The employment relationship is a legal concept which underpins the operation of the labor market in many countries. This was confirmed particularly in the discussions on “contract labour” at the International Labour Conference in 1997 and 1998, the Conference discussion leading to the adoption of the private employment agencies Convention, 1997(No. 181), the national studies undertaken by the ILO, the Meeting of Experts on Workers in situations Needing Protection, and the 2003 Conference general discussion on the scope of the employment relationship. It is also reflected in a significant number of international labour standards: some ILO Conventions and Recommendations cover all workers without distinction, while others refer specifically to independent workers or self-employed persons, and others apply only to persons in an employment relationship

The employment relationship continues to be the predominant framework for work in many countries. Moreover, a study published in 2000 found that in the industrialized countries, in particular, the employment relationship is not just predominant but is proving durable, contrary to persistent reports that major changes in employment relationships have led to less stability and greater numerical flexibility. Another study published in 2001 founded similar results in six transition countries.

Of course, the situation with regard to the employment relationship is not the same in every country. Where the formal economy absorbs only a very small part of the population and where high unemployment swells the ranks of the self-employed, the reality tends to be different. Even in these cases, however, wage earners may represent a significant proportion of the working population in quantitative terms.

The widespread emergence of new forms of employment is frequently referred to in the context of changes in the organization of work and flexible work arrangements. However, new forms of employment may be understood in different ways and mean different things, especially with respect to the legal implications, and for this reason an important distinction needs to be made at this point.

People may provide their labour either within the employment relationship under the authority of an employer and for remuneration or within a civil/commercial relationship independently and for a fee. Each of these relationships has certain characteristics which vary from one country to another and determine to what extent the performance of work falls within an employment relationship or a civil/commercial relationship.

In some countries and in some sectors more than others, employment relationships have become more diversified. They have become more versatile and, alongside traditional full-time employees, employers are increasingly employing workers in other ways which allow them to use their labour as efficiently as possible. Many people accept short-term employment, or agree to work certain days of the week, for want of better opportunities. But in other cases, these options are an appropriate solution, both for the worker and for the enterprise. Recourse to various types of employment is in itself a legitimate response to the challenges faced by enterprises, as well as meeting the needs of some employees for more flexible work arrangements. These various types of work arrangements lie within framework of the employment relationship.

At the same time, there are civil or commercial contractual relationships under which the services of self-employed workers may be procured, but on terms and conditions which differ from those within an employment relationship. Frequent recourse to such contractual arrangements has become increasingly widespread in recent years. From a legal standpoint, these arrangements lie outside the framework of the employment relationship.

The determination of the existence of an employment relationship should be guided by the facts, and not the name or form given to it by parties. That is why the existence of an employment relationship depends on certain objective conditions being met and not on how either or both of the parties describe the relationship.  This is known in law as the principle of the primacy of fact, which is explicitly enshrined in some national legal systems. This is also frequently applied by judges in the absence of an express rule.

Various factors are used in many countries to determine the existence of an employment relationship. While these factors vary, some of the more common factors include the level of subordination to the employer, work for the benefit of another person, and work under instruction. In some cases, the law goes up one step further, and classifies certain workers as employees whose situation could be ambiguous, or provides for a presumption in their case that there is an employment relationship. Conversely, legislation may specify that certain contractual arrangements are not employment relationships.

In some legal systems, certain indicators are relied on to identify whether or not the relevant factors are present to determine the existence of an employment relationship. These indicators include the extent of integration in an organization, which controls the conditions of work, the provision of tools, materials and machinery, the provision of training and whether the remuneration is paid periodically and constitutes a significant proportion of the income of the worker. In common law countries, judges base their rulings on certain tests developed by case law, for example the tests of control, integration in the enterprise, economic reality, who bears the financial risk, and mutuality of obligation. In all systems, the judge must normally decide on the basis of the facts, irrespective of how the parties construe or describe a given contractual relationship.

The existence of a legal framework regulating the provision of labour does not, of course, preclude disagreement when it comes to the examination of specific cases to determine whether an employment relationship exists. Indeed, this is a frequent occurrence, given the proliferation and great diversity of situations in which the worker’s status is unclear.

The employment relationship and workers’ protection

Context of the lack of protection

As mentioned above, the Meeting of Experts in May 2000 highlighted the lack of protection of workers in certain situations in which the legal scope of the employment relationship did not accord with the realities of working relationships. The context in which this lack of protection has arisen varies considerably from one region to another and from one country to another, but in all cases it is linked to significant changes in the structure of employment. Some of these changes are associated with globalization, technological change and transformation in the organization and functioning of enterprises, often combined with restructuring in a highly competitive environment. In the words of the World Commission on the Social Dimension of Globalization, “globalization has set in motion a process of far-reaching change that is affecting everyone.” The impact of these changes is very uneven in terms of the degree to which they benefit countries, industries and enterprises.

Changes in workers’ status and mass redundancies, especially in developing countries or those in transition, are frequently related to major financial crises, external debt, structural adjustment programmes and privatization. These realities have been reflected in a drastic reduction in countries’ financial capacity and deterioration in conditions of employment and work. In this context, the growth of the informal economy and undeclared employment has been especially significant.

Associated with this development, changes in the structure of the workforce have been accentuated by migration from one country to another or from one sector of the economy to another. Other factors include a strong shift to services, greater participation of women, higher skill of levels of young people in certain countries and deskilling of workers in others. Changing lifestyles, education levels and expectations also lead to workers demanding more flexibility. These changes inevitably influence workers’ attitudes and the way in which they cope with finding and keeping a job.

Many enterprises, for their part, have organized their activities so as to utilize labour in increasingly diversified and selective ways, including various kinds of contracts, the decentralization of activities to subcontractors or self-employed workers, or the use of temporary employment agencies. These arrangements are encouraged by rapid developments in technology and new management systems in response to the growing demands of competition. This kind of flexibility has frequently been preceded or accompanied by legislative and institutional reforms to enhance the supply and demand for labour or to promote self-employment with the aim of stimulating job creation.

Repercussions of the lack of protection

Above all, of course, the lack of labour protection has adverse consequences for workers and their families. At the same time, however, the absence of workers’ rights or guarantees can be counterproductive to the interests of the enterprise itself and have a negative impact on society generally. Moreover, there is some evidence indicating that these changes affect women more than men. Workers in these situations not only lose their rights under labour law, but also have difficulty securing the protection of the competent inspection services or seeking redress through the labour courts. In many countries, they are completely excluded from or on the fringe of social security protection and receive less favorable benefits than those workers recognized as employees.

The lack of labour protection of workers can also affect employers, to the extent that it undermines productivity and distorts competition between enterprises, both at national and sectoral or international level, often to the detriment of those who comply with the law. The lack of legal certainty can also result in judicial decisions reclassifying “self-employed” workers as employees, with considerable unforeseen economic consequences for enterprises. At the same time, the reality of work without any prospect of stability or promotion can ultimately make workers lose their commitment to the enterprise and contribute to an increasing and costly labor turnover.

Another dimension of the lack of labour protection is the neglect of training, including training for work in environments where there are inherent risks. Enterprises can be reluctant to invest in training workers who will probably not be with them for long. The user enterprise is unlikely to train the workers supplied by another firm, except for very specific purposes. Untrained workers are more vulnerable to accidents in the workplace and can hamper the competitiveness of the enterprise. In addition, in some sectors which have large numbers of unprotected workers, the negative image can create serious problems of recruitment and retention of workers. The construction industry is one example of such a sector.

The lack of labour protection can also impact on the health and safety of third parties and society in general. Some accidents, such as those caused by heavy vehicles or major accidents in industrial plants, have caused damage to the environment, as well as injuries and fatalities to third parties. The link between accident risks and the lack of workers’ protection has also been observed in situations where there is extensive use of subcontracting. The issue is not subcontracting itself but its improper use, which can create or aggravate risks.

Uncertainty with regard to the law

Disputes concerning the legal nature of a relationship for the provision of labour are increasingly frequent. The employment relationship may be objectively ambiguous or disguised. Both situations create uncertainty as to the scope of the law and can nullify its protection.

The problems faced by workers involved in “triangular” employment relationships pose different legal questions. These are workers employed by an enterprise (the “provider”) who perform work for a third party (the “user”) to whom their employer provides labour or services. For these employments status is not in doubt, but they frequently face difficulties in establishing who their employer is, what their rights are and who is responsible for them.

Changes in the legal status of workers, whether real or apparent, seem to be a sign of the times and are commonly observed not only in traditional sectors such as transport (truck drivers, taxi drivers), construction and clothing, but in new areas as well, such as sales stuff in department stores, or certain jobs in wholesale distribution or in private security agencies, although there are considerable differences from one country to another and from region to region.

Objectively ambiguous employment relationships

In a standard employment relationship, the worker’s status is not normally open to doubt. In some cases, however, a worker may have a wide margin of autonomy and this factor alone may give rise to doubt as to his or her employment status. There are situations where the main factors that characterize the employment relationship are not apparent. It is not a case of a deliberate attempt to disguise it, but rather one of genuine doubt as to the existence of an employment relationship. This may occur as a result of the specific or complex form of the relationship between workers and the persons to whom they provide their labour, or the evolution of that relationship over time. Such situations may occur with persons who are normally self-employed, such as electricians, plumbers and computer programmers, and who gradually enter to a permanent arrangement with a single client.

In other cases, especially in work environments affected by major changes, it is possible and sometimes necessary to resort to a range of flexible and dynamic employment arrangements which can be difficult to fit into the traditional framework of the employment relationship. A person may be recruited and work at a distance without fixed hours or days of work, with special payment arrangements and full autonomy as to how to organize the work. Some workers may never even have set foot in the enterprise if, for example, they have been recruited and work via the Internet and are paid through a bank. However, perhaps because they use equipment supplied by the enterprise, follow its instructions and are subject to subtle but firm control, it may be that the enterprise quite naturally considers them as employees. The emergence of “e-lancers” (electronically connected freelancers) is another phenomenon which is challenging the traditional employment framework.

Midway between the employment relationship and self-employment, there are “economically dependent workers” who are formally self-employed but depend on one or a few “clients” for their income. They are not easy to describe, let alone quantify, because of the heterogeneous nature of the situations involved and the lack of a definition or statistical tool.

In cases where the contract is clearly intended to procure the services of a self-employed worker, it is in employers’ interest to make sure that they have not misclassified the worker, as they can be held financially liable if the authorities find that the worker is in fact an employee.

Disguised employment relationships

A disguised employment relationship is one which is lent an appearance that is different from the underlying reality, with the intention of nullifying or attenuating the protection afforded by the law or evading tax and social obligations. It is thus an attempt to conceal or distort the employment relationship, either by cloaking it in another legal guise or by giving it another form. Disguised employment relationships may also involve masking the identity of the employer, when the person designated as an employer is an intermediary, with the intention of releasing the real employer from any involvement in the employment relationship and above all from any responsibility to the workers.

The most radical way to disguise the employment relationship consists of giving it the appearance of a relationship of a different legal nature, whether civil, commercial, cooperative, family-related or other. Some of the contractual arrangements most frequently used to disguise the employment relationship include a wide variety of civil and commercial contracts which give it the semblance of self-employment.

The second way to disguise the employment relationship is through the form in which it is established. While the existence of an employment relationship is not in question, the nature of the employment relationship is intentionally misrepresented so as to deny certain workers’ rights and benefits. For the purposes of this report, such contract manipulation amounts to another type of disguised employment relationship, resulting in a lack of protection for the workers concerned. This is the case, for example, of contracts concluded for a fixed term, or for a specific task, but which are then repeatedly renewed, with or without a break. The most visible effect of this type of contract manipulation is that the worker doesn’t acquire the rights and obtain the benefits provided to employees by labour legislation or collective bargaining.

The trend towards replacing the employment contract with other types of contract in order to evade the protection provided the Termination of Employment Convention, 1982 (No. 158), was noted by the ILO Committee of Experts on the application of conventions and Recommendations in 1995.

“Triangular” employment relationships

As already mentioned, “triangular” employment relationships occur when employees of a person (the “provider”) work for another person (the “user”). A wide variety of contracts can be used to formalize an agreement for the provision of work. Such contracts can have beneficial effects for the provider’s employees in terms of employment opportunities, experience and professional challenges. From a legal standpoint, however, such contracts may present a technical difficulty as the employees concerned may find themselves interacting with two (or more) interlocutors, each of whom assumes certain functions of a traditional employer.

There are also, of course, cases of objectively ambiguous or disguised “triangle” employment relationships. A “triangular” employment relationship normally presupposes a civil or commercial contract between a user and a provider. It is possible, however, that no such contract exists and that the provider is not a proper enterprise, but an intermediary of the supposed user, intended to conceal the user’s identity as the real employer.

“Triangular” employment relationships have always existed, but this phenomenon is now on the increase. The national studies identified a growing tendency among enterprises in many countries to operate through other enterprises or with their collaboration. In these situations, workers provided by different enterprises can be found working on the user’s own premises or outside, even in a different country “Triangular” employment relationships can take various forms. The best known is the use of contractors and private employment agencies.

In an employment relationship, there is usually no doubt about the identity of the employer where workers deal with only one person. This person is the one who hires the worker or who performs the normal functions of an employer: assigning tasks, providing the means to perform them, giving instructions and supervising their performance, paying wages, assuming risks, making profits and terminating the employment relationship. The situation may be different, however, in a “Triangular” employment relationship, when these roles are assumed separately or jointly by more than one person and anyone or a number of them may be perceived as the employer, in which case the employee may reasonably wonder: who is in fact my employer?

In particular, workers may not know, for example, from whom exactly to claim payment of remuneration or compensation for an accident at work, and whether they can file a claim against the user when the direct employer disappears or becomes insolvent. Doubt as to the identity of the employer, or the involvement of the user in the employment relationship, leads to the following key questions in the case of “triangular” relationships: what are the worker’s rights – are they the rights agreed by the employee with his or her employer (the provider), or those of the employees employed by the user, or a combination of the two?

Workers may wonder who is responsible for their rights. The logical answer, which is normally consistent with the law, is that employers are primarily responsible for the rights of their employees, whether they are a contractor, an employment agency, a cooperative or any other employing enterprise or entity. However, the role of the user can be crucial with respect to ensuring respect to these rights (such as limits on working hours, rest breaks, paid leave, etc.). There are laws which in some circumstances also assign a measure of responsibility to the user, as the person who benefits directly from the labour of the worker and who often appears to be an employer or someone similar to an employer. Depending on the circumstances and national law, the employer (or provider) and the user may bear joint and several liability, so that the worker can claim against both or either of them without distinction. In other circumstances, the user bears subsidiary liability, in the sense that a claim may only brought against the user in the event of non-compliance by the provider. A number of ILO instruments also address this subject.

The determination of the identity of the employer and other possible parties to “triangular” employment relationships, of the workers’ rights and of the persons responsible for ensuring those rights raises legal issues which are not easy to resolve. However, the major challenge lies in ensuring that employees in such a relationship enjoy the same level of protection traditionally provided by the law for employees in a bilateral employment relationship, without impeding legitimate private and public business initiatives.

In summary, in cases of “triangular” employment relationships, employees are frequently faced with multiple interlocutors. In such circumstances, it is essential that such employees know who the employer is, what their rights are, and who is responsible for them. It is equally important to determine the position of the user with respect to the employees of the provider enterprise. A balanced and constructive approach to the question should take into account the legal difficulties involved, and the legitimate interests concerned.

Closing the gap

In response to the growing divergence between the law and the reality of the employment relationship, measures need to be taken to close this gap. The objective should be to update and clarify the law governing the employment relationship so as to facilitate recognition of the existence of an employment relationship, and deter attempts to disguise it. Given the proliferation of objectively ambiguous and disguised situations and the growth of “triangular” relationships, member states, with the involvement of the social partners, could examine their legislation so as to identify any deficits in the light of their own specific problems and comparative law. This would enable them to determine the nature and extent of the measures needed. The outcome of this exercise should be to enable the laws on the employment relationship to be regularly updated as part of an ongoing and dynamic process.

Clarifying the scope of the law

The first part of the strategy would be aimed at clarifying, supplementing and stating as precisely as possible the scope of the law. At this stage, it could be useful to examine the most common forms of disguised employment relationships and cases in which it is most difficult to determine whether there is an employment relationship or a civil or commercial relationship. The task would consist of remedying the technical deficiencies in the legislation in order to address objectively ambiguous cases and to tackle the phenomenon of disguised employment relationships. In relation to “triangular” relationships, the objective would be to clarify the law so that the employees know who the employer is, what their rights are and who is responsible for them.

55. Comparative law contains a wealth of notions and legal constructs as to what is meant by an employment relationship and the factors and indicators used for recognizing it. In addition, there are mechanisms and institutions to enforce the law and guarantee workers’ rights. These generally enable the regulation of the employment relationship to operate smoothly so that the status of the worker can usually be determined. However, the law does not cover all of these aspects equally or with the same degree of precision and effectiveness in all countries.

Adjusting the limits of the legislation

Clarification alone, however, may not be enough to regulate cases which do not fall within the current scope of the legislation. This calls for certain adjustments to the limits of the legislation. This can be done in a number of ways. First, in the case of objectively ambiguous relationships, where some of the features of the employment relationship are blurred or absent, the law needs to be adjusted so as to enable a clearer identification of the employment relationship, where it exists. Second, the legislation can be extended to include categories of employees or sectors that are explicitly or implicitly excluded from the scope of the law. These exclusions frequently apply to employees in small and micro-enterprises and export processing zones (EPZs). Furthermore, in some countries, labour laws do not have general coverage, but apply only to certain employees. In such circumstances, progressive steps could be taken towards a more general application of the legislation concerned. Third, the scope of the law may be adequate, but it may be narrowly interpreted by the courts. The development of factors and indicators for determining the existence of an employment relationship can promote consistency and predictability in courts decisions.

Balancing equality and adaptability

The lack of labour protection raises questions of equity, on the one hand, and flexibility or adaptability, on the other. A balance between the two must be sought through social dialogue aimed at building a broad consensus. Employers are constantly faced with the challenge of survival in a competitive global environment and legitimately seek viable solution among the range of options offered by different forms of employment. However, it is difficult for enterprises to improve their productivity with a poorly trained, demotivated and rapidly changing workforce.

Balancing equity and adaptability is at the very heart of the ILO’s Decent Work Agenda, which offers a framework for reconciling the different interests and reaching a consensus through social dialogue. Countries have found different institutional and policy responses to reconcile these diverging interests. For instance, a number of European countries have moved away from a situation where flexibility creates insecurity to one in which security promotes flexibility.

Ensuring compliance

The problem of objectively ambiguous, disguised or “triangular” employment relationships cannot, however, be entirely attributed to lack of clarity and the problems relating to the scope of the law. Another contributing factor, which is particularly serious in some countries, is failure to comply with the law, accompanied by poor enforcement.

The problem of non-compliance is particularly serious in some developing countries, although it also occurs in industrialized countries. The studies carried out confirm a commonly expressed view that traditional mechanisms to enforce labour laws are not used as they should be. In particular, mechanisms and procedures for determining the existence of an employment relationship and establishing the identity of the persons involved are generally insufficient to prevent infringements of labour law or to safeguard workers’ right. Problems of compliance and enforcement are particularly acute in the informal economy.

Enforcement of labour law by the administrative and judicial authorities is affected by financial constraints in most countries. Moreover, the limited powers of these authorities and their enforcement mechanisms, such as they are, often mean that they are unable to discharge their obligations.

Labour inspectorates frequently face considerable difficulties in carrying out their tasks. In some countries, the probability that an inspector will visit a particular enterprise, detect shortcomings, impose corrective measures and enforce them is very low or nonexistent. Particular difficulties arise where the premises are extensive or located in remote places and, for different reasons, in small and micro-enterprises. The situation is even more uncertain as regards the possibility of action by labour inspectors concerning workers in objectively ambiguous or disguised employment relationships, even in countries where inspectors are empowered to identify such cases and remedy them.

In principle, all workers have access to the courts. In practice, however there are countries where restrictions on access to the courts are considerable and few workers can afford to enter into long, costly and inevitably uncertain judicial proceedings. Rarer still, of course, are those workers who, while still working, resort to the courts for a ruling on their employment status.

Improving protection for workers within the employment relationship requires that the mechanisms and institutions established to enforce compliance with labour law function effectively. Each country, depending on the deficits in its legal system and in the organization and functioning of its labour institutions, should consider streamlining the task of labour inspection and making it more efficient, with advisory and enforcement powers appropriate to present-day circumstances.