Collective bargaining 4.0: using labour law to extend coverage to new forms of work

By Andrea Bassanini, Stijn Broecke, Sandrine Cazes, Andrea Garnero and Chloé Touzet, Directorate for Employment, Labour and Social Affairs, OECD.

Trade union membership and overall coverage of collective agreements have declined in OECD countries. The proportion of employees who are covered by collective agreements has steadily fallen over the last three decades, from 45% on average in 1985 to 32% in 2017.

Is the fall of collective bargaining coverage a problem? Employers have a higher degree of control over the employment relationship than workers, who often have limited outside options. This can lead to an unbalanced power relationship between the parties, with stronger bargaining power in the hands of employers. In that case, the latter can inefficiently impose lower wages – a situation usually referred to as labour market monopsony. The consequences of these imbalances on pay and employment tend to be stronger when workers are unable to organise and bargain collectively. When workers negotiate pay and working conditions individually (or do not negotiate them at all), employers’ buyer power is usually not offset by sufficient bargaining power on the side of workers. The fall of collective bargaining has therefore likely contributed to the decline in the share of national income that goes to workers.

Union membership and collective bargaining coverage is even lower among non-standard workers (self-employed, temporary and part-time workers). Non-standard workers are 50% less likely to be unionised, on average, than standard employees. Lower unionisation among non-standard workers reflects inter alia the practical and legal difficulties of organising them. In particular, workers classified as self-employed are usually prevented from organising collectively due to competition laws prohibiting cartels among business undertakings.

The problem is that, as the recent media attention about the so-called fourth industrial revolution (sometimes indicated as Industry 4.0) and platform work has made salient, the boundary between employee status and self-employment is often blurred. In particular, two categories stand out. On the one hand, there is “false self-employment” – situations where working arrangements are essentially the same as those of employees but contracts define workers as self-employed in order to avoid regulations, taxes and unionisation. Effectively enforcing labour regulation would therefore extend collective bargaining rights to a number of workers, who are currently deprived of them, because most jurisdictions confer an undisputed legal right to organise to employees, as acknowledged for example in several rulings of the European Court of Justice. Fighting misclassification may require revising and/or harmonising definitions of employee and self-employed statuses as well as strengthening regulation enforcement by facilitating third-party actions and reducing the costs of filing classification complaints for workers.

On the other hand, no matter how effective enforcement is, there will always be workers who are genuinely difficult to classify and belong to a grey zone between dependent and self-employment. Independent contractors and freelancers such as ride-hailing drivers and delivery workers often fall into this category. This occurs because they simultaneously share some of the characteristics of employees (e.g. they cannot set their own rates of pay, cannot be replaced in executing their tasks by someone else, are financially dependent on one main “customer”) and some others of the self-employed (e.g. they can choose when to work; they use their own equipment; they can work for competing platforms). As a consequence, the factors constituting the multi-factor tests used by courts to adjudicate whether a worker is an employee or not point in different directions, which typically lead courts to conclude that the worker is not an employee, and therefore must be considered self-employed. Yet, these workers usually are in the same unbalanced power relationship with their “employer(s)/customer(s)” as employees, and evidence suggests that they are even more exposed to monopsony than standard employees.

There is hence a strong argument in favour of extending collective bargaining rights to workers in the grey zone. Yet, the challenge is to avoid that such extensions threaten the effectiveness of the cartel prohibition in competition law – for example by risking giving de facto a blanket authorisation to cartels of true business undertakings facing multiple consumers (e.g. plumbers agreeing to divide a geographical market among themselves).

In order to extend these rights, certain countries have established limited occupation- or sector-specific exemptions from competition law. Others have introduced changes in their labour law to identify categories of workers in the grey zone and extend to them specific protections, sometimes including the right to organise and bargain collectively.

Three promising labour law models for extending rights have emerged:

Many countries have defined specific categories with clear boundaries, such as the dependent self-employed (own-account self-employed who are financially dependent on one client). For example, in Spain, the TRADE (trabajador autónomo económicamente dependiente), who rely on a single client for at least 75% of their income, have access to many rights and protections, including the right to collective bargaining. The problem of this model is that, by focusing on narrow categories, it leaves out most workers in unbalanced power relationships with their de facto employers.
Other countries have developed a third category with less defined boundaries, such as “workers” in the United Kingdom, who are simply defined as individuals who work under a contract to provide a personal service. In this country, “workers” have a number of employee rights, including access to collective bargaining. While being more inclusive, this solution nonetheless leaves room for judicial uncertainty and may create opportunities for downgrading employees into simple “workers”.
A third solution consists in inverting the logic of the multi-factor tests for specific protections. A worker is then considered an employee, with respect to those protections, except if it can be proved that she is a self-employed. This route is followed by a number of US states as regards liability to unemployment benefit contributions and, less frequently, overtime pay and minimum wage. But California has recently enacted this principle for all protections defined in its labour code.

These three models for the extension of rights and protections through labour law draw a clear line between workers and business undertakings. Therefore, if used for extending access to collective bargaining, in particular at the company level, they have the advantage of being far from giving a blanket authorisation to cartels of undertakings facing multiple consumers.

Further reading and related links

2020 OECD Competition Open Day Blog Series

Blog 1: Collective bargaining 4.0: using labour law to extend coverage to new forms of work

Blog 2: Competition enforcement could help labour markets function better

Blog 3: Charting the way forward for digital competition policy

Blog 4: Innovation and competition in financial markets

Blog 5: BigTech vs BigBang: Competition in Financial Services

Blog 6: Merger enforcement in dynamic and innovative markets

Blog 7: Protecting consumers’ interests in digital markets – The experience of Australia