contract standards. If the contractor does not perform to the standard required by the business no new contract will be offered. If the business breaches contractual understandings the contract will not be renewed. The system operates on offer and acceptance of contract rather than contract termination.

Agency Contracting is successful because it institutionalises commercial commonsense.

Because the agency makes its money through administration fees, the agency has a vested interested in having as many people work as possible on the highest rates possible. Conversely, the agency cannot afford to be supplying contractors on rates which are not commercial for the businesses using the system. In short, the contract prices are those which enable all parties to make money, the agency, the business and the contractors.

The motivation under the system is commercial, business commonsense driven by mutually dependent self interest. The system works only if all parties achieve benefit. The business user has clear needs, namely the demands of their client customers. The agency as the administrator in the system has a commercial focus on the joint needs of the business users and the contractors. The contractors are small business people who are dependent for their income on the commercial success of the places where they work. There is no inherent, legally presumed power of one party over another. Agency Contracting is driven by commercial, business relationships.

On the issue of control, the contractors have self control. However the business user has enhanced control over the work objectives, outcome and quality. Agency Contracting does not involve the managerial abrogation of responsibility or direction over the work requirements.

Contractors do not have or need to have misplaced loyalty to the agency or the business user. Contractors loyalty is to the professional application of their craft and to their tasks. The professional, contractor attitude required, is the same for work, from labourers to doctors. One thing you learn when involved with many different work types is that there is no such thing as an unskilled job. The skill of an experienced fruit picker is extraordinary.

Finding people who wish to work as contractors is never a problem. An individual who has been an employee all their lives can sometimes take a little time to fully understand what it means to be a contractor. Usually within three months contractor mentality is firmly established. Often Agency Contracting picks up a new client business because a person who has worked as a contractor in the past has been offered full time employment which they reject, informing the business that they prefer to work as an agency contractor.

Agency Contracting and non employment does not necessarily apply to every business or their managers.

One company director I talked to suddenly understood that agency contractors are linked to a system that gives them ready access to knowledge about current prices in the labour market. The director wanted assurances that the agency would not let contractors have access to other better paid work. Ladies and gentlemen, welcome to the competitive market place for labour. Let the best contract win the best contractors. That company director wanted a one way beneficial contract which protected him from market forces. Employment and its regulation is what that director wanted.

Sometimes we come across managers who have developed their people management skills at the Genghis Khan school of non-diplomacy. Agency Contracting has little application for businesses run by those managers.

Some businesses adhere to principles of people ownership through loyalty bonding in a serious, structured and successful manner. They do it well and achieve stunning results for their business through high quality trusting relationships with their employees. These businesses usually don't need Agency Contracting and we wish them well in their endeavours and profit.

I mentioned before that Australia is big into denial. Occasionally however, evidence comes along which exposes us as a nation like the king without clothes. The Bureau of Industry Economics and the McKinsey Global Institute present such evidence.

Bureau of Industry Economics

Report of November 1995

"International Benchmarking"

"International best practice is a moving target and we have to run fast to keep pace with the world leaders"

"We have stepped backward in waterfront container handling and aviation."

"Labour productivity in electricity measured as gigawatt hours per employee was 3 times greater at Trans Alta in Canada than in Victoria, Australia's best observed practice"

"In telecommunications......... World best observed labour productivity practice, that of the United States, was more than double that of Telstra."

".... in the area of operational efficiency, especially labour productivity, that Australia falls furthest behind world best practice."

McKinsey Global Institute Report Aug 1995

"Australia's economic prosperity has not changed since 1970.

Its GDP per capita is 30 percent behind the best performing country.

Most of this gap is due to lower labour productivity."

"Our early research showed that Australia's 30 percent prosperity gap with the United States is made up of 25 percent lower labour productivity and 5 per cent lower employment per capita."

Report looked at 5 industries and found the following in comparison to the USA.

Food processing operates at 68 percent of the US level.

General retailing operates at 81 percent of the US level.

Retail banking operates at 60 percent of the US level.

Aviation operates at 84 percent of the US level.

Construction operates at 95 percent of the US level.

".....lower management aspirations and less innovation are the primary causes of lower labour productivity in the Australian case industries."

"Probably the most important first step Australian business can take is to see innovation as a key driver of shareholder returns."

My experiences with non-employment have had me witness cases of significant increases in contractor remuneration, and startling increases in productivity without the user businesses having to invest any additional money. My view is that the creative and productive capacity of Australian citizens is being oppressed by our employment regime. In our national reform efforts, non-employment should be part of the agenda.

Non-employment is simple. To understand it you need to brush away the complexity of employment.

At its core, non-employment removes the institutionalised, unequal power relationship and class stratification imposed on society by employment law. It brings about the end of wage slavery envisaged by Karl Marx and Friedrich Engels, but in a way they certainly did not envisage: by the full development of capitalism, not its overthrow.

Non-employment challenges those businesses which are organised along classic collectivist principles. However the greatest challenge in non-employment is not to society as a collective but to managers as individuals, because in non-employment managers must develop people management techniques which are not reliant on their legal "right to control" other humans.

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