Employment and Regulation: Changing to What?

CHAPTER 4

To face tomorrow with the thought of using the methods of yesterday is to envision life as a standstill.

-- James F. Bell

DESCRIBING THE PROBLEM

If tax is the most dominant of the employment definition and regulation issues, what are the other regulatory issues?  And how is regulation changing the way employment affects our lives?

Since the Second World War, not only has the employment contract been the focus of tax law, but it has also been covered with masses of regulation and government-induced control, to the point where the employment relationship is no longer a relationship between free human beings but is principally controlled and determined by the state.  Although state control has been introduced for what might seem the most worthy of motives, the net outcome has been a souring and corruption of human interaction in the workplace.  In essence, state control has overstepped the boundaries of reason and has, in many instances, itself become an instrument of negative social outcomes -- perhaps most sadly by corrupting the creative potential of people when they work.

How this has occurred is both complex and simple.  The task here is to see through the complexity to the underlying simplicity.  First, some additional legal and managerial ideas about employment need to be understood.  As already discussed, at its core, employment is about the right of one individual, the employer, to control another individual, the employee.  Two additional ideas need to be comprehended.  The first is the legal and managerial idea and practice of what is called "vicarious liability":  the process by which an employer is held to be responsible for the actions of the employee.  The second is the legal and managerial loyalty that employees owe to their employers.

These ideas are critical to understanding employment and how the modern form of labour regulation has created negative social outcomes when combined with these two ideas.  Odd as it may seem, both these legal and managerial aspects of employment exist for good commercial reason.  The current ideas about the nature of business, firms and commercial activity in vibrant societies are wedded to these alleged legal necessities.

VICARIOUS LIABILITY:  WHAT IS IT?

In most areas of private life, people are held liable and responsible for their own actions.  If we borrow money as private people, we are responsible for paying back the money.  If we drive a car and cause a crash, we are held responsible to pay for the damage we caused.  Generally, laws do not require the transfer of liability for actions from one adult to another.  Yet this is what happens when people are employed.

Vicarious liability is a legal state in which an employer (a business) is held to be accountable and liable for the actions of its officers, agents and employees.  Vicarious literally means "acting in place of someone or something else". ⁽¹⁾  That is, an employee acts in the place of an employer and, therefore, an employer is legally responsible for the actions of its employees.  Where the employer is an individual, that individual is responsible for the actions of others.  Where the employer is a legal construct of a collective (that is, a firm), that legal construct is responsible.

For example, a corporation is a particular legal structure and at law is said to be a "person".  A corporation can be very small and owned by one individual, or it can have hundreds of thousands of shareholders and huge numbers of employees.  No matter what the size, a corporation is usually an "employer" of employees, and vicarious liability is integral to the way in which human dynamics work within the corporation.  As a "person", a corporation is liable under commercial law but does not fall within the ambit of criminal law.  Vicarious liability is critical to the existence of corporations and the way they are treated, because corporations assume collective commercial responsibility for the individual actions of the people who work in the firm -- that is, the employees.  The same applies to other legal "persons" such as trusts.

Vicarious liability is a necessary and inevitable part of employment because, as we have already seen, employment is a legal status that gives the "employer" the right to control the employee.  Further, and by definition, this means that employees are taken not to have the capacity, desire or intent to control themselves physically, intellectually, creatively or emotionally.  As a consequence, the employer is, and must be, vicariously liable for the actions of employees.  It is the "control" nature of employment that brings about vicarious liability.

Nor is this simply theory.  Vicarious liability plays out every day in commercial activity and occasionally finds its way into court cases where its nature can be studied and understood.  Take the following example of a damages action between a labour hire company and one of its clients.

Skilled Engineering case ⁽²⁾

Skilled Engineering is one of Australia's largest labour hire companies and is listed on the Australian stock exchange.  Among its activities, Skilled supplies blue-collar employees to industrial businesses in Australia.  In 1997, an event occurred that culminated in a court case with a legal judgment handed down in 2001.  The issue of Skilled Engineering's vicarious liability for the actions of its temporary on-hire employees was central to the court case and judgment.

Eric Sutton was a forklift driver employed by Skilled who worked at the warehouse site of a client of Skilled, Deutz Pty Ltd, for four days.  Deutz stored diesel motors on racks of shelving in its warehouse.  Eric Sutton's job was to unload diesel motors from trucks and place them on the shelving.  The shelving was up to three metres high and the high-reach forklifts easily extended to that height.  At one location in the warehouse a support beam extended between shelving lower than the three metre height.  Eric Sutton was an experienced forklift driver and had all the necessary forklift driver licences.  He had been instructed to ensure that when passing under the support beam he lowered the height of the forklift.  On the fourth day of working, Eric was reversing his forklift with the lift at its full height extension and when passing the support beam he failed to lower the forklift.  The inevitable occurred and the top of the forklift struck the supporting beam of the shelving.  According to the court judgment, this resulted "In a catastrophic chain reaction [in which] much shelving was caused to collapse and many valuable motors were damaged".  Losses to Deutz for damaged machinery amounted to $A369,000.  Deutz Pty Ltd sued Skilled Engineering on the basis that Skilled was the employer of Sutton and hence vicariously liable for the damage.

The case was not a criminal case but a civil one.  Skilled Engineering was found to have done nothing wrong in the selection and placement of Sutton, or in the fulfilment of any of its obligations.  Eric Sutton's qualifications had been checked;  he had all the correct licences and appropriate experience.  The court found that the incident was 85 per cent attributable to Eric Sutton's driving -- over which Skilled Engineering had no direct control, nor could have had control -- and that Skilled could have done nothing practicable to prevent the incident.  Nonetheless, damages of $A313,000 were awarded against Skilled because Sutton was an employee of Skilled and hence Skilled was vicariously liable.

This is not an unusual case, and such cases are not restricted to labour hire companies or to the Australian legal system.  Vicarious liability plays out in many ways.  Take this next case, discussed earlier, of the courier company Crisis Couriers, which was held liable for the actions of one of its bicycle couriers.

Hollis v. Vabu (Crisis Couriers) ⁽³⁾

As discussed in Chapter One, Vabu is a privately owned courier and transport company operating principally in Sydney, Australia, trading under the name of Crisis Couriers.  It has a fleet of vans, cars, motor bikes and bicycle couriers picking up and delivering parcels in and around Sydney.  Significantly, it uses independent contractors who own their own vans, cars or bikes, and each driver or rider is paid per delivery.  Crisis Couriers effectively acts as a booking, marketing, billing and organising agency for the delivery services, and each driver runs his or her own micro-business.  For marketing purposes, Crisis Couriers requires each driver or rider to wear a Crisis Couriers' identification vest.

The case of Vabu v. Hollis involved injury to a pedestrian knocked over by a bicycle courier wearing a Crisis Couriers' vest.  According to the judgment:

On 22 December 1994, Mr Hollis was leaving a building in Ultimo [a Sydney suburb] where he had attended to pick up a parcel.  He had taken two steps on the footpath when he was struck by a cyclist and knocked to the ground.  The cyclist went over the handlebars and landed in front of Mr Hollis.  The cyclist stood up, said "Sorry mate" and left the scene pushing his bicycle.  He ignored Mr Hollis's calls.  The cyclist remains unidentified.  However, he was wearing a green jacket, on the front and back of which, in gold lettering, there appeared the words "Crisis Couriers".  Mr Hollis suffered personal injury in the accident, principally to his knee.  This required surgery, caused a period of unfitness for work and has resulted in a 25 per cent permanent deficit in the knee.

The pedestrian was suing Crisis Couriers for damages.  Critical to the case was whether the unidentified bicycle rider was an employee of Crisis Couriers.  If an employee, Crisis Couriers could be held vicariously liable.  The case had reached the High Court, the court of final appeal in Australia.

The case was particularly significant because, in a judgment some two years earlier on a taxation matter (discussed in Chapter One), the courier drivers and riders of Crisis Couriers were found not to be employees but independent contractors.  The High Court conducted a similar investigation to the earlier case and, on looking at near-identical operational procedures, found that the bicycle rider was an employee of Vabu.

In what was a controversial decision, the High Court limited the finding of employment specifically to the bicycle courier who knocked over the pedestrian, even though the bicycle rider was never identified.  The court did not seek to make comment on other Crisis Couriers workers.  In addition, only three of the five judges found that employment existed.  One judge found that no employment existed, but that the bicycle courier was an "agent" of Crisis Couriers and that Crisis Couriers was still liable.  One judge totally disagreed and found that there was no substantial difference between the way the couriers operated -- that is, whether they were car couriers or bicycle couriers -- and found that the bicycle courier was an independent contractor.

As a result of the finding of employment by the majority of the Court, Crisis Couriers was held vicariously liable for the damage caused by their courier to Mr Hollis and was required to pay Mr Hollis $A176,000 compensation.

COMMENT

These two cases show how vicarious liability is tied to the nature of the employment relationship and how it causes the transfer of liability for individual actions away from the individual who performed the action.  For example, in the Skilled Engineering case, if Eric Sutton had been an employee of Deutz, Deutz would have had to bear the cost of the shelving collapse.  Further, if Eric Sutton had been a private person driving a car in the street, he would have been personally liable for the damages.  In the case of Crisis Couriers, if the courier had not been working at the time but acting as a private person, the unidentified bicycle courier would have been liable for the damages.  Eric Sutton and the bicycle courier were clearly in total and complete control of their respective vehicles and there was no suggestion that Skilled, Deutz or Crisis Couriers had any practical capacity to control any of the actions of these two persons.  Yet because the persons were paid for their services in a way that was found to be "right to control" employment, liability for actions was transferred from the individuals who committed the action to the persons who paid those individuals.  This is the legal effect of vicarious liability under employment.

There is something disturbing and wrong about an institutional and legal arrangement that allows liability to be transferred.  Why should people be able to escape the consequences of their actions simply because they are "employed"?  Why should the consequences be different when one is employed from when one is acting as a private individual?  Personal liability for actions, which is necessary for social stability, is perverted because of a specific legal status created via a payment.

But there are other aspects of vicarious liability that show it is assumed to be necessary.  It is bound up in the way we think about firms and human organisation.  Without vicarious liability, organisations would seek to deny legal liability for actions that were part of the organisations' operations.  Ultimately, this could render the law powerless to prevent intimidation, corruption and thuggery.  Take the following case of a trade union seeking to deny liability for breach of court orders.

Evenco ⁽⁴⁾

This case involved a protracted and ugly dispute between a labour hire firm supplying building tradespeople to commercial building sites in Queensland, Australia, and one of Australia's most rugged building unions, the Construction, Forestry, Mining and Electrical Union (CFMEU).  Australian construction unions consider that they own the commercial building sites in Australia and try to enforce total union membership on each and every site as well as dictating how work is to be done and on what terms it is to be paid for.

The CFMEU's motivation is to secure the power and revenue base of the union, but it also has other important and sometimes not-so-obvious motives.  In complex processes of "honour amongst thieves", union membership and site control are frequently used for determining who can win tenders for jobs and which companies are capable of constructing buildings.  Unions act to prevent competition between building companies and to deliver commercial monopoly to favoured building companies.  The financial stakes are high, frequently many millions of dollars.  If an "outside" player comes in and is prepared to supply non-union labour to building sites, the revenue of the building union is threatened.  But, just as importantly, the interloper threatens the commercial colluding-type behaviour that operates to control the market for building construction.  Through control of who can work on a building site, unions can ensure that only building companies with whom they have "good" relationships can win building contracts.  There is thus a coalition of interests between the building unions, which need members, and some construction companies, which aim to limit competition.

The process of ensuring union membership and control of the building market involves all the usual and known systems of thuggery, intimidation and harassment, often involving violence where unions think it necessary.  Usually, however, all the players in the game, the builders and unions, know the "rules" and abide by them without enforcement being required.  But when someone breaks these unwritten rules, the cosy arrangement is threatened.

This is what occurred with the small labour hire company, Evenco Pty Ltd, in Queensland.  It supplied trades-people to building sites, but did not insist that the "tradies" abide by the union rules.

Evenco and the people it supplied were subject to prolonged harassment, but they were astute enough to record every incident.  They eventually took the union to court and received a court order prohibiting the union from harassing them.

In March 1988, the CFMEU gave court undertakings that it would not harass Evenco or the people it supplied to building sites.  The court order involved undertakings from the union and the union secretary, Mr Trohear.  The union honoured its commitment and trained its organisers on the undertaking until 1995.  From 1995 onwards, training of its organisers on the issue ceased and harassment of Evenco resumed, led by a paid union organiser, Mr Spinks.  In court evidence, it was apparent that Mr Trohear was aware that the undertakings were being breached by Mr Spinks and other union representatives.  Up to this point the issue had been a civil case, but became a criminal case as soon as the CFMEU flouted the court orders.  Evenco took the matter back to court.  This involved making an application against the union for contempt of court.  The court had to decide whether the union and Mr Trohear were responsible for the action of Mr Spinks and other union representatives.  The case turned on whether Mr Spinks and others were employees of the union, and therefore, whether vicarious liability applied.

The judges took great care in applying common-law principles, because holding one party to be legally responsible for the actions of another is a grave matter.  Further, this case had developed into a criminal case -- albeit a low-level one -- but jail was a possible penalty open to the judges.

On vicarious liability, one of the judges said:

It is, I think, settled law that a master or principal is liable if his or her servant or agent breaches an undertaking given by the master or principal in circumstances where he or she is acting on behalf of and within the scope of the authority conferred by the master or principal. ⁽⁵⁾

In this particular case, the court said:

CFMEU and Mr Trohear were liable for the actions of the union organiser Spinks, an employee of the CFMEU as Spinks "was acting in the course of his employment" when he offended the undertaking ... whilst there was no evidence that Spinks has specific authority to act as he did in offending the undertaking, his actions were committed in the course of his employment ... the necessary authority may be tacit. ⁽⁶⁾

The judges gave an insight into the historical precedents underpinning vicarious liability by drawing on decisions by the House of Lords in England as early as 1865:

the law in England has developed in the direction of holding the blameless employer liable for the unauthorised acts of an employee ... The qualification of this is the employee must be shown to have acted "in the course of employment" ... Under the law of tort [civil damages-type prosecution] an employer may be held liable for his servants' acts although clearly unauthorised. ⁽⁷⁾

But the judges were not prepared to apply strict vicarious liability in the instance of criminal prosecution which this case involved:

the English doctrine of strict vicarious liability to which I refer [criminal] should not be followed in this country.  The proper rule is that the employer must be shown to have authorised the act complained [of] or shown not to have taken proper steps to prevent it.

The judges stated that "insofar as it can make an absolutely blameless person vicariously liable for the unauthorised act of an employee, vicarious liability for criminal acts is the exception not the rule." ⁽⁸⁾

The outcome was that, in this criminal case, vicarious liability applied, but only to the extent that the actions of the union employee representatives were done with the knowledge of the union and the Secretary who were parties to the court undertakings to cease harassing Evenco.  "As to Trohear, he was party to the undertaking and the same reasoning applies, but more simply, to him;  he personally was obliged to obey the undertakings, and so had an obligation to do everything reasonably necessary to achieve that end." ⁽⁹⁾

In the end, the evidence showed that the union and Mr Trohear did know about the intimidation of Evenco by the union employees and could have stopped the actions, but chose not to do so.  On the basis of direct knowledge of their failure to prevent the breaches of the court orders, the union and Mr Trohear were fined a total of $85,000.  Any assertions by the union that they could not be held liable for the actions of their employee representatives were discounted.  In this instance, a jail term was not imposed.

COMMENT

The Evenco case demonstrates the need for vicarious liability and why it is applied.  Without vicarious liability, the risk is real that employers could avoid responsibility and liability for actions taken on their behalf.  If employers could pick and choose which responsibilities to accept and which to ignore, elementary principles of justice would be breached and economic activity would be severely inhibited.  It is imperative in the conduct of commercial trade that everyone has a reasonable assurance that they can act within known rules and undertakings that are supported by the courts.  If firms were not liable for their employees' actions, the risk associated with dealing in commercial transactions would be that much higher -- and could, in fact, undermine commercial activity.  Take, for example, the following case of the collapse of the international trading house Barings.

BARINGS

In 1995, the giant international trading house, Barings, one of the world's oldest banks, collapsed because one of its employees undertook unauthorised multi-million dollar exchange and other trading gambles that failed.  The employee, Nick Leeson, was jailed for fraud.  If vicarious liability had not applied, Barings could have argued that Leeson's trading gambles and losses did not accrue to Barings but were the personal responsibility of the employee.  If such an argument could be sustained, Nick Leeson could have been declared bankrupt.  This would have effectively prevented the financial trading houses that had traded with Barings in good faith from recovering monies owed to them.  Barings could have denied responsibility and accountability, secured its short-term financial future and continued to trade, leaving other trading houses to bear the losses.  The result, however, would have been that no company would be prepared to take the risk of trading with Barings in the future.  A precedent would have been set affecting the entire viability of the international money-dealing system, as traders could never be confident that the companies they dealt with would back the actions of employees or that the courts would back the system.  Such an outcome would have had calamitous implications for worldwide economic activity.

The system of international money exchange (in fact, any financial transaction, no matter how small) is predicated on trust.  International financial transactions occur with such speed that the legal niceties of documentation and signed security frequently lag way behind the transactions.  Those who work in the international system operate on the assumption that the other players they deal with are as good as their word.  Such transactions can occur only because of a belief that the courts will ultimately hold companies liable for the actions of their employees.  This system of trust, supported by the courts, is a miracle of human behaviour made possible by the structure of open markets and, importantly, the existence of vicarious liability of an employer for an employee's actions.

But as important as vicarious liability is, its conceptual flip-side is employees' fiduciary and contractual duties of loyalty.  Under employment, businesses can succeed only if the risks of vicarious liability are offset by the benefits that flow from employees' loyalty to their employers.

LOYALTY

In no area of our private lives are we required by law to be loyal.  Loyalty is something we freely give or withhold.  Loyalty is a spontaneous outcome of a relationship.  We can freely choose where we shop;  no law requires us to keep shopping at any particular store.  Even loyalty to a nation is something freely given.  Yet, when we are employed, we are required by law to be loyal to our employer.  When employed, we are not allowed to use our capacities, talents and energies in a way that may compete with our employer.  This obligation is not generally stipulated in legislation but is found within the common law.

The legal principles of fiduciary and contractual duties of loyalty of an employee to an employer are meant to prevent and protect an employer from the potential competitive behaviour of employees.  It is an idea that underpins the traditional concepts of the firm and economic activity.  By virtue of having a right to control the employee, it is assumed that the employer imparts important commercial information to an employee which, if the employee were not loyal, the employee could use against the employer in a competitive manner, thereby causing commercial loss to the employer.  Further, in paying employees for the right to control them, the employer is purchasing the right to the potential commercial benefit that employees may produce.  These principles are frequently tested in the courts.

The case of Digital Pulse v Harris ⁽¹⁰⁾ demonstrates these points.

In the opening comments in the judgment on this case, the judge stated the commercial principle at stake.  When:

employees resolve to go into business for themselves in competition with their employer, they decide to give their new venture a head start by remaining in employment and diverting to themselves their employer's business opportunities until they are economically secure enough to declare their hands, throw up their employment and compete openly.  No one doubts that the employees have breached their contractual and fiduciary duties of loyalty to their employer and that they are liable for damages, an account of profits or equitable compensation. ⁽¹¹⁾

Digital Pulse was a business that started in 1996, providing computer-based multimedia services including Web design and video production.  By 1999, it had some ten employees.  Mr Harris and Mr Eden were employees of Digital who, while employees of Digital, set up their own business, "Juice", in competition with Digital and unbeknown to Digital.

The judge explained the general duty of loyalty:  "An employee has a duty to act in the interests of the employer with good faith and fidelity.  That duty is implied in every contract of employment if it is not imposed by an express term.  In addition, the duty is imposed upon every employee by the law of fiduciaries." ⁽¹²⁾  (Fiduciary means "held in trust". ⁽¹³⁾)  Further "an employee may not take for himself or herself an opportunity within the sphere of the employee's business operations without the employer's fully informed consent ..." and "The remedy for breach of the contractual duty of loyalty is damages." ⁽¹⁴⁾

In delivering the judgment, the judge was clearly not impressed with Mr Harris, who, he said "has demonstrated a capacity for extravagant falsehood". ⁽¹⁵⁾  The judge found that Mr Harris had used Digital's advertising strategy document against Digital and awarded $A11,000 on that account.  Other considerable amounts were awarded as compensation to Digital for loss of business or damage relating to a list of Digital clients whereby Mr Harris and Mr Eden had shifted Digital clients to themselves (Juice).

Further, the judge found that "what Messrs Harris and Eden did was to defraud their employer of its valuable business opportunities and its confidential information".  The judge explained in clear terms the issues at stake.  He said:

the character of the Defendant's dishonest conduct strikes at the heart of commercial integrity, upon which the business community, and ultimately the community as a whole, depends.  Employers should feel able to trust their business confidences to their employees with security.  Employees should know that deliberate and dishonest breach of their fiduciary duties of loyalty, calculated to produce profit for themselves, will not go unpunished ... ⁽¹⁶⁾

As compensation, the judge ordered Messrs Harris and Eden each to pay $A10,000 to Digital.

In short, even if employees are not aware of it, they have a legal duty to their employer to be loyal and not to use their positions to their own advantage and/or in competition with their employer.  Few employees are consciously aware of this legal requirement.

VOLKSWAGEN

This idea of duty and loyalty sometimes plays out for huge commercial stakes.  In 1997, in a high-profile case, General Motors Corporation (GM) received a $US100 million pay-out in the first phase of the settlement of a $US3 billion dollar claim against Volkswagen (VW).  The dispute began when an executive of GM left in 1993 to take up a senior position with VW.  Seven other senior GM executives followed and GM alleged that, in the course of the desertions, valuable company documents and trade secrets were stolen.  The legal action by GM alleged criminal racketeering, but at its heart involved the principle of an employee's duty of fidelity to the employer. ⁽¹⁷⁾  General Motors won significant compensation as a consequence.

COMMENT

In Chapter One, we examined the essence of the employment contract -- that is, "control".  So far, in this chapter, two additional elements of the employment contract -- vicarious liability and loyalty -- have been considered.  These two elements should be seen as part of the employment contract as it stands on its own.  The rest of this chapter looks at how statute law has been layered on top of and around the employment contract.  Although ostensibly directed at creating social good, these legislative efforts have, in fact, resulted in significant social and economic distortions.  When vicarious liability and loyalty have been joined with the development of unfair dismissal laws and anti-discrimination laws since the Second World War, strange, enormous and as yet unaddressed perversions have crept into the employment equation.

HOW IT HAS CHANGED !!!!

Since the Second World War, the common-law employment relationship has been burdened with reams of legislation that have fundamentally changed employment from a system of significant employer control to one of highly limited employer control.  What has occurred, primarily, is the introduction of unfair dismissal and anti-discrimination legislation which, when combined with vicarious liability (in particular) and the duty of loyalty (to a lesser extent), has resulted in significant distortions of employment and of the idea and nature of the firm.

The change has occurred in several ways.  Anti-discrimination laws come into play when someone denies a person a job on the grounds of the applicant's race, colour, religion or some other factor not associated with the needs of the job.  Discrimination, as applied under the post-Second World War laws, is specifically defined prejudicial behaviour of one person against another.  This is quite distinct from the discrimination we all practise every day, as when we choose one bottle of wine over another, or choose to keep the company of some people rather than others.

Liability for unlawful discrimination ought to rest with the individual who committed the act of discrimination.  Yet, when conjoined with vicarious liability under employment, the liability for discriminatory action is transferred from the person who committed the act to the employer.

As a consequence, a strange notion has found legal form, namely, that a collective entity -- a firm -- can commit an act of discrimination.  This happens only when the firm is either a corporation or trust and is an employer.  If individual employees of a corporation commit unlawful discrimination, the liability for their actions is transferred from them to the corporation.  In practice, this operates against the social and legislative objective of preventing unlawful discrimination.  As will be argued, discrimination will effectively be stopped only when the individuals who commit acts of discrimination are held personally and directly accountable under law.

Further, the outcome of liability transfer in employment situations is that anti-discrimination law has become a litigious and, in many instances, arguably a money-making scam in which the law has become an active instrument of systemic abuse.

Likewise, unfair dismissal laws have frequently put employers in conflict with other statutory responsibilities in areas of health, safety and duty of care to customers and clients.  Employers are expected to "control" their employees and are held liable for the actions of employees, but employers have had removed from them some of their basic "controlling" capacities -- namely, the ability to decide who is in their employ.

Let us look at a few examples of such distorting behaviour.

DISCRIMINATION, SEXUAL HARASSMENT AND UNFAIR DISMISSAL

In the USA, pay-outs to people who have alleged discrimination or harassment in the workplace can now involve huge sums.  And government in its role as employer has been one of the hardest hit.  Often the very bodies involved in the rights protection business -- both government and private organisations -- have been the ones to suffer most severely from litigation.

During the 1990s, the New York City Department for the Ageing paid out $US1 million to its social workers as compensation on the finding of age discrimination by the Department against the social workers.  The US Department of Labor paid $US5 million to settle a bias claim against it.  A San Francisco legal firm which had a thriving business in the sexual harassment area was ordered to pay $US7.5 million, including the applicant's legal costs, in a successful sexual harassment case brought against it.  The US Civil Rights Commission and the EEOC have repeatedly been hit with pay-outs.  These high pay-outs are not unusual but rather the norm.  In New York City, the average sexual harassment pay-out has been assessed as in the order of $US250,000. ⁽¹⁸⁾

But these massive pay-outs are not necessarily the issue of concern.  What is worrisome is how the application of these laws affects the way in which organisations are structured and operate, and how this, in turn, affects their capacity to perform.  Sometimes the detrimental effects strike at core institutions that underpin a safe and secure society.

Police:  In the 1980s and 1990s, the New York Police Force, Miami Police Force, ⁽¹⁹⁾ Washington DC Police Force and even the FBI became well known for endemic levels of corruption that were said to have had their roots in the way discrimination laws distorted those organisations' hiring procedures.  Anti-discrimination laws had prohibited the Forces from considering minor criminal offences of applicants, with the inevitable outcome that ex-criminals became police officers, thereby creating an environment of endemic corruption.  Other effects came from anti-discrimination laws that hindered the screening of applicant officers for literacy skills.  In Washington DC, this resulted in murder cases not proceeding because police paperwork did not match the requirements necessary for successful prosecution.  In one example, ⁽²⁰⁾ the Boston Police Force was found guilty of discrimination because it sacked an officer who lied about his medical history on the application form.  The issue for the Boston police was the integrity of the police officers employed and whether officers could be relied upon to act honestly and to give reliable testimony under oath.  The offending officer was reinstated and awarded payment for discrimination.

Drugs:  Caught between competing and conflicting laws, employers have sometimes found themselves in difficulty when they try to create safe workplaces without falling foul of anti-discrimination or unfair dismissal laws.

In Australia, the courts have found that a drug addict working in an ex-Servicemen and Women's Memorial Club could not be dismissed because it would constitute discrimination.  This occurred because of interpretations under Australian law which declared drug or alcohol abuse a "disability". ⁽²¹⁾

The Australian Industrial Relations Commission (AIRC) reinstated a worker who was sacked by his employer after being booked by the police for drink-driving.  The Telstra worker (Telstra is a major Australian telephone company) had a blood alcohol reading of 0.110 (the Australian limit is 0.05) the morning after a heavy drinking session.  The Magistrates Court fined the man $1,000 and suspended the man's driving licence for six months on the drink-driving charge.  Nonetheless, the employment court determined that Telstra should continue to employ him. ⁽²²⁾

The AIRC awarded $15,000 unfair dismissal compensation to a train driver who was dismissed by his employer after a fatal train accident in which the driver tested positive to marijuana use after the accident.  The driver was not found to have caused the accident but was in breach of the train company's drug and alcohol policy.  The unfair dismissal award was made on the basis that the company had not adequately informed the driver of its policy. ⁽²³⁾

In a similar incident, an oil-rig worker was awarded 16 weeks' pay for unfair dismissal after testing positive for cannabis use.  The award was made against the employer because it was alleged that the employer had not previously enforced its drug policy. ⁽²⁴⁾

Vicarious liability and harassment:  Sometimes, no matter how diligent an employer might be in designing and implementing its systems, it is never enough to satisfy the courts.  This seriously calls into question the ability of employers to control much at all.

In Australia, damages of $A55,000 were awarded to a teacher aide for sexual harassment from a principal of a State-run primary school.  The sexual harassment did not involve physical contact but was on a smaller scale, involving standing or sitting very close.  The State of Victoria, as the employer of both the aide and the principal, suffered the imposition of the fine on the basis that even though it had exemplary equal opportunity policies, it had nevertheless failed to train the principal adequately. ⁽²⁵⁾

In 1997, the Queensland Anti-Discrimination Tribunal awarded $A48,000 against a female apprentice fitter mechanic due to the harassment from mine workers at Mt Isa Mines.  The award was made because Mt Isa Mines was held to have failed adequately to instruct its mine workers not to harass. ⁽²⁶⁾

In 2002, a 62-year-old driver, who had a 20-year unblemished work record at the Port of Brisbane Corporation, was reinstated following his dismissal for harassing a younger female worker.  His sacking followed a complaint from the female worker to the effect that he had said to her, "Gee you look lovely today, you give me half a woody".  (A "woody" is an Australian slang word for an erection!) The man, who had been fully trained in the corporation's anti-harassment policies, admitted the comment but did not co-operate with attempts at further counselling, because counselling would allegedly have established his intention to cause harm by making the statement.  The employment court reinstated the man on the grounds of procedural unfairness. ⁽²⁷⁾

Another case demonstrated the mismatch between employment law and anti-discrimination law.  A Pakistani man alleged that discriminatory remarks had been made to him by a person at a boarding house in which he was staying.  The action was being taken against the owner of the boarding house, but the person who had allegedly made the remarks could not be located.  It could not be proved that the person was an employee of the boarding house owner and so no case could be established against the landlord.  If, however, proof had been established that the comments were made by an employee of the landlord, the landlord would have been held vicariously liable. ⁽²⁸⁾

In short, the nature of the employment relationship has become critical to the ability to litigate under discrimination law, and a person who may commit an act of discrimination as an employee is able to avoid liability because it is transferred to another person, the employer.  This makes it possible to make allegations of discrimination expressly for the purpose of soliciting money and has almost made possible state-sanctioned fraud.

But because discrimination laws do not take into account the distortions created by vicarious liability, they continue to lead to critical and damaging social outcomes.  Often this puts vulnerable persons at great risk because the employer's capacity to exercise the duty of care owed to the public is dramatically curtailed.

In 1999, the Queensland Industrial Court ordered the Queensland Education Department to reinstate a man it had dismissed for inappropriately rubbing the thigh of an 11-year-old girl.  The man had previously been sacked but reinstated after being acquitted of an aggravated sexual assault charge against a Year Five student in his class in 1993.  Following this earlier incident, the man had been warned to modify his behaviour. ⁽²⁹⁾

Exxon:  In an internationally high-profile case, the world's largest firm, Exxon, was found responsible for what had been, up until then, the world's largest oil-spill disaster when, in 1989, its supertanker Exxon Valdez ran aground in Alaska.  The company lost billions of dollars in damages and clean-up costs, which reinforced its determination to improve procedures to prevent a recurrence.  The Exxon Valdez's captain had a history of alcoholism of which the company was aware, and alcohol was a strong contributing factor in the ship's running aground.  Yet when Exxon revised its policies after the disaster and began removing staff with drinking problems from safety-sensitive positions, ⁽³⁰⁾ it was hit with "at least a hundred challenges" on discrimination grounds.  What is a company to do?

Sometimes it's even what a company doesn't do.  Unfair dismissal laws provide for "constructive" unfair dismissal.  This involves situations where an employee leaves a firm but then argues that the circumstances in the firm were such that he or she had little option but to leave.  In one case, an executive of a construction firm ⁽³¹⁾ was awarded $US8 million in a "constructive" unfair dismissal case.

Cost:  Sometimes it appears that the only outcome of anti-discrimination and unfair dismissal laws is the payment of monies to aggrieved parties, whereas the moral intent of the laws allegedly is to modify human behaviour so that discrimination and harassment do not occur and that only "fair" dismissals take place.

In 1998, the Australian Industrial Relations Commission handled more than 8,000 unfair dismissal applications, of which only 20 resulted in reinstatement.  Most cases never reached the court and were settled out of court or withdrawn. ⁽³²⁾  Even though not documented, it is a common view that most unfair dismissal and discrimination claims are better settled by an early pay-out to the applicant because it is cheaper than mounting a defence.

In Australia, pay-outs awarded to successful unfair dismissal applicants usually amount to around $A6,500, with legal defence costs for the employer within the range $A5,000-$A20,000.  The applicant's legal costs will rarely exceed $10,000 unless significant jurisdictional issues are involved.  In 1995, it was estimated that the average cost of a relatively serious or complex harassment grievance claim was $A35,000, with legal costs of up to five times that amount.  Pay-outs in less serious discrimination cases were usually about $A20,000. ⁽³³⁾

Sometimes the pay-outs can be huge, depending upon the legal jurisdiction in which applicants' lawyers choose to run cases.  Often these high-pay-out cases involve actions against employers where the sacked employee was once the designated employer.

The sacked head of Coca Cola in Australia took a $A40 million action against Coca-Cola Amatil Ltd and Coca Cola USA through the unfair contracts provisions in New South Wales (NSW). ⁽³⁴⁾  Using NSW unfair contracts provisions, a sacked Microsoft Human Resources director received an estimated $A10 million pay-out, a Westfield Holdings Ltd sacked executive was awarded $250,000, and a dismissed executive of Macquarie Bank won $775,000 plus costs. ⁽³⁵⁾  A 58-year-old senior executive who had worked for the large, prestigious retailer David Jones for 35 years received $200,000 in a court-awarded pay-out under the same NSW unfair contracts provisions. ⁽³⁶⁾

A Rand Corporation survey found that Californian employees who won wrongful firing actions received on average $US500,000. ⁽³⁷⁾  In the USA, lawyers' contingency fees in such cases are known to be as high as 40 per cent.  Even if pay-outs are not made, the average cost of defending an unfair dismissal application in the USA exceeds $US100,000 and a sexual harassment charge $US200,000.  With defence costs so high, many businesses facing an application give in and seek an out-of-court settlement, regardless of the facts of any situation.  The mere making of a claim is likely to cause the employer to decline to mount a defence, on grounds of cost -- hardly a situation contributing to justice!

COMMENT

The issue involved here is not the correctness or otherwise of antidiscrimination, anti-harassment or unfair dismissal laws, but rather whether employers actually have control of employees.  In fact, the nature of employment law has been changed by legislation so dramatically since the Second World War that employer control is largely a social and economic myth.  But it is a myth that forms the intellectual underpinnings of much new law, economic and managerial analysis and social analysis and policy.

This myth of actual control is, however, recognised by the judiciary in the subtle way in which it has modified the definition of employment to reflect the new reality.  In the most important redefining statement of employment since the Second World War (discussed in Chapter One), the Australian High court said in 1986, "It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it." ⁽³⁸⁾  This statement has become the principal starting point for all common-law test cases in Australia.  It is strongly reflected in the approach used in North America and the UK at least.  As one Australian judge said, it reflects the fact that "the right to dismiss is in many cases strictly limited by law or by industrial matters". ⁽³⁹⁾

It must be acknowledged, then, that if an employer does not have the right to dismiss an employee, he or she does not control the employee.  At best, the control an employer exercises is strictly limited to the amount of control that the employee chooses to allow the employer to exercise.  If employees wish to ignore an employer's control, they can easily do so.  An employer's capacity to dismiss an employee without the employee's consent is limited to the uncertain situations in which employer tribunals will endorse the dismissal.  Effectively, the ultimate tool of control -- dismissal -- has been removed from the employer and handed to employment tribunals.  Employers have a theoretical "right to control", but actually only have a mythical capacity to control.  The state is now the controller.

The "human resources" managerial function, now so prevalent among firms, has developed into an industry largely in response to the myth of control.  Human resource professionals have a strange task in that they must persuade the employees voluntarily to acquiesce in the control requirements of the firm.  Human resource managers seek to translate the "employer control" myth into control reality.  But these efforts by human resource managers do not stop the social distortions.

When the mythic capacity of the employer to control the employee is joined with statutorily imposed obligations under anti-discrimination and anti-harassment laws, it inevitably causes severe distortions to human behaviour in the workplace.  The distortions take forms that do not occur within our personal and private lives.

First, the remedies to discrimination, harassment and other social ills are reduced to monetary compensation.  As a consequence, laws which are supposed to modify human behaviour with a view to promoting greater social justice fail to do so.

Certainly, some people defend the awarding of damages against employers on the grounds that this induces employers to ensure that conduct within their organisations is appropriately modified.  But because employers have only a formal capacity to control employees, such attempts to modify conduct are at best haphazard.  And too often such arguments come from the legal profession, which has a vested financial interest in litigation rather than behaviour modification.

Second, the shifting of liability for discrimination and harassment from the employee to the employer involves an institutionalised injustice against the employer.  The economic reality is that justice for the employer becomes a matter of luck in avoiding litigation.

Third, the shifting of liability away from employees for their personal actions must limit the behaviour modification objectives of anti-discrimination and anti-harassment law.  When individuals know that someone else will be held liable for their actions, they are less inclined to change their actions or attitudes.  Behaviour defined at law as unacceptable is likely to be pushed underground, displayed in less obvious ways, sometimes perhaps even displayed openly and in defiance of the law.  To overcome these possibilities, the state-funded quasi-courts that have been set up to police anti-discrimination laws have difficulty operating on principles of true justice and can seem like kangaroo courts.

Fourth, the mismatch of unfair dismissal and anti-discrimination laws with the myth of employer control requires employers to become specialists in statute and case law in both areas in order to be sure that their operational practices conform with the law.  This is a time-and-motion impossibility, as the law is so complex that even the legal profession must specialise to gain an understanding of it.  The outcome is a huge increase in business transaction costs and an escalation in managerial uncertainty, both of which encourage the avoidance of responsibility within the firm.  If employees are not held liable for their actions, internal systems within firms must ensure that liability is not attributable to anyone within the firm.  This is bad for business, bad for people, bad for social justice.

HOW HAS THIS COME ABOUT?

This situation has evolved because of the way the employment relationship changed during the twentieth century.

The contract at will

Before the Second World War, the employment relationship was structured around what was called the "contract at will".  This operated as the principal employment contract until 1945 or so, and it was from the contract at will that the current employment contract developed.

The contract at will had simple principles.  An employer could create an offer of work, and a prospective employee could consider the offer and, if acceptable, enter the employment contract.  Once the employment contract was entered into, each party could choose at any time to exit the contract without having to give reason or cause.  Both entering and exiting the contract were of interest and concern solely to the employer and employee;  no external legal tribunals or processes were involved.  Neither the employee nor the employer had a duty to the other beyond the actual daily work that was performed and the payment for such work.

This particular employment contract had long been in operation, received strong support from the courts, was a key pillar upon which the commercial might of the USA was constructed and was seen in the USA as vital to the securing of basic freedoms.  In 1908, the US Supreme Court stated "it is not within the functions of government -- at least in the absence of contract between the parties -- to compel any person in the course of his business and against his will to accept or retain the services of another." How things have changed!

But this employment contract at will was still an employment contract in its truest form.  It was a contract which, once entered, gave the employer control and authority over the employee.  It is worth restating the quotation from the eminent American jurist Oliver Wendell Holmes, who explained it thus in 1892 in support of a decision to support the sacking of an employee.  Holmes said, "There are few employments for hire in which the servant does not agree to suspend his constitutional rights of free speech, as well as idleness, by the implied terms of his contract.  The servant cannot complain, as he takes the employment on the terms which are offered to him." ⁽⁴⁰⁾

So the employment contract at will was a contract which could be entered and exited at any time by either party but which, once entered, involved the employee being prepared to suspend his or her right to free speech and idleness.  This was the idea of the master-and-servant relationship and is consistent with what we know about the employment contract as an instrument of control.

This contract at will was seen to be indispensable for economic activity and the operation of business.  For the purposes of engaging in business and working inside a firm, employers needed employees to work, not to be idle, and to follow instructions in such a manner that they agreed not to express their opinions.  In short, people agreed to suspend those basic freedoms and rights they had in their private lives while they were at work -- in exchange for money.  But they could also exit the contract at will when it suited them.

This was very different from slavery, under which people's rights were forcibly denied them and they could not exit the relationship at will.  Slaves were owned and the slave owner had a right to hunt down fleeing slaves, punish them, and return them to unpaid work.  Slavery, of course, is now outlawed across the globe and where it continues, it is illegal.

Many social and political commentators, however, saw the employment contract at will as a modified form of slavery, which they referred to as "wage slavery" (Karl Marx was one such notable example).  In exchange for money, people suspended their liberties and worked for others, who had control over them.  It did not matter to Karl Marx and others that the employee could legally reject wage slavery, because, they argued, the entire capitalist system was built upon wage slavery.  The only choice workers had was which wage-slave situation to enter.  There was no real choice to reject wage slavery itself because the only alternative to it was unemployment, deprivation and starvation.  In societies where employment was the only form of work engagement, the wage-slavery argument had great force.

From this view of the employment contract at will as wage slavery sprang the idea of the oppression and exploitation of the working classes by the capitalist (employer) class and the need for labour to organise itself in opposition to the employers.  It was argued that the capitalist class organised economic activity exclusively around the employment contract at will and had a vested interest in keeping wages as low as possible.  The only way employees could improve their incomes was to organise collectively and withdraw their labour en masse, stop other workers replacing them, and thus force the employer to pay more.  Without collective action, employers would keep employees in permanent subjugation.  When seen through this prism, economic and business activity is the site of a class struggle between employers and employees.  But such a view is plausible only on the basis that the employment contract is the sole available contract of engagement.

At the turn of the twentieth century, the employment contract was at its peak.  And in spite of its critics, it served society comparatively well in terms of enabling economic development.  During the nineteenth century, economic activity and wealth exploded, dragging populations out of abject rural subsistence poverty into a level of comparative health and wealth not seen before.  The Industrial Revolution was underpinned in large part by the employment contract at will.

Nevertheless, the idea of the inevitable class war between employees and employers took on international dimensions.  Some commentators blamed both world wars, in part, on the conflict thought to be inherent in the employment contract at will.  In fact, the International Labour Organisation (ILO, a division of the United Nations) ⁽⁴¹⁾ was established for the precise purpose of enabling the management of this "inevitable" conflict between capital and labour.  It was believed that if international labour and capital could meet in forums with governments to design appropriate labour regulations, then international tension would be eased.

Whether the ILO has contributed to lessening international conflict is hard to gauge.  But the international and national labour regulation regimes that have been put in place since the ILO was set up have more or less killed off the employment contract at will in most advanced economies.

Death of the contract at will

The death of the contract at will did not happen quickly but occurred over time as common law evolved and labour legislation was introduced.  The change began under US President Roosevelt's New Deal of the Great Depression years and achieved its greatest impetus through the strengthening of the ILO immediately after the Second World War.  It reached its zenith (in the USA) with the Americans with Disabilities Act and the US Civil Rights Restoration Act, passed during the1990s. ⁽⁴²⁾  Both Acts, in part, dictate hiring and firing processes and rights under employment.  The trend in the United States has been replicated internationally in most developed economies.

Up until the Great Depression, the US government had refrained from involving itself in labour relations.  In July 1935, the United States Congress enacted the National Labour Relations Act designed to govern the labour relations of firms involved in interstate trade.  Principally, the Act sought to give employees the right to organise collectively and to engage in collective activity to further their economic interests.  The essence of this and all labour regulation is that it legalised a framework in which employees could engage in anti-competitive and collusive activity for the purpose of fixing labour prices.  Employment regulation is anti-competitive in that it is designed to prevent employees from competing against employees:  that is, if employees in a firm remove their labour (strike) to force higher wages, other employees from outside the firm cannot replace the strikers.

Employers, by contrast, are prohibited by law from engaging in anticompetitive collusion.  Employers cannot act collectively to push up their prices or prevent other employers from competing for business.  The prevention of anti-competitive activity is seen as critical to the successful functioning of a free market economy and the creation of wealth.  In fact, the Combines laws of the USA act strongly to break up companies that have become too big within their markets.  In 2002-03, the giant Microsoft Corporation was faced with potential break-up because it was alleged to have become so dominant in its market that it was preventing other businesses from competing with it.  To avoid being broken up, Microsoft agreed to change a wide-ranging raft of its business practices that allegedly were at the core of its anti-competitive, monopoly-like power.

But labour laws do the reverse.  Because employees are seen as a special case due to the allegedly exploitative nature of the employment contract, employees are given a legal capacity under labour laws to create price-fixing arrangements.

The USA development reflects law that had already come into force in other countries.  For example, Australia created its unique form of labour regulation early in the twentieth century.  This gave employees legal and state-funded institutional frameworks in which to collude collectively to fix labour prices.

I.L.O.

The next major step was the internationalisation of labour regulation efforts through the ILO.  The International Labour Organisation was created in 1919 at the conclusion of the First World War.  The ILO was formed with two purposes in mind.  The first was to improve the conditions of workers to prevent "injustice, hardship and privation to large numbers of people".  The second was to prevent injustices in industrialised society that could lead to "unrest so great that the peace and harmony of the world are imperilled".  In a period of endemic warfare, the ILO was formed to try to prevent the inherent conflict (even revolution) that was seen as an inevitable outcome of the employment relationship.

The big boost to the ILO came at the same time as the USA introduced its first national labour laws.  In 1934, the USA under Roosevelt joined the ILO, even though it did not belong to the League of Nations.  Even while the Second World War was still in progress, the ILO met in the USA, and in 1944 representatives from 41 countries signed the Declaration of Philadelphia, an annex to the constitution of the ILO which outlines the Charter of aims and objectives of the ILO.

Along with the United Nations, the World Trade Organisation, the World Bank and other international institutions, the ILO is essentially a forum that seeks to persuade countries to pursue certain policies.  The purpose of each of these organisations is to overcome specific problems that were perceived to have played a causal role in the outbreak of both world wars.  The United Nations offers the opportunity for constant diplomatic dialogue and resolution of conflict between nations.  The World Bank was established with the aim of preventing countries being crippled by debt.  The World Trade Organisation was designed to prevent the trade wars that preceded and contributed to both world wars.  And the ILO has as its international objective the prevention of endemic conflict between capital and labour.  Naturally, in the twenty-first century, these institutions' objectives have been revised in the light of new circumstances.

The ILO operates under a constitution providing the broad parameters for policy.  It holds regular international forums in which participant countries pass "conventions" laying out principles of labour arrangements that they agree are sound.  It is then for each country to decide which conventions to ratify, upon which it has a moral obligation to embody such conventions in its domestic legislation.  It is these ILO conventions which most frequently form the basis of the labour law that in most countries has killed the employment contract at will and turned employment into something different from what it was in the first half of the twentieth century.

In 1998, at its 86th Session, the ILO adopted its most recent Declaration on Fundamental Principles and Rights at Work, which included "freedom of association, effective recognition of the right to collective bargaining, elimination of all forms of forced and compulsory labour, effective abolition of child labour, and elimination of discrimination in respect of employment and occupation".

The two conventions that have had the most impact on the employment contract at will are those for the "elimination of discrimination in respect of employment and occupation" and for the termination of employment under recommendations 119, 158 and 166 of the ILO.  These conventions have been taken up with some enthusiasm in developed countries and replicated within legislation over an extended period of time.  In effect, the outcome of the application of the two conventions has been the complete destruction of the contract at will within employment.  As a result, the employment contract has effectively become a signifier of job ownership.  That is, once employed, employees have quasi-ownership of their "jobs" which they cannot ultimately lose unless the state agrees.  Within post-Second World War labour laws, a job has taken on the features of a quirky property right.

It works likes this.  On becoming employees, individuals sell their right and capacity to control their own lives.  Employers purchase from those individuals the right to control them.  Since the state takes the view that this right to control systemically puts employees in an unequal, unfair and exploitable position, it intervenes to prevent exploitation.  Rather than addressing the core issue of whether employees should have their self-control removed, the state has allowed employers to retain theoretical control over employees but then legally limits that control.

Through anti-discrimination and unfair dismissal laws, the state prevents employers from dismissing employees on a wide variety of grounds.  State tribunals oversee the process and give all employees an automatic right to appeal to the state if employers try to dismiss them.  In effect, once an individual is employed, he or she acquires part-ownership of the job in conjunction with the employer.  The employee loses ownership of the job only if he or she chooses to relinquish it or the state tribunal upholds a dismissal.  The general concept of fairness in the dismissal process is only a mask for a deeper economic and behavioural process imposed on people by the state.

The idea of procedural fairness in job dismissal is supposed to be an attempt by the state to create or impose acceptable behavioural norms in society.  The state attempts to dictate how people should relate to each other in the work environment.  But it doesn't work very well.  People still behave badly toward each other, and the state tribunals seem to be playing constant catch-up.  The real outcome of the destruction of the employment contract at will -- as we have seen earlier -- is that an employer has to purchase a job back from employee if he or she wishes to dismiss the employee.

Unfair dismissal tribunals rarely require a job to be reinstated, because they recognise that it is not possible to force people to relate in constructive ways.  For the most part, the tribunals award a financial remedy to the employee from the employer.  Employers have learned that such pay-outs are the most likely outcomes of dismissal disputes.  This knowledge, combined with the legal cost of defending an unfair dismissal action, results in employers taking rational economic decisions and, when a dismissal occurs, an upfront pay-out is frequently offered to avoid an unfair dismissal action.  In effect, the employer purchases the job from the employee.  The contract at will has been finally buried.

To summarise the explanation to this point:  the employment contract is a contract of control where one party, the employer has the right to control the employee.  The "controlled" employee is required at law to be loyal to the employer.  In return, the employer is legally required to take responsibility for the actions of the employee.  Governments around the world have found this idea of employer control to be distasteful and have created laws to manage and control the actions of the employer.  In effect, the state has forced itself into the employment contract and has taken over the control mechanisms within the employment contract.  What has been the outcome?

WHERE ARE WE AT AND WHERE ARE WE HEADING?

At the turn of the twenty-first century, the employment contract has become a strange beast because its clash with several regulatory regimes has distorted human behaviour.  Regulation has not changed the core nature of the employment contract.  It continues to have at its centre individuals selling their right to self-control.  But now the employment contract involves legislated property rights to the job being shared by employer and employee, with control of the job largely in the hands of the state.  The state has imposed itself on employer and employee, and now the state has the right to control the employer who, however, continues to pretend that he or she has control over the employee.  The employment contract has become a quasi-contract between three parties:  the employer, the employee and the state.

The outcome is an odd balancing act in which nothing is ever what it seems.  Those who are said to have control do not have it.  Control has become diffused and confused.  And the question must be asked:  where is this all heading?

As the state continues to entrench itself deeper in the detail and operation of the employment contract, the nature of the contract is likely to undergo further fundamental change by legislative design rather than through the comparatively slow, evolutionary and discovery processes of common law.  This creates dangers which are largely unaddressed.  Liability transfer is at the core of these concerns, which manifest themselves in two vital areas:  discrimination;  and work safety and accidents.  The examples of distortions discussed above highlight some of the concerns.

In most areas of the law, individuals are held responsible and liable for their actions.  In the criminal area, an individual who commits the offence is held liable and prosecuted accordingly.  No transfer of liability occurs.  Criminal legal processes devote great resources to trying to ensure that the perpetrator of a crime is correctly identified.

Under commercial contract law, when people have genuinely entered a commercial contract (contract for services), the parties to the contract are held financially liable and responsible for the consequences of events performed under the contract.  If a product is sold and found to be faulty, those who made and sold the product are held financially responsible for the fault.  This connection of accountability in the commercial area to the parties who undertook an action is fundamental in the commercial contract and is crucial to economic justice.

The problem with liability transfer in the areas of anti-discrimination and anti-harassment laws is that it encourages unacceptable behaviour on the part of employees, since employers are held liable for it.  In this way the moral objectives fostered by legislation are defeated by the very legal and institutional approaches that are used to achieve those objectives.  As well, individuals can use the accountability avoidance mechanisms to exploit others.

CORPORATE CRIMINALITY:  A NASTY VISION OF THE FUTURE!

These distortions became clear in Australia in 2001, when the Australian Federal government amended the national criminal code to create the new offence of corporate manslaughter.  The first attempt to turn the Code into a legislative form occurred in Victoria in 2002 but, fortunately, was defeated.  It was turned into law in the Australian Capital Territory in 2003 -- and is probably a world first.

The detail of the attempted Victorian legislation shows how the work safety regulators who designed and proposed the legislation misunderstood to a dangerous degree the nature of firms and the role of employment and employment liability transfer.

The Victorian Bill sought to amend the Victorian Crimes Act to create a new and additional offence of manslaughter by a corporation.  Under the Bill, a corporation would have become criminally liable for the actions or omissions of its employees and agents.  Specific individuals (senior officers) were targeted to become personally liable and to be jailed for up to seven years for the criminal actions of a corporation, even where those individuals were not personally involved in causing a death or injury.

The Bill sought to assign criminality to a corporate "system." Once the corporate system had been found to have committed a criminal act, individual "senior officers" within the system could be sentenced on behalf of the system.  This idea of a system being capable of a criminal act conceptually relies on the transfer of liability under employment from one party to another.  The idea is that employees do not manage themselves but act according to the dictates of the system under which they work.  When a work-related death occurs, the fault does not lie with the individuals who work in the system, but rather with the system itself, and the people who go to jail are the people who design or control the system (senior officers).

The close tie to employment could clearly be seen because the offence involved death or injury only to individuals paid by a corporation.  It excluded individuals who were unpaid volunteers working for the corporation.

Government was to be exempt.  The Bill held publicly-owned corporations to be criminally liable but it exempted the state and senior officers of the state from liability.  The Bill applied a different measure of criminal liability to the managers and directors of a corporation from that applied to the managers and ministers of the state of Victoria or the Commonwealth.  For example managers of the federal government owned corporation, Australia Post, would have been held liable, but managers of the public service-structured environment departments would not be liable.

Having untied criminality from individual actions, and made "systems" capable of committing offences, the Bill proceeded to apply more contorted logic.  It proceeded to apply criminal liability through a chain of commercial contracts.  The Bill held a corporation criminally liable for the actions of an agent of an agent of an agent and so on.  Under commercial law, firms regularly outsource functions and have other companies do work for them, purchasing the end product or service.  The entering of a commercial contract with another party never involves the buyer of a service or good assuming the criminal (or financial) liability for something that may go wrong in the seller's internal operations.  Yet the Corporate Manslaughter Bill sought to do just that.  It made a corporation that purchased goods or services potentially criminally liable if a death occurred at a work site of the seller of the goods or services.  And this process of criminal liability transfer could cascade all the way along a chain of contracts.

The idea of "systems" being capable of criminality was tied to the idea of "aggregate" behaviour.  The Bill stipulated that the behaviour of a single employee was not to be attributed to a corporation, but the behaviour of all employees, even if in breach of written instructions, became the behaviour of the corporation, upon which it was capable of criminal action.  "Aggregating" reinforced the pivotal idea in the Bill that a corporate culture and its control systems were the cause of criminality.

By holding that a corporate culture could be capable of a criminal act, the Bill created a highly dangerous precedent whereby any culture could be seen to be criminally capable.  Throughout history, individuals seeking power for themselves have sought to blame ethnic groups, specific cultures or religions on a collective basis for allegedly wicked acts.  The alleged evils committed by collectives have been invoked to justify the wholesale slaughter of such collectives.  The victims have been members of many races, religions, and classes.  The defeat of the idea that collectives can be held culpable for wrongdoing has been a major step in humanity's march from barbarism to civilisation.

The proposed Victorian Corporate Manslaughter Bill did no more than seek to translate into working legislation the principles of the Corporate Manslaughter Criminal Code which is contained within Australian Federal legislation but which, as a code, has no effect until translated into legislation.  But the principle of collective criminality which has been recognised in Australia is able to take legislative form.  The Victorian Bill was a world "first".  The ground-breaking attempt happened in a country with a supposedly sophisticated understanding of the law and of economics and justice.  It gives an indication of how the continuing trend within labour regulation has developed dangerously distorted concepts.

The trend reflects the distorted view of the world that results from an incapacity either to recognise, accept or cope with the liability transference aspect of employment.

At the beginning of the twenty-first century, the law and regulation of employment is drifting dangerously, with little thought as to the damage being done to the human quest for freedom, justice, and harmony.  It is being driven by a blind obsession with enforcing certain social objectives, regardless of the damage being done to those same objectives by the very policy being pushed.  It is driven by an obsessive conviction that the form of economic organisation made possible by the commercial contract is and must always be exploitative.  It is thereby based on a wilful devotion to a fiction.

EMPLOYMENT CONTRACT At will I ................................................................................... (write your name here) of .............................................................................. (write your address here) agree to become to become employed with ................... (write your employer’s name here) under the terms of the common-law employment contract at will. I understand and agree that as a consequence of becoming employed I shall be paid certain monies to be established from time to time and that in return for those monies I understand and agree that during the period or hours of employment I: Shall refrain from expressing views or opinions that may not be in accord with the views of my employer. Shall not be idle and shall place my energy, thought and being at the disposal of my employer to be used by my employer at his/her discretion, direction and authority. Shall not make use of any information discovered when employed, for the purposes of competing with my employer for personal profit or the profit of another person. I further understand that my employer or I can at any time and without any cause, reason or justification, terminate this employment contract without duress or redress other than the securing of monies owed for work completed under this employment contract. ............................................................... (sign your name or place your mark here) ......................................................................................... (put the date here)

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ENDNOTES

1.  The Living Webster Encyclopedic Dictionary of the English Language, The English-Language Institute of America, Chicago, 1971.

2.  Deutz Australia Pty Ltd v. Skilled Engineering and Anor [2001] VSC 194 (25 June 2001) Supreme Court of Victoria.

3.  Hollis v. Vabu Pty Ltd [2001] High Court of Australia HCA 44.  9 August 2001 S149/2000.

4.  Evenco P/L v. Australian Building Construction Employees and Builders Labourers Federation and others.  Appeal Nos 3536 of 1999 and 3610 of 1999 SC No 1794 of 1988 and SC 4843 of 1986.  Supreme Court of Queensland 4 April 2000.  (Hereafter, Evenco.)

5.  Evenco at 5.

6.  Evenco at 6.

7.  Evenco at 25.

8.  Evenco at 27 and 30.

9.  Evenco at 36.

10.  Digital Pulse Pty Limited v. Christopher Harris and Ors [2002] New South Wales Supreme Court NSWSC 33.  File number SC 50032/00.  (Hereafter Digital.)

11.  Digital at 1.

12.  Digital at 20.

13.  Webster's Dictionary.

14.  Digital at 22 and 24.

15.  Digital at 34.

16.  Digital at 128 and 134.

17.  The Age, 11 January 1997.

18.  Walter K. Olson, The Excuse Factory, Martin Kessler Books, 1997, pages 235 and 282.

19.  Ibid., page 192.

20.  Ibid., pages 17 and 193.

21.  The Australian, 29 January 2001.

22.  Burton v. Telstra.  Australian Industrial Relations Commission.  Print R4998.

23.  Debono v. Trans Adelaide.  Australian Industrial Relations Commission 1999.

24.  Print S0242 18 October 1999 AIRC.

25.  Gray v. The State of Victoria and Pettman.  Victorian Civil and Administrative Tribunal 9 June 1999.

26.  Queensland Anti-Discrimination Tribunal.  No H25/95 29 January 1997.

27.  Hopper v. Mt Isa Mines & Ors.  Queensland Industrial Relations Commission No 1221 of 2001, 11 April 2002.

28.  Shaikh v. Ian Campbell & Nivona Pty Ltd Human Rights and Equal Opportunity Commission.  No. 97/253.

29.  Queensland Industrial Relations Commission.  C42 of 1999.  20 September 1999.

30.  Olson, op. cit., page 268.

31.  Ibid., page 216.

32.  Australian Financial Review, 22 October 1999.

33.  The Australian, 21 March 1997.

34.  Australian Financial Review, 22 December 1998.

35.  Australian Financial Review, 6 July 2001;  NSW IRC in Court Session 1829 of 1998.

36.  Australian Financial Review, 5 December 1996.

37.  Olson, op. cit., page 240.

38.  Stevens v. Brodribb Sawmilling Co Pty Ltd 1986 160 CLR16.

39.  Odco Pty Ltd v. BWIU No VG 151 of 1988.

40.  Olson, op. cit., page 32.

41.  See the ILO Website:  www.ilo.org

42.  Olson, op. cit., pages 6-8.