Labour Regulation

CHAPTER 6

The system of wage labour is a system of slavery

-- Karl Marx

OVERVIEW

Labour regulation is stuck in a conceptual time warp several hundred years old.  It is distorting human relationships inside firms and hindering social progress.

Societies are changing quite rapidly, but the labour regulation that governments impose on societies is failing to keep pace.  There is a singular failure to realise what the change is and why it is occurring, and so to design appropriate responses.

In essence, labour regulation is based on the view that relationships inside firms are relationships of inequality between the powerful and the powerless.  Labour regulations are supposed to eliminate this power imbalance and so impose equality inside the firm.  This in turn is supposed to make for more equitable societies.

Whether or not this view of power inequality is (or ever was) a true reflection of the reality of relationships inside firms, it is the central concept that drove the design of all labour regulation throughout the twentieth century, and particularly since the Second World War.  But that concept is now under direct challenge.  The idea that relationships inside firms are always and systematically relationships of inequality between the powerful and powerless no longer holds true.  It may sometimes be true, but it is usually wrong.  New ways of looking at labour regulation must be framed.

To understand labour regulation, some key sub-concepts need to be understood.

Bargaining power inside firms has always been discussed on the assumption that all firms engage workers under the employment contract.  Legislation creating labour regulation has always been drafted to apply to where the employment contract exists, on the understanding that the employment contract is a contract of inequality and hence needs to be regulated with a view to removing the inequality.  Where people work without employment contracts, labour regulation does not apply.  The alternative work contract to employment is the commercial contract.  At law, the commercial contract is a contract of equality and so should not be (and is not) regulated in the same way as employment contracts.  Yet these legal facts are largely ignored when labour regulation is discussed.  The academic discussion of labour regulation is conducted as if all contracts, whether commercial or employment, were contracts of inequality which therefore required "power countervailing" regulation.  Such discussion is therefore of little value.

Nonetheless, social change is posing a challenge to the "power inequality" concepts of labour regulation and upsetting the comfortable and established paradigms of the existing academic debate.  People increasingly are rejecting relationships of power inequality -- within families, between the sexes, in politics, and in every social arena.  It is affecting the firm, where the rejection of power inequality has two main manifestations.  People who work under the employment contract behave independently as "independent employees" and reject inequality in their behaviour.  And further, people are rejecting the employment contract as a mode of work and choosing to work under the commercial contract as independent contractors.  Labour regulation and discussion about it are both becoming rapidly outdated.

WHAT IS LABOUR REGULATION?

Critical to understanding labour regulation is the recognition that labour regulation should not be confused with regulation covering taxes, social welfare, anti-discrimination objectives, equal opportunity, and work safety.  Each of these areas of regulation interfaces and interacts with labour regulation, but each is separate and distinct, and has its own unique objectives.  They cover issues of government taxation, income security for the less well-off, relationships across society, and safety.  These regulations are connected with labour regulation because they are applied to and within the firm.  Taxation law uses the firm as an administrative vehicle for collecting revenue for government.  Social security laws use the firm as an administrative vehicle for facilitating income security when a person is out of work.  Antidiscrimination and equal opportunity laws have application across all of society (and hence are applied to the firm), but their objectives are in fact distorted by the employment contract.  Work safety laws are designed to ensure that people are not harmed as a consequence of firms' activities.  These laws largely use the firm as an administrative tool to target broader social and other objectives.

Labour regulation, however, is different from these other kinds of regulation because it seeks to interfere with and control the interaction between the people who work in the firm.  It does this by seeking to control the employment contract and by taking away employer control of the employment contract.  But labour regulation disempowers not only employers but employees as well.  Labour regulation is an instrument whereby the state assumes high-level managerial control of the firm while at the same time pretending not to do so.  This is the traditional role of labour regulation as formalised and consolidated after the Second World War, and internationally institutionalised under the structure of the United Nations affiliate organisation, the International Labour Organisation (ILO).  It is a body of law that distorts the ability of firms and the people working inside firms to reach for and discover their highest levels of performance and satisfaction.

The extent to which labour regulation performs this controlling role varies between countries and within countries, but the primary thrust of labour regulation is common across developed economies and is being incorporated into the emerging regulation regimes of developing economies.  It is a primary factor that affects the success of economies and the competitive differences between economies.

Labour regulation vs commercial regulation

Labour regulation is different from the commercial regulation that applies to contracts between businesses and consumers and between businesses and businesses.  It is essential at this point to understand this difference.

Labour regulation operates on one core understanding:  that the employment contract is a contract between parties who have unequal bargaining power.  And this inequality of bargaining power is built into the law of the employment contract.  As demonstrated at length in earlier chapters in this book, the employment contract (under common law called the contract of service) at law and in practice is a contract of control.  That is, the employer has "the right" at law to control the employee.  The legal and managerial idea is simple:  once an employment contract is in force, employees agree to give employers the exclusive right to use and control their services.  In practice, this means that the employer can control the terms of the employment contract and change those terms without the agreement of the employee.  The only "control" an employee can exercise is to terminate the contract.

This is quite different from the other principal contract in societies involving the provision of services, namely, the commercial contract, also known at common law as the contract for services.  When a business buys a product or service from another business or sells to a consumer or another business, the type of contract in operation is the commercial contract.  The essence of this contract is that both parties have equal rights, enforceable at law, to control the terms of the contract.  This contrasts starkly with the employment contract.  Under the commercial contract, for example, the terms of the contract cannot be changed by one party without the consent of the other.  But under the employment contract the employer has the right to change contract terms without the employee's consent.

These two basic contracts could not be more starkly different and have hugely different implications for the application of justice in societies, how people in societies interact in their economic relationships, and the way the two contract types are or should be regulated.

The commercial contract provides one of the most important protections for economic justice and social stability.  A consumer may be small and poor and the supplier of a good or service may be big, rich and seemingly powerful.  But in the eyes of the law, and for the purposes of the commercial contract, both parties are equal.  If the "little" person has purchased a service, the big company must ensure that the service supplied is as advertised and is safe.  The company cannot decide after taking the customer's money that it will supply a different service.  If it does this, the law of commercial contract will require it to honour its original stated intent.  In this respect the commercial contract is a contract of equality.  It is a great social and economic leveller.  It ignores might and power.  It is the core legal basis upon which free markets operate.  It is the contract that ensures that trust in society is reflected in and is enforced by the law.  The commercial contract is hugely important for the achievement of social stability and economic success.

The commercial contract is heavily regulated, but in a particular way.  The law of commercial contract allows people to enter the contract of their own free will.  In free-market societies, the law does not say which contracts you can or cannot enter.  The state does not force you into contracts you do not want or dictate the terms of commercial contracts before you enter them.  The law will interfere in the contract only when there is a dispute which the parties cannot resolve.  The law will then check that the contract was a genuine contract and resolve the dispute according to the terms laid out in the contract.  This is done by the courts.  The law will not seek to tell people what the terms or price of the contract should be, either before or after the contract is agreed.  But the law will declare null and void contracts that do not conform to these key protective features of the commercial contract structure.  This structure of the commercial contract and the comparable light regulation that goes with it not only enable economies to operate, but are also fundamental protections of human rights and a leveller of social status.  Under the commercial contract, everyone is equal before the law.  The commercial contract is a destroyer of class consciousness and class warfare.  It is a noble contract, but is rarely if ever recognised for its fundamental importance to a just, fair and equitable society.

With the employment contract, the structures and implications are different.  Under the employment contract, equality before the law does not exist.  But few want to recognise or accept this legal truth and the simplicity of the difference from the commercial contract.  Chapter One of this book detailed all the elements that go to make the contract of employment a contract of control.  Effectively, the nature of the employment contract is that the employer has the right to control the terms of the contract without the agreement of the employee.  This is not equality before the law.  This is the entrenchment of class structure and class consciousness within the area of work and of the firm and it is recognised and enforced by law.

The reaction against this class-based employment contract -- particularly after the Second World War -- has seen the development of labour law that seeks to redress the power and class imbalance.  Law-makers have taken the view that the inequality of the employment contract is wrong and must be addressed.  But rather than giving legal power to the employee in equal measure to that of the employer, the law has instead taken power from the employer and assumed that power itself.  This is the essence of labour regulation.  It is odd.  If the power imbalance inherent in the employment contract were so unacceptable, it would surely have been more logical and more equitable for labour regulation to empower the employee.  But this has not occurred.  The rhetoric of labour regulation claims to have empowered the employee, but in fact this is not the case.  Both by design and in its operation, labour regulation seeks to empower the state under the banner of empowering the employee.  It is a great social subterfuge conducted by the state against employees.  In this respect, labour regulation is not a process of addressing power imbalance but rather a process of creating an additional power imbalance -- with all additional power going to institutions of the state.

This is the modern form of labour law.  And it is global.  Rather than creating and protecting human rights and economic justice globally, labour law has distorted rights and justice and, in fact, created injustice.  Because the state has stolen power from the employer, it assumes that it is has done the right thing.  But, under the banner and illusion of justice and rights, the state chooses to be blind to the injustice it now represents and imposes.

LABOUR LAW:  A SYSTEM OF INJUSTICE

When it is unencumbered by labour regulation, the employment contract delivers to the employer control over the employee, even if most employees are not aware of this.

The most obvious control is the expectation and requirement under contract that the employee will attend work each day as required by the employer.  Since this contractual obligation is not written down when a person becomes employed, most employees are not aware of this legal fact.  But it can be found stated in the judgments of courts adjudicating on employment contracts.  And labour regulation imposed on the employment contract accepts and reinforces this.  Why is this so?  It is taken that, under the employment contract and associated labour regulation, businesses could not operate if employees turned up to work only when and if it suited them.  For example, most employment law in most countries even gives employers the right to require employees to do overtime.  The employment contract and law, in this respect, operate to serve managerial interests and the convenience of the employer by requiring employees to attend work.

This requirement to attend work imposed on the employee by the contract of employment and by employment regulation is taken as a given in society and a product of industrialisation.  Take the example of "our daily bread".

In the industrial age, bread production moved from the family home and local village bakery to mass production in large factories.  To assist smooth factory production after the Industrial Revolution, the law of employment reinforced the obligation of employees to turn up at the bread factory each day at specified times.  This was done, so the argument goes, for good social and economic reasons.  With massive industrial baking machines, employers' production requirements necessitated that the bread ovens were started at particular times and that all key employees were at their stations at those times.  If employees were missing, the entire bread production process for that day could be at risk.  So the law and contract of employment was (and is) a reflection of the fact that, if employees were not at work, the economic losses to the employer would be so large as to threaten the financial viability of the bread business.  If employees across an entire country could attend work when they chose, employers could not organise their businesses for production with any certainty.  If this occurred systemically in an industrial society, the entire ability of a society to produce could be threatened.  This fear of collapse of production underpins the law of employment contract and supporting regulation.  And this fact is expressed quite regularly in court decisions on employment contracts and law.  So employment regulation reinforces and supports the employers' control over employees, but only on the grounds that such control serves the greater and necessary good of society.

On other matters, however, even though the contract of employment delivers control to the employer, the regulation of employment has taken control away from the employer.  This is done because of concern about potential exploitation by employers of employees if employers' power is unrestrained.  The examples are obvious.

Almost every country imposes minimum pay rates on employers.  Most frequently, complex quasi-judicial processes are established which dictate to employers the actual pay rates that are to be paid.  So the rate of pay and the processes for determining rates of pay are dictated by the state.  In effect, this removes the right and capacity of employers to determine the rates they are prepared to pay.  It diminishes employers' control over their enterprises and is done under the banner of "workers' rights".  In this area, the rationale is that, if employers had unfettered power to pay employees what they liked, then employers would, naturally enough, pay as little as possible and so exploit employees and create poverty.  Across the globe, countries have decided that this is not an appropriate power for employers to have and so have set up a wide variety of state institutions that determine and impose pay rates on employers.  This, it is suggested, is how social justice is achieved.

But the other consequence of this regulation (that is never openly admitted) is that it quite frequently denies effective rights to employees to determine and create their own pay rates.  The setting of pay rates under labour regulations and processes does not generally deliver to individual employees full capacity to sell their services to their employer in a way that would maximise the financial return to each employee.  Hence the processes of pay regulation deny employees their right to control their pay rate.  There are two justifications for this denial of power to individual employees.  It is thought that if individual employees had complete capacity to determine their individual incomes in direct negotiation with their employers, then employers' superior negotiating position would force individual employees to accept lower wages than could be obtained by employees negotiating collectively.  Since employee negotiating power over pay rates is thought to be greatest when employees act collectively, individual employees must not be allowed to weaken the collective.  It is also thought that, if individual employees negotiated a lower wage for themselves, this would flow through to all employees, thus creating a wage race to the bottom.  Collective wage negotiations are therefore organised and entrenched in different ways (and to different extents) in different countries to stop or minimise individual employees exerting influence over their own pay rates.  Thus, where collective wage negotiation is enforced by employment law, an essential and important element of it is the denial of power to individual employees.  In effect, this is the denial of justice to employees as individuals.  There may by good social reasons for this, as is argued by people who support the collectivisation of employee power, but it is a subterfuge whenever collectivisation is justified without clear acceptance of the consequent denial of justice to employees as individuals.

This social policy dilemma plays out on a regular and frequent basis -- and not always simply on pay rates but on other employee rights issues as well.  One example was a high-profile case in Australia in 2004.

ELECTROLUX

In September 2004, the High Court of Australia (the ultimate court of appeal in Australia) handed down a decision that tells us a great deal about the ideas that underpin labour regulation both in Australia and internationally.

The judgment expresses ideas, images and moral positions that are common to labour regulation world-wide.  The judges' comments reflect the clash of mindsets that define the labour and business regulation debate that has developed since the Second World War:  a clash which is played out differently in each country, but which has common and clear international themes and principles.

The Electrolux High Court ⁽¹⁾ case involved the large multinational firm Electrolux which, in Australia, manufactured whitegood products:  washing machines, clothes dryers, and so on.  Electrolux had a collective agreement with its employees organised through a union.  The union wished to insert a clause into the agreement requiring non-union employees to pay a "service fee" to the union;  Electrolux was to be required to deduct the fee from non-unionists' wages.  Electrolux objected to this clause, arguing that non-union employees should not be forced to pay money to the union if they didn't so desire.  But the union wanted to make forced payment of money by employees to the union a condition of employment with Electrolux, and indicated that it would call a strike if the clause was not included in its enterprise agreement with Electrolux.  Electrolux went to the courts, arguing that the union "service fee" did not fall within the jurisdiction of the Australian industrial relations legislation and consequently was illegal under Australian employment law.

Under Australian industrial relations law, employees are permitted to strike in the attempt to force employers to agree to certain conditions of employment.  In the absence of industrial relations law, employees taking strike action could be sued for damages by the employer.  Most industrial relations law across the globe replicates this basic structure in one form or another.

In the Australian Electrolux case, if the union service fee clause could be demonstrated to have nothing to do with the relationship between Electrolux and its employees, the industrial relations legislation would not apply, and Electrolux would have been free to sue the union and its employees for commercial damages arising from any strike action.

The principle at stake was (and is) the key to all industrial relations regulation and law in most developed economies.  It is the principle that underpins the core activities of the International Labour Organisation, which acts as the "parliament of principle" for labour law.

The principle being considered in Electrolux was contained within the issue of whether industrial relations law could be imposed outside the employment relationship.  Under labour law, employees working through a union can pressure employers into a contract by striking.  By contrast, under commercial law, the application of pressure by one party to another to enter a contract is illegal and invalidates the contract.

The practical question in Electrolux was whether an employer could require an employee to make a payment to someone else (the union) a condition of employment.  The question, in effect, highlights the great global clash of ideas concerning differing concepts of "rights" in the work environment.  Unions argue they have a "right" to pressure someone into a contract.  But commercial law holds that everyone has a "right" not to be pressured into a contract.

In the Electrolux case, the Australian High Court rejected the union argument and accepted Electrolux's argument.  The Court maintained that, under Australian law, conditions of employment were clear and specific, and related to how much an employee was paid, hours of work, holidays and other such matters.  The issue of whether a non-union employee could be required to pay money to a union was not a matter relating to the relationship between Electrolux's employees and Electrolux as an employer.  Consequently, if the union or employees undertook strike action over that issue, they were not protected against any lawsuit for damages from Electrolux.

The High Court decision infuriated Australian unions and many labour lawyers and labour academics, who branded the decision a backward step and claimed that the decision would destroy the operation of labour law in Australia.  Nor was the Court unanimous:  one of the seven judges dissented from the overall judgment.  A comparison between his comments and those of the other six judges illustrates the clash between the mindsets on labour law.  They amount to two clear but opposing conceptions of justice.

The dissenting judge

The dissenting judge first relied on one view of the history and evolution of labour law in Australia since the Second World War.  He said that when the Australian Constitution came into force in 1901 industrial relations law was restricted to issues of employment. ⁽²⁾

But, he argued, the Parliament had moved on in its thinking beyond the strict employment contract to include matters raised by the International Labour Organisation.  Interference in management issues was now seen as legitimate under labour law. ⁽³⁾  Further, by the late 1970s ⁽⁴⁾ labour law had moved beyond "employment" to embrace "industrial matters", in effect bringing managerial decisions within the jurisdiction of labour law and so creating a new constitutional paradigm.  He argued that the Australian Parliament had, in effect, changed the Australian Constitution and hence changed the scope of labour law.

The judge also claimed that the Australian Parliament had intended to extend the reach of Industrial Relations Acts beyond the traditional idea of the employer-employee relationship. ⁽⁵⁾  He said it was clear that the Parliament had used new technical words in the Industrial Relations Act that meant the Act had new meaning and reach. ⁽⁶⁾

By implication, he was critical of his fellow High Court judges, concluding that "The statute has been changed.  The understanding of the Constitution has advanced.  A new and different constitutional head of legislative power has been invoked."

The dissenting judge's other argument related to the role of unions in society.  He saw unions as important and vital social institutions that needed protection from commercial litigation in order to perform their necessary functions. ⁽⁷⁾  He took the position that, in this instance of union "service fees", it was justifiable to force non-unionists to pay fees to unions.  "Those to whom the Fee would apply are those who have not joined a relevant union but have stood to gain from the collective bargaining by the union on behalf of the employees of Electrolux". ⁽⁸⁾

The judge did concede that there was another point of view on the matter.  "I accept, focusing solely on the text of the Act read narrowly, that this is an arguable construction." But in the end he said he was right:  "differences of interpretation suggest, or demonstrate, differing starting points or values that influence the decision-maker, consciously or unconsciously". ⁽⁹⁾

He was, in effect, emphasising that the decision in this case was really one about values.  He believed that values have changed since the Second World War and that the other High Court judges should recognise this and be prepared to incorporate these new values into their decisions. ⁽¹⁰⁾

What does this all mean?  It seems to the layperson that the dissenting judge is arguing the following.  He reasons that, under the Australian Constitution of 1901, the original ambit of employment regulation was to be limited to the direct contractual relationship between common-law employees and common-law employers:  that is to say, that the specific contract of employment discussed earlier was of the type that was subject to control by the state through labour regulation processes.

He considers that this historical constitutional ambit of labour regulation meant that the legislative reach of union activity in arguing, agitating and applying pressure on employee issues had to be limited to specific issues such as pay rates.  It meant that issues affecting purely political issues, overseas conflicts or managerial issues were not matters that could be included in labour/industrial relations regulations.  Those matters were subject only to commercial-type legislation and regulation.  But, he says, over recent decades or so (he suggests perhaps from around the 1970s), the ambit of Australian labour regulation has expanded and has needed to do so in response to the changing industrial "realities".  The dissenting judge does not specify what those new "realities" are, but it is probably safe to assume that they relate to the declining numerical strength of unions and the new campaign techniques unions use to try to keep themselves relevant.  It is clear, that, as union membership numbers have declined dramatically and globally (in the USA, some States have union coverage of only four per cent of the workforce), unions have sought to shore up their influence by extending their activity beyond the employment relationship to matters affecting broader social, political and, most significantly, managerial and commercial matters.

Then he claims that the new "industrial realities" created by the activities of the unions have changed the social landscape, and this change has been, and must be, reflected by a new understanding of the legal ambit of labour regulation, at least in Australia.  The dissenting judge is clearly highly critical of his fellow judges in this Electrolux decision.  In his view, they made a decision that takes the ambit of labour regulation back to its original construct, namely, the direct contractual relationship between common-law employee and common-law employer.  This return, he argues, to the traditional view of labour regulation would be a "great misfortune" as it would expose unions to civil litigation and the awarding of commercial damages if they organised strikes or other industrial action that related to issues outside the common-law employment relationship.

By implication, the dissenting judge proposed that unions are an important social institution and they are needed to prevent the exploitation of, and damage being done to, workers.  The decline in union membership, however, has reduced their influence to the point that unions are under the threat of becoming irrelevant.  Further, the attempt by unions to retain their influence by extending their activities into managerial, commercial and other matters is legitimate because it serves a social good (namely, the protection of workers).  This social good has been reflected in Australian legislation, he believes, through the insertion of the word "about" in the legislation.  In addition, rulings of the High Court of Australia over the last two decades have reflected this redefinition of the Constitution, and this redefinition should be accepted by all High Court judges.

Unfortunately for the dissenting judge, his fellow six High Court judges did not agree.  They did not discuss the dissenting judge's line of reasoning but instead argued for different principles.  In fact, the six judges argued for principles of contract integrity which, unlike the dissenting judge's reasoning, highlight the clash of moral principles that underscores the international debates on labour regulation.  The clash of mindsets has everything to do with differing values and ideas of justice, and is at the heart of some of the great international moral debates over globalisation, the social role of business and the nature of free markets.

The majority judges

What did the majority judges say, and what can be learnt from their views and decision?

The majority judges focused on the specific issue at hand, namely, the requirement under the Electrolux agreement that employees pay "service fees" to unions.  They argued that the bargaining fee "seeks to impose upon an employer an obligation to act as a collecting agent for the union to deduct from an employee's remuneration, an involuntary payment to the union for a 'service' which the employee has not sought and which may have been of no benefit to him or her ... Such a term ... seeks to impose an involuntary financial relationship between a union and a person who is not a member of it". ⁽¹¹⁾

The claim, implicitly if not explicitly, is that Electrolux is to act as the union's agent in entering into a contract with new employees which requires the employees who are not members, to employ the unions as their bargaining agent ... The agency so created is for the benefit of the union, rather than for the benefit of the employee upon whom the contractual liability is to be involuntarily imposed. ⁽¹²⁾

The judges were alluding to a basic human rights issue.  Can people be forced to pay money for services they don't wish to use simply because they have a contract with someone else?  For example, if a person is buying a house, should the terms of the house-purchase contract be allowed to force the person to take a loan from a specified bank?  This is not just a human rights issue;  it is an issue that is vitally important to the operation of free market economies.  It is critically important that every person in a society has freedom to choose which goods or services to buy or not to buy.  It is a breach of human rights to force someone to buy something he or she doesn't want.  It also destroys the consumer's rights to choose, the very foundation of competition in free markets.  The majority judges alluded to this key right, but it was not the technical basis upon which they had to make their decision.  They instead focused on whether the bargaining fee issue fell within the scope of the employment relationship.  This is the key point because, as discussed earlier, the employment contract is about the removal of basic human liberties while at work.  Conceptually, if the bargaining agent's fees could be declared to be part of the employment relationship, the taking away of employees' right to choose what services they used and paid for could be lawful.  And that, at least, is the line of reasoning presumably underpinning the union's case for making use of this instrument.

The majority judges clearly recognised that the bargaining agent fee takes away fundamental rights.  But the right which most occupied their minds was the common-law right to sue for damages.  If someone crashes a car into your house, you have a legal right to sue the car driver for the damage to your house.  The judges accepted that parliaments sometimes take away people's rights, for all sorts of reasons.  But the majority judges said that if rights are to be taken away by Parliament, then the legislation should be clear that this is the intent. ⁽¹³⁾

The judges explained that Australian industrial relations law "operates to restrict the employers' common law rights of contract, tort and property". ⁽¹⁴⁾  Further, the judges held that the clause the unions wanted inserted into the agreement amounted to coercion. ⁽¹⁵⁾

A good deal was riding on this decision as it affected not just the bargaining fee but core rights in the community as well.  Australian industrial relations law takes away persons' rights to sue for damages and allows coercion to make someone sign an agreement.  Under employment contract and labour law, basic human protections that are enshrined in the commercial contract are taken away.  The judges were saying that it was not their role to presume that Parliament wanted these human rights taken from people;  if Parliament wished to take away people's rights, then the law had to be crystal clear that this was the intent.

The conclusion of the majority judges was that there was little, if any, evidence that the Parliament had intended basic rights to be taken away.  They said that "for an employer to collect money from employees and remit such money to a third party on behalf of employees had an insufficient connection with the industrial relationship to fall within the statutory description". ⁽¹⁶⁾

On what most people would see as a highly technical legal issue, the judges in fact made a decision based on a clear protection of human rights as has been embodied in common law for a considerable period of modern human history. ⁽¹⁷⁾

The conflicting attitudes and central ideas that drive labour law and regulation in several different directions seem to have come together in this Australian judicial decision.  But the attitudes and ideas were not invented on the spot by these particular seven judges.  They have in fact evolved over a long period going back in Western thought to pre-Roman times.  These attitudes and ideas underpin what it means for a society to be civilised.

Humans face a social organisational conundrum.  We are both intensely individualistic and at the same time intensely social.  In our own mind's eye, we each see ourselves as the centre of the universe.  Yet we crave the company of others, and other people become as important to us as we are to ourselves.  We desire and need to be involved with others to organise the world, to create, to build and to make our lives as comfortable, enjoyable and fulfilling as we can.  We organise ourselves into large complex groups to achieve mutual benefit.  Yet this results in the emergence of power relations which can strip some people of their own power over themselves and deny them their essential individuality, allegedly for the sake of the needs of the whole group.  Yet the needs of the whole group are frequently defined and controlled by a few individuals who have managed to seize control of the processes by which the group works.  And frequently those who have seized control of the group can garner the benefits of the operation of the group for themselves.  The conundrum of human organisation is that the collective is frequently controlled by an elite in its own interests.  The law is the most important process by which we attempt to resolve that conundrum, so that the benefits of social organisation are shared by all, and the members of the collective are not stripped of their individuality.  The law of employment and the law of commercial contract are two different and largely opposing models of resolving the organisational conundrum.  The two models are highlighted in the Australian Electrolux decision but cannot be fully understood without some simple notions of how the ideas have developed over the centuries.

Much of the history of human social and organisational evolution has been a battle between the rights of the individual and those of the collective.  The collective, whether a family, a village, a tribe, a nation or an empire has always been seen as vital to the success of human life.  A strong family in prehistoric times would provide the organisation for hunting and for protecting the family members from wild beasts.  A strong tribe, working together, could cultivate the land, hunt and protect its members from opposing tribes.  So it has been and is with nations and empires.  But in all human history and within each of these collectives, whether large or small, the collectives always select leaders or leadership groups.  And leaders have always been, or have been seen to be, the strongest and the most forceful of the individuals in the group.  Natural selection within the social dynamics of the collective delivers power to the strong.  The history of humanity is, however, littered with leaders, whether as individuals or as institutions, who have always sought to impose their will on the group, often brutally, savagely, without justice and with little regard for basic human and individual dignity and rights.  This has most frequently been justified on the grounds that the need of the leader to impose his power on the collective and each individual in the collective is necessary if the collective is to be strong and successful.  The problem of the collective is that it has always been controlled by individuals.  The employment contract is a derivation of this basic human trait.  At law, the employer has a right to control the employee.  The collective is the firm.  The employer is the leader.  The employer has the right to direct and control the activities of the employee for the greater good of the collective, the firm.  The employees must accept this subjugation.

Thus, one of the greatest and most difficult journeys of humanity has been to create social systems that enable the collective to exist, to cause operating systems to function within the collective, to enable leaders to operate within the collective while at the same time preventing the leaders, whether as individuals or institutions, from oppressing all or some of the individuals in the collective.  On the political front, democracy has been the system created to enable the collective to choose leaders but to constrain and frustrate the ability of leaders to oppress individual members in the collective.  The idea and application of the law as being something morally superior and more powerful than leaders themselves is essential to this process.  In economics, the market-based economy plays much the same role.  All individuals have the opportunity and can, through the dynamic processes of the market, become wealthy and seemingly powerful.  But the free market constrains and frustrates any individual of wealth and power from oppressing other individuals in the market.  The commercial contract, being something more powerful than any wealthy individual, is the legal bedrock of the free market.  Consumer, competition and anti-monopoly laws have added to the strength of free market economies by frustrating concentrations of economic power.  In the areas of democracy and economics, the processes that humans have developed enable all and any individual the opportunity and right to become a "leader" but frustrate the ability of leaders to oppress individuals in the collective.  It's a complex process, reflective of the complexity of humans that is not simply, neatly or readily explained in academic dissertation.

Strangely, however, this process of evolutionary thought has not been applied to the firm and to employment.  The prevailing conceptual and operational paradigm of the firm is that it is and must be a command system controlled by a leader.  The employment contract is the social and legal glue that holds this system together.  The right of the employer to control the employee is an unchallenged theoretical position thought necessary to the very existence of the firm.  But concern about the consequent legal and actual potential of the employer to oppress individual employees in the name of the firm has been the obsession of international labour law through all of the twentieth century.  Yet the processes of labour law have not dared address the inherent structure of the employment contract itself.  Instead, labour law has sought to create institutions and laws which are imposed upon both the employer and employee.  Labour law has sought to address the inherent power imbalance of the employment contract by creating a new power imbalance, a new oppressor -- the state itself.  This is the current dilemma and failure of labour law.

DENYING THE INDIVIDUAL

As is now clear, the process of control by the state over the employment contract amounts to theft by the state of employer and employee control of their employment contract.  And this state-sanctioned theft of control affects many other aspects of employment and of the operation of firms and relationships inside firms.

In the European Union (EU), for examples, EU directives require businesses above certain sizes to have "works committees".  By EU dictate, these committees have effective control over many of the day-to-day managerial functions of businesses operating in the EU.  The committees are made up of managerial representatives and elected or appointed employee representatives.

One committee structured along these principles in one firm, for example, had the authority to issue orders on work rostering, on when and how overtime was to be allocated, on what company trucks would be used for deliveries, and even on which truck drivers would make use of company mobile phones.  Such was the control of the committee that the most important function of the managers of the business was to lobby the employees to have their preferred employees elected to the committee.  Managers became political lobbyists rather than managers.  Such committees, imposed by labour regulation, take away from employers large measures of control, usurping employer control under the employment contract.  But the committees also take away from individual employees large measures of their control over their own job.  Control is removed from employers and employees and placed in the hands of state-sanctioned institutions -- in this case, works committees.

The process is one of collectivisation of the control of the firm rather than allowing the firm to be controlled by each individual doing his or her individual job.  It occurs as a reaction to the employment contract.  It removes employer control, but it also prevents employees having control.  The collective process abrogates the rights of the individual and transfers control of their contracts to the collective.  This takes many different forms.

In France, for example, employment laws during the 1990s imposed ceilings on how many hours an employee could work in a week.  Sold under the banner of workers' rights, the laws in fact prevent employees working the hours they may want.  These French laws are now, to some extent, unravelling because they deny employees their rights and prevent employees having control of their own lives.

Control over absence from work is likewise removed by employment regulation not only from employers but also from employees.  Most countries have employment laws that dictate to employers how many holidays must be given to employees and often determine when and how those holidays must be taken and how many days absence for sickness are allowed.  The reasoning behind the laws, it appears, is that employers would never give holidays to employees if the law did not demand it.  Further, if the law did not require holidays to be taken, many employees would continue to work, thus affecting family life and social cohesion.  And holidays and other leave laws are presented, again as, "employee rights".

But the trick, once again, is that the law not only takes away control from employers but also denies employees control of their own lives.  Leave laws do not deliver workers' rights but overturn employer and employee rights.  The laws that mandate holidays for employees play a trick because, in dictating holidays, they require employers to reduce weekly pay to employees, withhold money from them, and pay that withheld money to employees only when the employees take their holidays.  Why?  The argument is that employees are not capable of putting money away for their holidays and that the state must therefore force employers to be a "bank" for employees.  But in effect the law creates a cash windfall for employers which they use to help finance their businesses.  The employee is forced by law to become a financier of the employer's business.  And if an employee asked an employer not to withhold holiday pay but to add it to the weekly wage, the employer would not be allowed to do so.  This is another example of employment regulation denying both employers and employees the right and capacity to control their employment contract.  And it's all done under the banner of social justice.  But it is a pretence.

One of the most significant areas where the state removes employer control is dismissal.  Across the globe, employment law removes from the employer the ultimate right to dismiss an employee.  An employer who dismisses an employee can be subject to an "unfair dismissal" action by the dismissed employee.  The employee can go to a court or tribunal and claim that the dismissal was not just.  This does not occur under the employment contract but under employment regulation.  Unfair dismissal regulation takes the right of dismissal away from the employer and places it ultimately in the hands of the state.  Under this regulation, the state normally has the power to reinstate the dismissed employee, but this rarely happens.  More frequently, the state tribunal sees that reinstatement is not feasible and instead imposes a fine on the employer which is paid to the employee.  The outcomes are odd.

In effect, unfair dismissal laws have turned a job under employment into a strange form of property right.  A job exists because a business has a need for something to be done.  If the business need vanishes, the job vanishes.  If the employer and employee have a falling-out for whatever reason, under the employment contract the employer was once thought to have the right to find another person to do that job.  But unfair dismissal laws have taken away that right.  The job, which under the employment contract was in the possession of the employer, has now become a property which ultimately is controlled by the state.  The employee doesn't own the job.  The employer has theoretical ownership of the job but the state has ultimate control over the job.

Unfair dismissal laws put the state in the position of second-guessing the behaviour and motivations of the people working in the firm.  In most firms, the employer is a legal construct without any true human form.  (The exception is small business, where the owner works in and daily manages the business.) As the business becomes larger, the employer becomes a system of cascading manager employees who are delegated the functions of the employer.  The true dynamic in these firms becomes one of relationships and interplay between people of different employee rank within the firm.  If a person is dismissed, the dismissal is a result of a decision of one employee or group of employees against another employee.  When the state then considers an unfair dismissal application, it is mostly considering what occurred between two or more employees and is imposing a view of the rightness or otherwise of the behaviour and the dismissal decision.  The process is supposed to provide justice based on some measure of whether or not the dismissal was "unfair" or "fair".  But any study of unfair dismissal cases and decisions shows that the criteria adopted in such decisions are not objective, predictable or certain.  Consequently the process of dismissing an employee has become completely uncertain and the idea of "fairness" has become a farce.  From the perspective of the employer (or rather the delegated employees of the employer), unfair dismissal laws have actually created a process whereby the job has to be purchased back from the dismissed employee.  And employees know this.

Most employee dismissal actions now involve a calculated guess as to what the cost of the dismissal will be.  Most of the time, employers will offer money up-front to employees when dismissing them, in the hope that they will choose not to take an action.  If an action is initiated by the employee, the employer knows that there is considerable legal expense associated with defending the action.  Consequently, most cases are settled without going to court because it saves on legal expenses and management time.  Ultimately, this behaviour makes a mockery of the notion that unfair dismissal laws actually have anything to do with fairness.  Unfair dismissal laws have merely created a situation where an employer is forced to buy back the property known as a job so that the employer can hand it over to a replacement employee.  The job has become a contorted form of property which is transferred between employer and employee -- but ultimately under the control and at the whim of the state.

These laws, which allow the state to control employment, often even extend to when and how employees are to be promoted or demoted, create requirements for employers to report financial and other matters to unions, create rules dictating when employees can withdraw their labour (strike) or employers lock out labour, decide the process of transfer of employees from one employer to another, and so on.  When studied in depth, each of these examples shows that they remove employer control and, equally, employee control.  The process is always one in which the state, in one form or another, takes control of the employment contract to itself.

But what occurred late in the twentieth century was a recognition of the economic underperformance that these laws cause.  The evidence is mounting that firms in countries with heavy employment regulation are less productive and less profitable than those in countries with minimal employment regulation.  This is causing firms to relocate their business operations to countries with minimal labour regulation.  It has become a competitive issue recognised by economists and politicians.

As it is generally applied, labour regulation imposes one particular organisational model on firms, which is not necessarily a model that works competitively.  Through labour regulation (in particular, unfair dismissal laws), the state is imposing a business model preference on firms that glorifies the idea of managerial control through full-time employment.  This model is narrow and assumes that all businesses operate in an industrial-type environment.  But this is not the reality of post-Industrial Revolution economies and societies.  The principles of production have changed since the eighteenth century.  The outcome is that businesses in heavily regulated societies have difficulty being internationally competitive, which means that national economies underperform.  And some nations are trying to rectify this problem, a problem that is squarely of their own creation.

Italy, for example, has introduced "on call" employment designed to allow Italian businesses to get around unfair dismissal laws which prevent them from adjusting the size of their workforce to match consumer demand.  Italian employers can now employ a new class of person called "on call" employees.  Any on call employee who refuses a call to work can be dismissed.  But the law goes further and places additional power in the hands of the employer by making on call employees liable for damages if they refuse a call to work.  Likewise, Japan has introduced fixed-term contract laws which enable employers to take people on for fixed terms, but which prohibit employees from resigning at will during the fixed-term period.  For budgetary reasons, the Dutch are looking at laws restricting access to unemployment benefits for persons who are to blame for their dismissal. ⁽¹⁸⁾

As a consequence, employment has become odd, complex and convoluted.  In trying to create "fairness" and "justice" by giving the state control of the employment contract, the economic processes within the firm have become messy, unpredictable, inconsistent and expensive.  The state's control of the employment contract has greatly multiplied the transaction costs of employment within the firm.  Those costs are unseen and unrecorded, and most consist of the destruction of productive time within the firm.  But the costs are real.  And it has reached a stage where, based on the most noble of intentions, employment regulation in the second half of the twentieth century potentially destroyed the employment contract as a viable and effective form of organising firms and economies.  How societies came to this current position has a 300-year history that runs in tandem with the development of the Industrial Revolution.

THE ACADEMIC MORAL UNDERPINNINGS OF LABOUR REGULATION

All law is the codification and enforcement of human ideas.  Where human ideas are sound, law is good.  Where human ideas are flawed, so too is the law.  Labour regulation and law are founded on the idea that, within firms, systemic injustice always exists and that the law is needed to create justice.  This is the moral basis of the state's imposition of labour regulation.  Its moral language is the language of human rights and of a never-ending battle for justice.

And how this view of systemic and inevitable injustice in firms came about has a long history.  Countless millions of words and very many books have been dedicated to the subject.  Most of the moral dissertations will explain the logic roughly along the following lines:

Up until the seventeenth century, the common people of England had rights to fish in streams, take fruit from trees, collect wood and hunt for game in forests, and take stone and sand from communal quarries and pits to make buildings.  These "common law rights" were the backbone of life.  They enabled ordinary persons, the common people, to build their homes and obtain food and warmth.  During the seventeenth century, these rights were progressively taken away as the King and the aristocracy enclosed and fenced the common areas and prevented the common people from exercising their common law rights.  The ruling class made and controlled the law and enforced the destruction of "the commons" by brute force backed by the law.  The reaction to the enclosure by the commoners was often violent but ineffective.  It was robbery of the weak by the powerful. ⁽¹⁹⁾

The common people were left with only one option if they wished to avoid starvation, and that was to work on the now enclosed land as wage labourers.  They worked the land to which they no longer had rights, were paid a wage but were prevented from owning the results of their effort.  Profit went to the landowners who could accumulate great wealth while the common people subsisted.  This new enforced lowly existence was considered at the time by the common people to be little better than wage slavery.  And the term "wage slavery" entered the political and ideological vocabulary in the nineteenth century when Karl Marx predicted that wage slavery must inevitably lead to the violent downfall of the new emerging capitalist class at the revolutionary hands of the common people.  Inevitably, Marx claimed, the common people must and will reassert their common rights and that property would have to return to communal ownership.  This idea of the theft of common rights by the capitalist class and the forcing of people into wage slavery through lack of alternative work takes a view of history spanning close to 200 years.  It's the glue that holds together the prevailing global paradigm of labour regulation.  It's a view that in the twenty-first century is giving signs of potential implosion.

Labour regulation in the non-communist world developed during the second part of the twentieth century as the Cold War was in progress.  Fearful that Marx's revolutionary predictions could prove correct, non-communist societies in part accepted, at least theoretically, that power relationships inside firms were unequal.  Labour regulation was created to address the power imbalance and most of the moral reasonings of the twentieth century continued to draw from the experience of the "enclosure of the commons" of seventeenth-century England. ⁽²⁰⁾

Social theorists explain and reason that the evolution of "wage slavery" in the seventeenth century was a necessary legal precursor to the Industrial Revolution.  By forcing people off common lands, England created a vast reservoir of poor and destitute folk who had no choice but to flood to the growing factories of England that emerged from the eighteenth century on if they wished to earn a living.  The wage slave moved from the meadows of England to work in the filth and danger of early Industrial Revolution England.  And this process was forced by law which reached a high point in England under the Poor Law Act of 1834.  And, so the reasoning goes, as the Industrial Revolution swept the globe, so too did wage slavery!  In England, this legally enforced oppression of the people was not addressed until the late 1870s, when various Acts of Parliament began to regulate conditions in factories, legitimised unions and protected the people from the conditions of industrial life.

In presenting this historical backdrop as the justification for labour law as it is currently applied, there has been an almost overpowering tendency in labour academic circles to extend the "wage slave" oppression arguments beyond the specifics of the employment contract.  Echoing Karl Marx, the "unequal bargaining power" argument has been applied across the entire range of economic activities.  The argument maintains that free markets by their nature and essence must oppress the worker and create capitalist winners and worker losers.  This is the historical thread of ideas that unites vast numbers of people in the vast global "anti-globalisation" movement, which depends for its existence on the idea of the inevitably of exploitation, first in the firm and, as a consequence, then in free market activity.

A MORALITY WITH LIMITATIONS

But the oppressed worker argument has deep flaws, not so much in itself as an idea but in its practical application.  Unfortunately, the near-religious zeal with which the idea is held blinds many of its ardent followers to its practical flaws.  Ideas are valid only to the extent that they are borne out in practical application.  On this criterion, the moral arguments underpinning labour regulation contain major practical errors.

The fact is that the argument of wage slavery only has relevance within the context of the employment contract.  And the late twentieth-century employment contract (the contract of service) is a watered-down derivation of the system of wage slavery.  The employment contract contains within it the elements of control found within the original master-and-servant contract that constituted the "wage slave" contract of work that followed the eighteenth-century enclosure laws.  But the employment contract of the early twenty-first century has relevance only to the extent that it is applied inside the firm between an "employer" and an "employee".  It is not a contract type that extends outside the firm to transactions between firms and consumers or between firms themselves.  Consequently, to argue that free markets are systemically exploitative is not valid, because the dominant contract operating in free markets is the contract of equality, the commercial contract, the contract for services.  If the systemic exploitation argument is valid, it has validity only to the extent that the pure form of the employment contract operates in firms.

Further, the concept of wage slavery, dependent as it is on workers not having work options across any given society, is no longer valid.  Every person who works in advanced economies has a vast array of choices in how they work, including the option not to work under the employment contract.  In free market economies, the organisation of firms has long ceased to be dependent upon the employment contract.  Employment-organised firms are now only one model in operation.  Self-employment, otherwise known as independent contracting, is now an equally important organisational form for firms in the twenty-first century.

In addition, the practical operation of free market economies is not dependent upon the employment contract or upon any form of wage slavery.  In fact, the employment contract operates in complete opposition to free markets and is a drag on free-market activity.  Free markets are completely dependent for their operation and success on the wide acceptance and application of the commercial contract.  The commercial contract is the contract of freedom.  The employment contract is the contract of constraint.  Labour economists, academics and labour regulation propagandists are wildly wrong when they assess free market activity within the narrow and false assumptions of the dominance of the employment contract.  Such thinking ignores the practical truths of how people behave, most frequently leading to the theorising of problems that do not exist and the construction of bad laws that purport to address fictional problems.  The outcome far too often is labour laws that create exploitation and oppression rather than remedying them.  In the twenty-first century, labour regulation systems falter when their sole or dominant moral underpinning is the idea of eighteenth- and nineteenth-century wage slavery.

This is not to question the moral sincerity of those who hold such views.  There can be no question that, based on their arguments, those who continue to adhere to the "wage slave" view of the world argue from high moral principle and are passionate in their belief that society should protect the weak, vulnerable and the needy.  But the eighteenth-century view of the world has diminishing relevance to the twenty-first century world.  And in promoting solutions to problems based on a vision of diminishing relevance, labour law risks doing as much harm as good.  But the real issue is not the theoretical musings of academics.  The core concept of the firm, what it is and why it exists, is the real battleground of ideas over labour regulation.

MAINTAINING THE FIRM AS A CLASS STRUCTURE:  IS THE EMPLOYMENT CONTRACT DEAD?

The changes that are sweeping the globe in relation to work present fundamental challenges to the concept of the firm developed academically around the 1930s. ⁽²¹⁾ The firm has been thought of as a control system dependent upon the employment contract.  But social changes -- that is, the behaviour of people -- are challenging the traditional employment structure upon which the firm was thought to rely.  In turn, these changed behaviours challenge the nature and type of regulation the state seeks to create in relation to work.

The example of "our daily bread" gives a practical demonstration of the changes and challenges.

The large, industrial bread manufacturers are under severe pressure from commercial competition as a result of the rise of the small, local, hot bread shops.  Somewhere around the 1970s, new bread-making technology was developed involving small ovens and mixers and new doughs and yeasts.  This was combined with a surge in interest for healthier eating and saw the revival of the local baker.  The local baker is located in shopping centres and malls but does not home-deliver bread;  instead, the consumer comes to the shop and buys freshly baked bread.  Hot bread shops are generally privately owned, but operate under franchise arrangements whereby the operator benefits from bulk buying of raw materials, standardisation of bread recipes, group advertising power and so on.  But the secret to hot bread shop profitability is minimisation of waste.  The owner/operator of a hot bread shop bakes according to need.  She can look at her front counter, see what has sold and bake on the spot to replace sold-out lines.  By the end of the day, a good baker will have little if any bread left unsold.  The hot bread shop operator is in a position to ensure that supply closely matches demand.  The large bread factories, however, do not have this advantage.  They have to bake early in the morning, pack the bread into trucks for delivery to shops and supermarkets, and make quality guesses as to what will sell where and when and at locations miles from the baking site.  Inevitably, the big factory bread manufacturers will always have unsold stock.  Unsold stock constitutes loss of critical profit margin.  The factory producer of bread cannot have the intimate, detailed minute-by-minute information on consumer demand that the small, hot bread shop owner has.

And this situation is replicated in thousands of different ways in large numbers of different industries.  It is not confined to baking franchises but is occurring in almost every industry and every sector.  Emerging new industries based on information technology, for example, are structured almost entirely without resort to any traditional industrial form.  Industrial-type production of goods and services is having to compete with many forms of non-industrial-type production.

The implication for employment law is significant.  Once, when factory bread production dominated, the bakers who were critical to running the factories were all employees.  They worked under employment contracts with all the features of control that prevented them profiting from their effort.  They were paid wages and did not have the opportunity to share in the profit of the total enterprise resulting from their effort.  They also did not suffer financial risk.  This was the dominant form of work available for bakers.  Now a new type of baker has emerged.

This time the baker in the hot bread shop is the owner.  She does not work under an employment contract but rather has a direct relationship with consumers whereby her contractual obligations are determined by the commercial contract she enters every time she sells a loaf of bread to a consumer.  There is nothing in her contract which tells her she is obliged to be at work.  Unlike an employee, she does not have an implied duty of loyalty to anyone.  These concepts do not exist for her.  Instead, her work is dictated by her own desire to satisfy the simple demands for quality bread from her customers.  She is driven and motivated entirely by the belief that she can bring all the elements of her business together, do it well and make a profit.  She knows that she takes a financial risk.  She does not have to like her customers on an individual personal level, but she will display all the personal attributes of friendliness, courtesy and respect because doing so makes her customers happy and encourages them to return for future business.  She is guided in all this behaviour by the commercial contract that civilises human relationships in a most marvellous and simple way.  It occurs without massive interference by the state.

The only time the state interferes in the contract is when the hot bread shop owner has a dispute with a consumer or supplier that the two parties cannot resolve.  Significantly, state interference does not occur prior to the parties entering the contract.  For example, in free market economies, the state does not dictate the price of the bread.

What is happening in the bread business is happening across the globe in thousands of different ways in millions of businesses and different business sectors in every country.  It is a great but quiet revolution, a revolution of changing relationships inside the firm.  It is a people revolution whereby, mostly without conscious thought, the employment contract is being rejected.  But what now is the firm?

In the bread business there are now two dominant models of the firm.  One is the command-and-control-employment structured firm of the factory variety dependent on employment contracts for control.  The other is the franchised small business model of the hot bread shops.  To a casual observer, hot bread franchises look like large conglomerates, as if they were a factory-type conglomerate.  But they are very different.  They are, in truth, a new model of the firm in which the conglomerate is deconstructed into integrated small firms, but which, as a whole, still have recognisable features of a large firm.  Rather than being controlled by employment contracts, the franchise operation functions internally through commercial contracts.  Each hot bread franchise owner has commercial contracts with his or her customers and with the franchiser.  In one instance, a hot bread franchiser went broke and the franchisees pooled their resources and purchased the franchiser's business.  In this instance, the franchisees have commercial contracts with a franchiser in which they are all shareholders.

Importantly, control within the franchise structure is as strong as, and perhaps even stronger than, that which is achievable under the factory employment control structure.  Which one is better is hard to say.  But what is clear is that the command-and-control employment firm is no longer the dominant model of the firm.  It is under challenge and facing competitive threat from new and different control structures operating not under employment contracts but under commercial contracts.  This trend has been in evidence for many decades.  The impact across societies is already significant.  But labour regulation regimes around the world have barely begun to understand the change or react to it.

Nevertheless, this does not mean that the employment contract is dead.  In fact, it is most likely to continue to live.

One of the key features of the employment contract and of the employment structured control firm is that they exist as a consequence of a strong human trait.  There exists a fundamental desire of humans to control other humans.  It is not a civilising trait, but it is embedded deep within the human psyche.  It is ego-driven and it is self-fulfilment driven.  Firms are often, in the eye of the owner, an extension of the owner's ego.  And the employment contract gives an individual as an employer control over other individuals as employees.  This is frequently augmented by the argument that most workers want to be controlled anyway or have no personal skills that would give them the capacity for control of their work situation.  This basic human desire to control others and the corresponding belief that some humans want to be controlled are likely to ensure that the employment contract will continue to exist in societies.

But there are also other more practical reasons why the employment contract is likely to continue.  When a person starts a business as a self-employed person and is financially successful, there is inevitably a desire to expand the business.  As it grows, other people are needed to run and operate the business.  There is a natural inclination on the part of the entrepreneur who started the business to believe that he has worked hard and is deserving of the financial reward that comes to the business.  He is naturally inclined to want to ensure that he is the recipient of the profits of the business and that those profits are maximised.  The employment contract serves this end.  The employment contract ensures that employees do not share in the profit of the business and that the employer can keep all of it.

That the employment contract so simply serves the entrepreneur's profit-seeking motive is a common dilemma confronting large firms with shareholders.  When corporations have shareholders that are removed from the daily running of the business, the business is run by managers who are employees.  The dilemma of the corporation, called by economists the "principal-agent" problem, is that the owners of the business do not have effective, daily control of the business.  And a constant battle emerges between shareholders and employees over who has control of the profits of the business.  Senior managers are the delegated employers.  They have effective control over the employees below them.  Senior managers have a vested interest in keeping pay rates for those below them as low as possible.  Senior managers take control of the process which determines how and what they are paid.  Senior managers consequently have the opportunity to pay themselves handsomely, thereby limiting the profit available to the shareholders.  It is one of the great problems of the modern corporation, and many examples exist of senior managers being paid scandalously high amounts even when corporations are making losses.

But what is not recognised is that this process whereby senior managers seize the profits of business for themselves is in large part dependent on the firm being command-and-control structured around the employment contract.  Where corporations are not structured around the employment contract, this principal-agent problem largely evaporates.  How this occurs is discussed in Chapter Seven.

But the point of this chapter, however, has been the issue of the global paradigm of labour regulation and the time warp within which it is conceptually stuck.  Whether or not the wage-slave thesis was ever right or wrong is not the big issue.  What is at issue is the challenge confronting the relevance of the twentieth-century construction of labour regulation in the twenty-first century.

And the challenge is not from any global capitalist conspiracy.  The challenge is coming from the people;  people who do not see the relevance of being in a "controlled" relationship when they work;  people who do not wish to have the framework of their own working identity created for them by the class structures of employment-constructed firms.  This is the challenge.

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ENDNOTES

1.  Electrolux Home Products Pty Ltd v. Australian Workers Union [2004] HCA 40.

2.  "The Act and even the words of the critical section, pick up language with a long history ... First, the background to the problem ... Can be traced to the constitutional necessity of preventing the [Industrial Relations Act] from exceeding its constitutional mandate.  At the time of those decisions, [in the 1950s and 1960s] that mandate was relevantly confined ... [to employment]." -- Electrolux at 186.

3.  "Yet gradually this Court reformulated its view ... so that implications of industrial demands upon management prerogatives came to be seen, in some instances as legitimate subjects of industrial disputes ... It was inevitable that this process would occur because ... all decisions of the applicable tribunals constituted interference to some degree in what had earlier been regarded as management prerogatives.  It was during this process of evolution in the perception by this Court of what 'matters' did, and did not, sufficiently 'pertain to the relationship between' employers and employees that a broader range of subjects came to be seen as within the ambit of industrial conflict and employment disputation." -- Electrolux at 209.

4.  "By the late 1970s ... this Court began to evince a broader, and should I say, more industrially realistic, approach to the permissible subject matters of 'industrial dispute' within the Constitution and the statute." He quoted from an earlier High Court decision that "The words [industrial disputes] are not a technical or legal expression.  They have to be given their popular meaning." -- Electrolux at 210.

5.  "Even more important is the signal given in s170LI(1) [of the Act].  This makes it clear that the Parliament had decided to cut the Act loose ... In a stroke, a new constitutional foundation for federal regulation is created ... The Parliament has thus embraced a new constitutional paradigm.  It behoves this Court to approach it without the blinkers apt to the old thinking ... We now have to apply new statutory language." -- Electrolux at 215.

6.  "It was enough that the agreement should be about matters pertaining to the relationship.  It was not necessary, as such, that the agreement should actually 'pertain' to the relationship itself.  Quite clearly, this parliamentary expansion of the ambit of the connection between the claim and the employment relationship was deliberate.  It was designed to enhance the permissible scope of the agreement and the connection between its subject matter and the employment relationship ... If there could have been any doubt about this under the former definition of 'industrial dispute' in the 1904 Act, it is removed by the addition of the word 'about', by the inclusion of a double formula for connection and by the substitution of a different foundation of the employment relationship in question." -- Electrolux at 214.

7.  "[T]he search for a rational and practical meaning to the language of the Act is the more urgent by the dramatic consequences of denying protection to a union for industrial action ... a high degree of certainty is essential as to whether industrial action can be taken lawfully ... To expose an industrial organisation of employees to grave, even crippling, civil liability for industrial action, determined years later to have been 'unprotected,' is to introduce a serious chilling effect into the negotiations that such organisations can undertake ..." "In my view, it is a serious mistake of interpretation to read the scope of the protection offered by the Act in the way favoured by the majority of this Court ... It is one that has the effect of defeating a specific remedial protection against civil liability afforded by the Parliament to industrial organisations, such as Unions." -- Electrolux at 189, 192 and 195.

8.  Electrolux at 216.

9.  Electrolux at 205.

10.  "The only impediment, suggesting that the claim pertains only to the 'relationship' between the employees and the unions, is one that derives from old thinking." -- Electrolux at 217.

11.  Electrolux at 240.

12.  Electrolux at 55.

13.  "There is a presumption that ... the legislature does not intend to deprive the citizen of access to the courts [to sue] ..." although "modern legislatures regularly enact laws that take away or modify common-law rights ... The courts should not impute to the legislature an intention to interfere with fundamental rights.  Such an intention must be clearly manifested by unmistakable and unambiguous language." -- Electrolux at 19 and 20.

14.  "Thus, by conferring specific immunity from civil liability, ss 170ML(2) and 170MT effectively abrogate the common law rights both of participants to the negotiations and of third parties who may suffer actionable damage." -- Electrolux at 107;  ibid., at 116.

15.  "The elements of the conduct prohibited ... are action, or threats of action, with intent to coerce another to agree, or not agree, to the making of an agreement." -- Electrolux at 26.

16.  Electrolux at 10.

17.  "The question is not one involving s51(xxxv);  it is simply a question of the meaning of the definition of 'industrial dispute' in s4(1).  And although there are some minor differences between the definition and the relevant definitions previously found in the [1904 Act], the requisite nature of the subject matter of a dispute remains precisely the same, namely that it pertain to the employment relationship involving employers, as such, and employees, as such." -- Electrolux at 157.

18.  According to a newsletter produced by the global legal firm Baker & McKenzie, Vol IX No 2, January 2004.  www.bakernet.com

19.  The story given here draws largely on a version of it published in an article by Australian sociologist Scott Burchill, "A short history of self-defence", The Australian Financial Review, 21 July 2000.  Burchill is a lecturer in international relations at the School of Australian and International Studies at Deakin University.

20.  The "enclosure" of the commons should not be confused with the often discussed problem of the "tragedy" of the commons which looks at poor use and over use of "common" resources -- for example, over-grazing and overfishing of common lands.  The "tragedy" of the commons highlights the claim that when property is "owned" by the collective, invariably no-one takes responsibility for looking after it properly.  People want the benefits of the collective property but not the responsibilities.  This is why private ownership is often considered a superior form of title, because people will care for their private property in a way that a collective will not.

21.  See R.H. Coase, The Firm The Market and The Law, University of Chicago Press, 1988.