Cooperation to combat substandard employment practices in building sector

In November 2003, a working group - made up of representatives of the social partners and relevant authorities - set up to examine substandard employment and tax practices in the Norwegian building and construction sector published its report. The report describes what are seen to be dishonest practices among some companies and subcontractors in this industry, with some even exhibiting criminal behaviour. The report outlines possible measures to combat substandard practices.

In November 2003, a working group set up on the initiative of the Federation of Norwegian Construction Industries (Byggenæringens Landsforening, BNL) in cooperation with, among others, the Norwegian United Federation of Trade Unions (Fellesforbundet), published its first report. The working group has representation from all the relevant actors in the industry as well as public regulatory bodies and the police. The report outlines possible measures to combat substandard practices and illegal activities in the building sector. Preliminary findings from a project commissioned by Fellesforbundet confirm the general impression that illegitimate employment and tax practices are a serious problem in this part of the Norwegian economy.

Background

A number of recent studies indicate that a substantial number of actors within the building and construction industry pursue what may only be regarded as illegitimate or substandard practices, with regard to both employment and the payment of taxes. The regulatory framework is in many areas regarded as inadequate to cope with such misconduct, and effective enforcement mechanisms are also lacking. One important problem is that regulatory and enforcement bodies do not possess the resources needed to clamp down on illegitimate activity. In the course of 2003, the prospect of coming EU enlargement in May 2004 has intensified the debate relating to substandard labour practices and other illegitimate practices in this sector. EU enlargement is seen as posing additional challenges for building and construction, both in relation to maintaining national standards for pay and employment conditions, but also in relation to maintaining legitimate economic activity.

Joint cooperation to combat illegitimate practices

Recognising the detrimental effects of substandard practices in the building sector as a whole, BNL initiated in spring 2002 a project called 'Veracity in the building sector' (Seriøsitet i byggenæringen). The purpose of this project is to bring together relevant actors within the industry and regulatory authorities in a joint effort to combat substandard employment and tax practices. To this end a working group was set up, with representation from BNL, Fellesforbundet, the Norwegian Labour Inspection Authority (Arbeidstilsynet), the Directorate of the Police (Politidirektoratet), the Directorate of Taxes (Skattedirektoratet), and Norwegian Customs and Excise (Toll- og avgiftsetaten).

The overall goal of the project is to establish a foundation for continued cooperation between the actors involved in combating illegal practices in the industry. The report made public in November 2003 is the result of a pilot project initiated for the purpose of developing tools through which the parties involved, as well as companies themselves, may properly deal with and avoid illegitimate practices and substandard actors. The pilot project was carried out at one of the building sites of the Selmer Skanska AS construction company. The main objectives of the pilot project were to develop efficient monitoring systems for internal health and safety schemes, and to examine interaction between various public watchdogs and regulatory bodies, with a view to revealing weaknesses and overlapping areas of responsibility between these bodies.

According to the report, Selmer Skanska (the main contractor) was surprised to discover what is seen to be a fundamental 'dishonesty' among some of the subcontractors and companies involved in its project, with some even exhibiting criminal behaviour. One important legal problem identified in the report is the fact that privacy regulations often make it difficult for contracting companies themselves to obtain information about subcontractors and workers. The implication is that it is difficult for law-abiding companies to monitor and acquire information about the behaviour and practices of other companies and subcontractors. It was also discovered that some companies fail to register to pay VAT, and indeed do not register in any other official industry register, and also often fail to register their employees - this is particularly a problem in relation to foreign workers. Both the police and regulatory bodies such as the Labour Inspection Authority and Customs and Excise authorities possess inadequate resources to monitor the activities of these companies (and workers). Furthermore, overlapping jurisdictions and a blurred division of responsibility often prevents regulatory authorities from acting resolutely.

In the pilot project, different measures were tested to improve control mechanisms, including the use of identity cards at building sites and personnel lists. Different working groups have been set up in relation to the project. One has looked at the use of subcontractors and assessed how contracts may be improved to prevent work in the clandestine economy. Another considered a strengthening of the health and safety work carried out in companies. Several recommendations are made to these ends in the report.

Substandard practices are widespread

Preliminary findings from a research project carried out by the FAFO Institute of Applied Social Sciences, commissioned by Fellesforbundet, seem to confirm speculations that 'wage dumping', tax evasion, and poor health and safety standards are a serious problem within the building industry. The project also reveals that a large majority of companies in this sector make use of hired temporary agency labour, although the extent of this use is unknown. Using temporary employees from such agencies is in itself not necessarily a problem, but a majority of the employers interviewed claim to have been offered 'cheap labour' from such agencies, indicating 'dumping' in some form or another.

Social partner positions

There seem to be a general consensus among the social partners about the need to deal with the problems generated by substandard employment practices and illegitimate tax practices. It is seen as a mutual problem, not just undermining the employment situation of employees in legitimate companies, but also establishing an unfair competitive environment and undermining the reputation of industry as a whole. Fellesforbundet has for a long time been active in this area, drawing attention to the problems connected to substandard employment practices. It has developed a handbook to be used by shop stewards in preventing both illegal and substandard practices, which includes guidelines with regard to the establishment of company agreements on the use of temporary agency labour and on the contracting out of activity to subcontractors.

The recent initiative taken by BNL indicates that the employer side is also taking the problem seriously, and more projects have been initiated under the 'veracity' umbrella. The Confederation of Norwegian Business and Industry (Næringslivets Hovedorganisasjon, NHO) - to which BNL is affiliated - is currently working with the authorities on a scheme to inform newly arrived immigrants in Norway about the dangers and consequences of working in the clandestine economy.

Commentary

Despite a long-standing recognition of the problems connected with substandard working conditions and widespread tax evasion practices in building and construction, it is recognised that not enough has been done to improve the situation. A lack of publicly available information and inadequate regulations and enforcement mechanisms make it difficult for companies to assess the legitimacy of subcontractors, and as such they may often find themselves involuntarily operating outside the boundaries of the law. Lack of resources among regulatory authorities have also been an important impediment to managing and monitoring the problem properly.

This issue will continue to be debated in the months to come, not least because of the upcoming EU enlargement. Although illegitimate practices are found among both national and foreign companies, as well as among Norwegian and foreign workers, there is a widespread conception that increased labour immigration and increased presence of foreign companies will make control and monitoring more difficult for the regulatory authorities. There also concerns about the effects on existing pay and working conditions.

Trade unions fear that EU enlargement will add to the problems already witnessed in vulnerable sectors such as the building industry, especially in connection with foreign companies posting workers in Norway. There is thus a general consensus about the need to tighten the legal framework and to strengthen enforcement mechanisms. This has also led trade unions to call for the introduction of transitional arrangements for the free movement of workers from the new EU Member States (NO0310102F). (Håvard Lismoen, FAFO Institute of Applied Social Sciences)

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