Thematic feature - industrial relations and undeclared work

This article gives a brief overview of the industrial relations aspects of undeclared work in the Netherlands, as of June 2004. It looks at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work.

The phenomenon of undeclared work - defined as 'any paid activities that are lawful as regards their nature but not declared to the public authorities'- is an issue which has been preoccupying the EU institutions for a number of years. In 1998, the European Commission issued a Communication on undeclared work, which was designed to launch a debate on the causes of such work and the policy options for combating it (EU9804197F). It suggested that there was a need to clarify the causes and extent, and concluded that combating undeclared work should be part of the overall European employment strategy.

According to the Communication on undeclared work, the main motivation for employers, employees and self-employed people to participate in the undeclared economy is economic. Working in the informal economy offers the opportunity to increase earnings and to evade taxation on income and social contributions. For employers, the incentive is to reduce costs. The same document mentions three factors contributing to undeclared work: i) demand for 'personalised services' to households; ii) reorganisation/restructuring of industry and firms; and iii) the impact of new technologies. Undeclared work has impacts on the social security systems, public finances, competition and industrial relations. At that time, studies estimated the average size of the informal economy at between 7% and 16% of the GDP of the then 15 EU Member States. The Commission has launched a number of studies on the topic, covering issues such as 'Measuring undeclared work' (the latter in collaboration with Eurostat). In July 2004, the Commission issued a new report on Undeclared work in an enlarged Union (EU0407204F). It looks at the incidence in each Member State, including the 10 new Member States that joined in May 2004, and examines the reasons behind the growth in undeclared work.

Since 2001, the issue of undeclared work has been included in the EU employment guidelines. The current version includes a specific guideline entitled 'transform undeclared work into regular employment'. This provides that Member States should develop and implement broad actions and measures to eliminate undeclared work, which combine simplification of the business environment, removing disincentives and providing appropriate incentives in the tax and benefits system, improved law enforcement and the application of sanctions. They should undertake the necessary efforts at national and EU level to measure the extent of the problem and progress achieved at national level.

Finally, in October 2003, the Council of the European Union adopted a Resolution on undeclared work (EU0311206F), calling on Member States to address this issue and to work together to improve the situation. Suggested actions include preventative measures and sanctions aimed at eliminating undeclared work. The Resolution also invites the social partners at European level to address this issue within the context of their current multiannual work programme (EU0212206F) - indeed, the partners plan a seminar on the issue in 2005, with the aim of reaching a joint opinion - and to deal with it in the context of the sectoral social dialogue committees. The Council calls on the social partners at national level to promote the declaration of economic activity, to engage in awareness-raising and to promote the simplification of the business environment, particularly in relation to small and medium-sized enterprises.

Given this high level of interest in the subject, in June 2004 the EIRO national centres in 23 European countries were asked, in response to a questionnaire, to give a brief overview of the industrial relations aspects of undeclared work, looking at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work. The Dutch responses are set out below (along with the questions asked).

Nature and extent

Please describe briefly the nature and extent of undeclared work (ie 'any paid activities that are lawful as regards their nature but not declared to the public authorities') in your country. The aim here is not to provide very detailed statistical information or go into concrete calculation methods, but only to give what overall figures are available, plus broad estimates and indications where such figures are lacking. This should cover matters such as: the overall amount of undeclared work; gender aspects (ie are women more or less affected, and why?); the relationship between undeclared work and migration (please distinguish between legal and illegal migration); and sectoral aspects (ie which sectors are most involved).

According to EU figures, in 2002 undeclared work was responsible for around 13.8% of Dutch Gross National Product, which was about the EU average. The bulk of undeclared work takes place in agriculture, construction, hotels and catering, cleaning, and meat- and fish-processing. The majority of the workers involved are students, unemployed people, the self-employed and employees 'moonlighting' on top of their normal jobs.

Estimates of the total number of illegal employees vary between 112,000 to 300,000. According to recent research commissioned by the General Association of Temporary Work Agencies (Algemene Bond van Uitzendbureaus, ABU), conducted by Research voor Beleid, there are 210,000 illegally employed people on the Dutch labour market, more than double the number reported for 1999. Of this group of 210,000 people, around 100,000 work through some 6,600 suspect temporary work agencies - made up of 80,000 people who are not officially allowed to work in the Netherlands and 20,000 people who are allowed to work, but for whom no taxes or social security contributions are paid.

According to a report commissioned by the Ministry of Social Affairs and Employment, in 2002 some 8% of the employees receiving a benefit under the Occupational Disability Insurance Act (Wet op de arbeidsongeschiktheidsverzekering, WAO) were involved in undeclared employment at the same time. The equivalent figures were 11% for people claiming unemployment benefit and 13% for those claiming a social security allowance. These figures had risen since a first survey undertaken in 2000. Undeclared paid odd jobs were performed by 16% of WAO recipients, 15% of unemployment benefit recipients and 23% of social security allowance recipients. Around 1% of unemployment benefit recipients and 3% of social security allowance recipients did not report finding a (new) job.

In 2002, more than 18% of the agricultural employers visited by the Labour Inspectorate (Arbeidsinspectie) violated the Act on foreigners (see next section). Of the 425 foreign workers found to employed illegally in these inspections, 64 were asylum-seekers and 232 came from the then prospective EU Member States. In the same year, the Labour Inspectorate visited 99 building sites and found illegal employees on 45 of them. About half of the 129 workers concerned came from Poland. In 2002, the Inspectorate visited 797 employers in the hotel and catering sector, finding that a total of 221 had violated the Law on foreigners.

Law

What is the legislative framework in your country concerning undeclared work? Please include here: definition; incentives for transformation of undeclared work into regular work; sanctions and penalties; connection with the tax system and benefits; any attempts at administrative or fiscal simplifications; and any recent legislative changes.

There is no official definition of the concept of undeclared work in Dutch law.

Several laws deal - directly or indirectly- with the phenomenon of undeclared work. These include the Act on foreigners (Vreemdelingenwet) and the Act on employment of foreigners (Wet arbeid vreemdelingen, WAV). In 1998 the Act on foreigners was changed by linking the various databases of the public authorities with the aim of reducing undeclared work by foreign nationals. The Act on the employment of foreigners will in the near future be changed to introduce administrative fines of up to EUR 45,000, to be imposed by the Labour Inspectorate on employers that employ illegal employees. At present the law only provides for penal sanctions. The government expects that in 2005 the total fines will amount to EUR 11.6 million, rising to EUR 14.5 million from 2006 onwards. At present, the average fine is EUR 984; this should rise to EUR 3,000.

In 1998, linked to the Flexibility and Security Act (NL9905140F), the legislation on temporary work agencies was altered, abolishing the system of permits for agencies. Since then, the number of agencies has risen sharply. Without doubt (see above under 'Nature and extent') many of these new agencies operate in a suspect manner. In response, in April 2004, the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) and the Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV), together with Dutch Federation of Small and Medium-sized Enterprises (Midden- en Kleinbedrijf Nederland, MKB-Nederland) proposed to establish a bipartite 'commodity board' for the temporary agency sector. The largest federation of temporary work agencies, ABU, instead proposed introducing a 'quality mark' for agencies. The Ministry of Social Affairs and Employment has announced that it wants to introduce a licencing system for temporary agencies, with licences issued only when the agency fulfils certain criteria. Such a licence system should not be confused with the permit system existing before 1998, because there will be no annual control. Another measure to tackle suspect temporary work agencies (but also undeclared work in general) is that employers will be obliged to report a new employee on the first day of work to the relevant tax and social security organisations.

In recent years, the emphasis in tackling undeclared work has been not so much on new legislation, but on the enforcement of existing law. Enforcement is to a large extent in the hands of the Labour Inspectorate. In 2004, the number of inspectors will be raised from 100 to 180. Controls will be focused on temporary agencies, agriculture, construction, hotels and catering, and meat- and fish-processing. Moreover, the control of private individuals performing undeclared work in areas such as the renovation or painting of private houses will be intensified. In 2003, the Labour Inspectorate issued 731 fines to employers with illegal employees, 11% more than in 2002, mainly due to more intensive operations in the agricultural sector.

The Ministry of Social Affairs and Employment will also order the Labour Inspectorate to intensify the control of temporary work agencies and other employers that persistently make use of illegal labour. According to the Ministry, this will result in ever increasing fines and reduce the number of personnel involved. So-called intervention teams, consisting of representatives from the Labour Inspectorate, the tax authorities and social security authorities, will intensify controls in the main sectors concerned.

According to paragraph 23 of the Act on the employment of foreigners, employers that cannot prove that they have paid normal wages to illegally employed employees are obliged to pay six months' wages. However, the FNV union federation has stated that this sanction does not work in practice, and that unions are not informed when the Labour Inspectorate discovers illegal employment and are thus unable to bring cases to court. The illegal employees themselves do not go to court because they prefer to remain anonymous as much as possible.

Finally, mention should be made of the Act on fines, measures, reclamation and recovery related to social security (Wet Boeten en maatregelen, terug- en invordering sociale zekerheid), directed at preventing people from performing undeclared work while receiving a disability or unemployment benefit.

Social dialogue

Please provide an overview of any collective agreements dealing with the issue of undeclared work (at any level - eg intersectoral, sectoral, company, regional). If there are any such agreements, please outline their content and, if possible, their impact, giving examples. Where possible, please provide details on collective agreements in sectors particularly affected by undeclared work, such as hotels/restaurants/catering, agriculture, domestic/personal services, retail or construction.

An examination of major sectoral collective agreements shows that undeclared work is not a prominent issue in collective bargaining. Only a few examples can be found, mostly involving a clause obliging employers to control whether temporary work agencies they use are bona fide. The agreements cover the horticulture sector, the glass sector, the mortar and mortar transport industry and the agricultural tools sector.

Please give details of any joint or unilateral initiatives on undeclared work taken by trade unions and employers’ organisations (such as information campaigns, providing training for their members responsible for negotiations, or adopting codes of conduct/ethics).

The initiatives in this area are mainly unilateral. Trade unions and their federations regularly call for harsher measures to combat illegal employment. In April 2004, the largest union in the Netherlands, Allied Unions (FNV Bondgenoten) proposed establishing a framework collective agreement for the whole agricultural sector. A major aim is to combat illegal employment in greenhouse cultivation, fruit growing and asparagus growing. Unions have been active in supporting illegal employees, for example by assisting them when have not been correctly paid. The chair of FNV, Lodewijk de Waal, issued a statement in May 2002 to the effect that FNV would support illegal workers (NL0206105F). He stated that all people have basic rights, such as the right to organise and to work under normal circumstances and enjoy a minimum wage. Illegal workers generally work under very poor working conditions at an extremely low wage, and safety in the workplace often leaves much to be desired. This is where trade unions have a role to play, stated Mr De Waal. Additionally, he called on employers to organise themselves and to focus on sectors in which illegal employment is most prevalent.

FNV is opposed to illegal employment, not illegal workers. For this reason, illegal workers are welcome to join FNV member unions. The unions' position is that unionising illegal workers may have a positive effect, causing a decrease in illegal employment. Improving working conditions and enforcing minimum wage levels should make it less attractive for employers to take on illegal workers. On the website of FNV Bondgenoten, employees in the agricultural sector are advised not to accept 'off the books' wages for overtime.

A seasonal work project was launched by the Ministry of Social Affairs and Employment in 2002, in cooperation with the Ministry of Agriculture, the Centre for Work and Income (Centrum voor Werk en Inkomen, CWI) and the Netherlands Agriculture and Horticulture Organisation (Land- en Tuinbouworganisatie Nederland, LTO Nederland) employers' organisation. The project supports market gardeners in their recruitment of seasonal staff and is also targeted at preventing illegal work by means of a certification system for businesses that abide by the rules. These businesses are inspected twice a year and, if they meet all the requirements, are included in the Agricultural Casual Work Register (Register Inleenarbeid Agrarisch, RIA), an initiative of LTO Nederland (NL0307102F)

Are there cases in your country where workforce representatives have mobilised employees on the issue of undeclared work? If so, what form did this take (demonstrations, strikes etc)? Are there cases where social partners have made appeals on this issue to the public authorities (the government, elected representatives etc)? What were the results?

There have been a few cases in the docks of Amsterdam and Rotterdam, where dockworkers and the trade unions concerned have taken action directed at subcontractors using undeclared work and illegal personnel.

Partnerships

Please outline any initiatives taken jointly by public authorities and social partners in order to address undeclared work, and their results. What types of partnerships exist in your country (eg involving local authorities or NGOs) and what tools or measures have been used to address the problem? Please refer to good and bad practices, indicating which policies have proved to be successful in the national context and why (such as a good mix of actors, cultural traditions or flexible tools).

There are no joint initiatives on this issue in which all parties are involved, although all those concerned stress the importance of fighting undeclared work.

Has a comprehensive partnership on undeclared work developed in the context of your country’s National Action Plans (NAPs) on employment (in response to the EU employment guidelines)? Have there been significant tripartite arrangements on undeclared work as a result or in the context of the NAPs? How have the social partners at various levels implemented the aspects of EU employment guidelines on the issue of undeclared work that are under their responsibility?

The issue of undeclared work has not so far been mentioned in NAPs. No tripartite arrangements have been established. In the implementation of the EU guidelines, undeclared work has not yet been of any importance.

Please give details of any cross-country collaborative plans involving your country with the aim of combating undeclared work? Are these inter-governmental activities (ie collaboration between two or more countries, neighbouring or otherwise) or initiatives taken by social partners, or both?

To our knowledge, there are no such cross-country collaborative plans.

Views

Please summarise the views of trade unions and employers’ organisations on the issue of undeclared work. Please include their positions on the role of the administrative, tax system and social welfare regime, and their view/assessment of government initiatives.

At the end of 2003, the largest employers' organisation in the Netherlands, the Confederation of Netherlands Industry and Employers (Vereniging van Nederlandse Ondernemingen-Nederlands Christelijk Werkgeversverbond, VNO-NCW) declared itself in favour of the free movement of labour from the 10 new Member States joining the EU in May 2004 (NL0312103F). According to VNO-NCW, shielding the Dutch labour market from such free movement would only result in an increase in undeclared work. More generally, the employers' organisations stress the importance of measures to make the weaker strata of the labour force more attractive for employers to employ. In their view, this will diminish the attractiveness for employers of using undeclared work.

The trade union federations on the other hand stress the importance of a harsher approach towards employers using undeclared work. Controls should be intensified and fines raised. The unions also support illegal workers (see above under 'Social dialogue').

In 2003, both the employers’ organisations and the trade union federations stressed the importance of the current low VAT rate for services such as bicycle repair, shoemaking and hairdressing in increasing employment and combating undeclared work. They did not agree with a statement made by the EU competition Commissioner, Frits Bolkestein. that the experiment with this lower rate has not been a success.

Commentary

Please give your own comments on the issue of industrial relations and undeclared work.

All parties concerned agree that illegal employment is damaging to the domestic labour market. The trade union federations highlight the bad position of illegal workers. In supporting these workers in bettering their position, FNV believes that it will indirectly contribute towards cutting the large number of illegal workers currently active in the labour market. Employers place more emphasis on the demand side of the labour market and call for existing laws to be relaxed because of staff shortages. If legal means of finding staff fail, employers turn to illegal practices.

Although undeclared work is a relatively prominent issue in the Netherlands at present, it is virtually absent from the collective bargaining agenda. It is also not a very prominent topic in the publications of the bipartite Labour Foundation (Stichting van de Arbeid, STAR) or the tripartite Social and Economic Council (Sociaal Economische Raad, SER).

In the Netherlands, the temporary agency sector has a rather special position, being large compared with other EU countries (accounting for some 10% of total employment). In this sector, undeclared work has increased rapidly, partly due to the abolition of the permit system. This is a direct threat to bona fide agencies. Therefore, employers are engaged in combating undeclared work to a greater extent than in the economy more widely. The same is true for the employers’ organisation in the agricultural sector.

In recent years, the focus seems to be shifting more and more to the suppression of undeclared work, through increased controls and fines. This is accompanied by a much stricter policies towards people staying illegally in the Netherlands and towards asylum-seekers. (Robbert van het Kaar, HSI)

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