European social partners tackle bogus self-employment in construction sector

The European social partners in the construction sector have issued a joint text to help tackle the prevalence of bogus self-employment in the sector – a problem which puts workers at risk as well as resulting in unfair competition in the market. They recommend actions such as establishing common European criteria on guidelines for determining the nature of workers’ employment status, and suggest creating a social security identity card that shows their employment status.

On 5 February 2010, the European social partners in the construction sector – namely, the European Federation of Building and Woodworkers (EFBWW) on the trade union side and the European Construction Industry Federation (FIEC) for employers – issued a set of joint conclusions and recommendations on self-employment and bogus self-employment in the construction sector. The joint text was issued in the context of European-wide research carried out by EFBWW and FIEC on this issue.

Problem of bogus self-employment

EFBWW and FIEC note that there is a growing number of sole traders or independent contractors in the construction sector, and that genuine self-employment has a place in the sector, alongside directly employed workers. However, they also state that bogus self-employment is a problem, often resulting from a trilateral relationship between the contractor, an intermediary (such as an agency or ‘gangmaster’) and the worker. Essentially, a gangmaster provides the contractor with workers who have a bogus self-employed status yet none of the legal, professional, financial, regulatory and administrative knowledge and skills of genuinely self-employed workers. This means that the workers are at risk as they are not adequately covered by social insurance. Moreover, unfair competition is created between genuine and bogus self-employed workers, thus distorting the market.

Employment status

EFBWW and FIEC also highlight that regular controls show that a substantial number of E101 social security forms are falsified or are incorrect and unchecked. Nevertheless, they believe that, in contrast to European Court of Justice (ECJ) case law (cases C-178/97 and C-2/05), the employment status of a worker cannot be determined solely by the E101 form and that other relevant circumstances need to be considered in addition to this. They outline that the determination of the employment status should be the responsibility of the country in which the work is carried out.

Recommendations

Common European criteria

One suggestion from EFBWW and FIEC is that a set of common European criteria should be devised in order to provide guidelines for determining the nature of a worker’s employment status. They also believe that, in order to curb the practice of gangmasters providing bogus self-employed workers, all employers should:

• join a mandatory register set up by the EU Member States;
• be regularly audited by an independent body;
• provide proof that they are in compliance with the law on issues such as working time regulations, minimum wage legislation, payment of wages legislation, health and safety, housing and site facilities, and non-discrimination.

Prevention and cooperation

EBFWW and FIEC recommend a range of actions that could be put in place to try to prevent the problem of bogus self-employment. These include:

• awareness-raising campaigns that target workers, agencies/gangmasters, contractors, clients and governments or relevant public authorities;
• using public procurement activities to ensure that the economically most advantageous tender, rather than the lowest bidder, is favoured in the awarding of contracts. Tenders should also specify that the use of bogus self-employment in subcontracting or outsourcing will be severely sanctioned;
• improved cooperation – improvements should be made in the cooperation and exchange of information and data between the national authorities and those in different countries;
• simplifying administrative procedures for genuine self-employed workers, so as not to burden them with unnecessary red tape.

Transparency and sanctions

The signatory parties state that companies should be encouraged to take responsibility for their supply chain. Previous EFBWW-FIEC research projects on the posting of workers and undeclared work show that chains of subcontracting and outsourcing are abused in most EU Member States.

Furthermore, EFBWW and FIEC advocate improving transparency on construction sites, possibly through the introduction of a social identity (ID) card or other similar instrument. This would facilitate the verification of a worker’s employment status.

Finally, the social partners state that it is vital that sanctions are in place to discourage and punish fraudulent practices. These include adequate inspections, swift action where fraudulent practices are uncovered and effective penalties.

Commentary

The issue of bogus self-employment is clearly a significant problem in the construction sector, putting workers at risk by denying them basic employment rights and social security coverage. At the same time, such practices distort the market by undercutting those who are offering services on a genuinely self-employed basis.

Joint actions and recommendations – such as the ERBWW-FIEC initiative – from the EU-level social partners in the construction sector carry additional weight as they are jointly agreed by both employer and employee representative bodies.

Andrea Broughton, Institute for Employment Studies (IES)