Green Paper - Modernising labour law to meet the challenges of the 21st century
Date: 2006-11-22
Institutions: European Commission
Subjects: employment policy, job security, labour flexibility, labour law, labour market, labour relations, organisation of work, working conditions

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 22.11.2006 
COM(2006) 708 final 

GREEN PAPER 

Modernising labour law to meet the challenges of the 21st century 

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TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

Introduction – the purpose of this Green Paper ........................................................... 3 

Labour law in the European Union – the situation today............................................. 5 

a. Developments in the Member States........................................................................ 5 

b. Action at the EU level .............................................................................................. 6 

The key policy challenge – A flexible and inclusive labour market............................ 7 

Modernising labour law – issues for debate................................................................. 9 

a. Employment transitions............................................................................................ 9 

b. Uncertainty with regard to the law......................................................................... 10 

c. Three Way Relationships ....................................................................................... 12 

d. Organisation of working time ................................................................................ 13 

e. Mobility of workers................................................................................................ 14 

f. Enforcement issues and undeclared work............................................................... 14 

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1. 

INTRODUCTION – THE PURPOSE OF THIS GREEN PAPER 

The purpose of this Green Paper is to launch a public debate in the EU on how labour law can 
evolve to support the Lisbon Strategy's objective of achieving sustainable growth with more 
and better jobs. The modernization of labour law constitutes a key element for the success of 
the adaptability of workers and enterprises. This objective needs to be pursued in the light of 
the Community's objectives of full employment, labour productivity and social cohesion. It is 
in  line  with  the  calls  by  the  European  Council  to  mobilise  all  appropriate  national  and 
Community  resources  to  promote  a  skilled,  trained  and  adaptable  workforce  and  labour 
markets  responsive  to  the  challenges  stemming  from  the  combined  impact  of  globalisation 
and of the ageing of European societies. As the Commission's 2006 Annual Progress Report 
on Growth and Jobs emphasises: “Increasing the responsiveness of European labour markets 
is crucial to promoting economic activity and high productivity”1. 

European labour markets face the challenge of combining greater flexibility with the need to 
maximize  security  for  all2.  The  drive  for  flexibility  in  the  labour  market  has  given  rise  to 
increasingly diverse contractual forms of employment, which can differ significantly from the 
standard  contractual  model3  in  terms  of  the  degree  of  employment  and  income  security  and 
the relative stability of the associated working and living conditions. 

In  2003  the  report  to  the  European  Council  from  the  European  Employment  Task  Force, 
chaired by Wim Kok, observed that a two-tier labour market might emerge divided between 
permanently employed "insiders" and "outsiders"4, including those unemployed and detached 
from  the  labour  market,  as  well  as  those  precariously  and  informally  employed.  The  latter 
occupy a grey area where basic employment or social protection rights may be significantly 
reduced, giving rise to a situation of uncertainty about future employment prospects and also 
affecting  crucial  choices  in  their  private  lives  (e.g.  securing  accommodation,  planning  a 
family,  etc).  Recourse  to  alternative  forms  of  employment  could  further  increase  in  the 
absence of moves to adapt the standard employment contract to facilitate greater flexibility to 
both  workers  and  enterprises  alike.  Accordingly,  the  Task  Force  urged  Member  States  to 
assess,  and  where  necessary  alter,  the  level  of  flexibility  provided  in  standard  contracts  in 
areas such as periods of notice, costs and procedures for individual or collective dismissal, or 
the definition of unfair dismissal5. 

The  Integrated  Guidelines  for  Growth  and  Jobs6  highlight  the  need  for  the  adaptation  of 
employment legislation to promote flexibility combined with employment security and reduce 
labour market segmentation. Social dialogue also plays a key role in framing collective and/or 
firm level solutions enabling "insiders" as well as "outsiders" to make successful transitions 

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“Time to move up a Gear” The European Commission’s 2006 Annual Progress Report on Growth and 
Jobs, p. 6. Also Council and Commission Joint Employment Report 2005/2006, pp. 6, 12-13. 
ibid. 
The  research  study  "The  Employment  Status  of  Individuals  in  Non-Standard  by  Employment",  by 
B.Burchill; S.Deakin; S.Honey, UK Department of Trade and Industry (1999), identifies non-standard 
forms  of  employment  as  "those  forms  of  work  which  depart  from  the  model  of  the  "permanent"  or 
indeterminate employment relationship constructed around a full-time, continuous work week". 
Jobs,  Jobs,  Jobs:  Creating  more  employment  in  Europe.  Report  of  the  Employment  Taskforce, 
November 2003, p. 9. 
ibid, Chapter 2, p. 30. 
2005 Integrated Guidelines 2005-2008 (adopted on 12 July 2005) - OJ L 205, 6.8.2005, p. 21. 

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between  different  employment  situations  while  also  assisting  businesses  to  respond  more 
flexibly to the demands of an innovation-driven economy and to changes in the competitive 
landscape brought about by restructuring.  

Other  policy  components  of  the  "flexicurity"  approach  include  life-long  learning  enabling 
people  to  keep  pace  with  the  new  skill  needs;  active  labour  market  policies  encouraging 
unemployed or inactive people to have a new chance in the labour market; and more flexible 
social  security  rules  catering  for  the  needs  of  those  switching  between  jobs  or  temporarily 
leaving the labour market.  

This Green Paper looks at the role labour law might play in advancing a “flexicurity” agenda 
in support of a labour market which is fairer, more responsive and more inclusive, and which 
contributes to making Europe more competitive7. It seeks: 

•  To  identify  key  challenges  which  have  not  yet  yielded  an  adequate  response  and  which 
reflect a clear deficit between the existing legal and contractual framework, on one hand, 
and  the  realities  of  the  world  of  work  on  the  other.  The  focus  is  mainly  on  the  personal 
scope of labour law rather than on issues of collective labour law. 

•  To engage Member State governments, the social partners and other relevant stakeholders 
in an open debate about how labour law can assist in promoting flexibility combined with 
employment  security,  independently  of  the  form  of  contract,  thereby  ultimately 
contributing to increase employment and to reduce unemployment. 

•  To  stimulate  discussion  on  how  different  types  of  contractual  relations,  together  with 
employment  rights  applicable  to  all  workers,  could  facilitate  job  creation  and  assist  both 
workers  and  enterprises  by  easing  labour  market  transitions,  assisting  life-long  learning 
and fostering the creativity of the whole workforce.  

•  To  contribute  to  the  Better  Regulation  agenda  by  promoting  the  modernisation  of  labour 
law, taking into account the overall benefits and costs involved, so as to enable individual 
workers as well as businesses to grasp more clearly what are their rights and obligations. 
Consideration needs to be given to the problems faced especially by SMEs in dealing with 
the administrative costs imposed by both Community and national legislation. 

An open public consultation will be conducted on this Green Paper over a four-month period8. 
Following  the  public  consultation,  the  main  policy  issues  and  options  identified  in  the 
responses  by  Member  States,  social  partners  and  other  stakeholders  will  be  considered  in  a 
follow-up Commission Communication in 2007. This is to be seen in the context of the range 
of  initiatives  on  the  wider  topic  of  flexicurity  that  the  Commission  is  developing  in 
collaboration with Member States. In particular, a Commission Communication on flexicurity 
will be presented in June 2007, which will set out to develop the arguments in favour of the 

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Labour  law  is  not  the  only  relevant  factor  in  this  context.  The  Integrated  Guidelines  for  Growth  and 
Jobs recognise that a review of the tax wedge may also be needed to facilitate job creation, especially 
for low wage employment. Shifting taxation from labour to consumption and/or pollution taxes can also 
make  a  significant  contribution  in  this  regard.  This  Green  Paper  does  not  address  economic 
immigration, which is dealt with under the common immigration policy. 
Contributions are  invited using  the  electronic  form  which  you  can  find  on  the European  Commission 
site at the following address: http://europa.eu.int/yourvoice/consultations/index_en.htm. 

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"flexicurity" approach and to outline a set of common principles by the end of 2007 to help 
Member States steer the reform efforts. 

2. 

a. 

LABOUR LAW IN THE EUROPEAN UNION – THE SITUATION TODAY 

Developments in the Member States 

The original purpose of labour law was to offset the inherent economic and social inequality 
within  the  employment  relationship.  From  its  origins,  labour  law  has  been  concerned  to 
establish  employment  status  as  the  main  factor  around  which  entitlements  would  be 
developed. This traditional model reflects several key assumptions about employment status. 
It was assumed to involve i) permanent, full-time employment; ii) employment relationships 
regulated by labour law, with the contract of employment as the pivot; and iii) the presence of 
a single entity employer accountable for the obligations placed upon employers. It has to be 
recalled  that  national  traditions  are  very  different  when  it  comes  to  the  formulation  and 
implementation of labour law and policy. 

Rapid  technological  progress,  increased  competition  stemming  from  globalisation,  changing 
consumer  demand  and  significant  growth  of  the  services  sector  have  shown  the  need  for 
increased  flexibility.  The  emergence  of  just-in-time  management,  the  shortening  of  the 
investment  horizon  for  companies, 
information  and  communication 
technologies,  the  increasing  occurrence  of  demand  shifts,  have  led  businesses  to  organise 
themselves  on  a  more  flexible  basis.  This  is  reflected  in  variations  in  work  organisation, 
working hours, wages, and workforce size at different stages of the production cycle. These 
changes have created a demand for a wider variety of employment contracts, whether or not 
explicitly covered by EU and national legislation. 

the  spread  of 

The  traditional  model  of  the  employment  relationship  may  not  prove  well-suited  to  all 
workers  on  regular  permanent  contracts  facing  the  challenge  of  adapting  to  change  and 
seizing the opportunities that globalisation offers. Overly protective terms and conditions can 
deter  employers  from  hiring  during  economic  upturns.  Alternative  models  of  contractual 
relations  can  enhance  the  capacity  of  enterprises  to  foster  the  creativity  of  their  whole 
workforce for increased competitive advantage. 

Since  the  early  1990s,  reform  of  national  employment  protection  legislation  has  focused  on 
easing existing regulation to facilitate more contractual diversity9. Reforms tended to increase 
flexibility "on the margins", i.e. introducing more flexible forms  of  employment  with lesser 
protection  against  dismissal  to  promote  the  entry  of  newcomers  and  disadvantaged  job-
seekers to the labour market and to allow those who wanted to have more choice over their 
employment. The outcome has given rise to increasingly segmented labour markets10. 

Developments  in  social  dialogue  at  national,  industry  and  enterprise  level,  geared  to 
introducing new forms of internal flexibility, have also demonstrated how workplace rules can 
be  adapted  to  changing  economic  realities.  The  evolving  relationship  between  law  and 
collective  agreements  is  reflected  in  the  ways  in  which  such  agreements  cover  new  issues 
(e.g.  restructuring,  competitiveness,  access  to  training)  and  apply  to  new  categories  of 

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OECD Employment Outlook 2004, Chapter 2, "Employment Protection Regulation and Labour Market 
Performance". 
Joint Employment Report, 2005/06. 

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workers (like agency workers). Collective agreements no longer play a merely auxiliary role 
in complementing working conditions already defined by law. They serve as important tools 
adjusting legal principles to specific economic situations and to the particular circumstances 
of specific sectors.  

b. 

Action at the EU level 

At  the  level  of  the  EU,  a  range  of  legislative  and  political  actions,  along  with  a  series  of 
analytic studies, have been undertaken in the interest of establishing how new more flexible 
forms of work might be combined with minimum social rights for all workers. 

The improvement of living and working conditions as regards fixed-term contracts, part-time 
working,  temporary  work  and  seasonal  work  was  originally  highlighted  in  the  1989  Social 
Charter and in the ensuing Social Charter Action Programme11. A period of intensive debate 
about  the  appropriateness  of  Community-level  initiatives  relating  to  these  employment 
relationships culminated in the Part Time  Work12  and  Fixed  Term  Work13 Directives which 
gave binding effect to the EU social partners' framework agreements establishing the principle 
of  equal  treatment  for  part-time  and  fixed-term  workers  in  relation  to  comparable  full-time 
workers. 

In  2000,  the  Commission  launched  a  first-stage  consultation  of  the  social  partners  on 
modernising  employment  relations,  which  led  to  the  adoption  in  2002  of  a  framework 
agreement  on  telework14.  In  2002,  the  Commission  adopted  a  proposal  for  a  directive  on 
minimum standards for the employment of temporary agency workers15, on which the Council 
has not yet been able to agree a common position. 

Detailed studies have been published of the evolution of labour law in the EU-15 in the period 
1992–200316.  The  results  of  these  studies  were  presented  at  a  conference  “Labour  Law  in 
Europe: Steps towards 2010” which was organised by the Dutch Presidency in 2004, with the 
support  of  the  Commission17.  Further  country  studies  are  being  undertaken  to  cover  the 
development of labour law in the EU-25, and in Bulgaria and Romania. 

Responsibility for safeguarding working conditions and improving the quality of work in the 
Member States primarily rests on national legislation and on the efficacy of enforcement and 
control  measures  at  national  level.  At  the  EU  level,  the  social  acquis  supports  and 
complements the actions of the Member States in this sphere.  

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European Commission, Social Charter Action Programme, November 1989. 
Directive  97/81/EC  concerning  the  Framework  Agreement  on  part-time  work  concluded  by  UNICE, 
CEEP and ETUC. 
Directive 1999/70/EC concerning the Framework Agreement on fixed-term work concluded by UNICE, 
CEEP and ETUC. 
At  the  request  by  the  social  partners,  the  Commission  initiated  a  study  by  Adalberto  Perulli 
"Economically  dependent  /  quasi-subordinate  (parasubordinate)  employment:  legal,  social  and 
economic aspects" (2002). 
COM(2002)  149,  20.3.2002,  which  was  presented  after  social  partners  attempted  to  reach  agreement 
without success and later modified by COM(2002) 701, 28.11.2002. 
The  Evolution  of  Labour  Law  (1992-2003),  vols  I  and  II.  A  general  report  was  prepared  providing  a 
comprehensive overview of the evolution of labour law in the EU-15. 
See also Final Conclusions of Dutch Presidency conference, Leiden, 2004, 
http://internationalezaken.szw.nl/index.cfm?fuseaction=dsp_document&link_id=44922#3738600 

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The Commission also acts as a catalyst to support action by the Member States and the social 
partners to strengthen the Lisbon goals of growth and jobs through its support for a range of 
policy  instruments  including  the  EU  Social  Dialogue  and  financial  measures  such  as  the 
European Social Fund, Progress, and the proposed European Globalisation Adjustment Fund. 
Coordination of employment policies within the partnership for growth and jobs and the open 
method  of  co-ordination  in  the  field  of  social  inclusion  policies  also  help  to  ensure  full 
mobility  for  workers  across  Europe  within  the  context  of  the  Treaties.  These  combine 
concrete goals and policy objectives set at EU level, which are translated into national plans, 
the use of benchmarks and indicators to measure progress, exchange of experience and peer 
review so as to learn from good practice. 

3. 

THE KEY POLICY CHALLENGE – A FLEXIBLE AND INCLUSIVE LABOUR MARKET 

A  proliferation  of  different  contractual  forms  has  emerged  in  the  absence  of  a  more 
comprehensive  adaptation  of  labour  law  and  collective  agreements  to  rapidly  changing 
developments  in  work  organisation  and  society.  By  availing  of  non-standard  contractual 
arrangements, businesses seek to remain competitive in the globalised economy by avoiding 
inter  alia  the  cost  of  compliance  with  employment  protection  rules,  notice  periods  and  the 
costs  of  associated  social  security  contributions.  Administrative  burdens  associated  with  the 
employment  of  regular  employees  also  have a  significant  influence on  employment  growth, 
particularly  in  small  firms18.  Non-standard  as  well  as  flexible  standard  contractual 
arrangements  have  enabled  businesses  to  respond  swiftly  to  changing  consumer  trends, 
evolving  technologies  and  new  opportunities  for  attracting  and  retaining  a  more  diverse 
workforce  through  better  job  matching  between  demand  and  supply.  Workers  are  also 
afforded  greater  choice  particularly  as  regards  arrangements  for  working  time,  increasing 
career opportunities, a better balance between family life, work and education as well as more 
individual responsibility. 

Fixed term contracts, part-time contracts, on-call contracts, zero-hour contracts, contracts for 
workers  hired  through  temporary  employment  agencies,  freelance  contracts,  etc.,  have 
become  an  established  feature  of  European  labour  markets.  The  share  of  total  employment 
taken up by those engaged on working arrangements differing from the standard contractual 
model as well as those in self-employment has increased since 2001 from over 36% in 2001 
to almost 40% of the EU-25 workforce in 200519. Part-time employment, as a percentage of 
total employment, has increased from 13% of total employment to 18% in the last 15 years. It 
has accounted for a larger contribution (around 60%) to employment creation after 2000 than 
full time standard employment. Part-time working remains predominantly a feature of female 
employment  –  with  nearly  one-third  of  women  in  employment  having  a  part-time  job 
compared  with  only  7%  of  men.  Fixed-term  employment  has  increased  as  a  percentage  of 
total  employment  from  12%  in  1998  to  over  14%  in  2005  in  the  EU-25.  Unlike  part-time 
work,  fixed-term  employment  does  not  exhibit  significant  gender  differences20.  Given  the 

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Observatory of European SMEs No 7, Recruitment of employees: Administrative burdens on SMEs in 
Europe, 2002, p. 11. 
Employment  Guidelines  (2005-08):  Indicator  for  total  employees  in  part-time  and/or  fixed-term 
contracts plus total self-employed as % of persons in employment based on EU Labour Force Survey, 
2005, ESTAT. 
Employment in Europe, 2006, Statistical Annex. Part-time work contracts may be of indeterminate as 
well as temporary duration. The latest data on workers’ perceptions of their working conditions in the 
European  Foundation’s  Fourth  European  Working  Conditions  Survey  reveals  that  68%  of  part-time 

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increasing levels of participation in these forms of contracts, the level of flexibility provided 
under  standard  contracts  may  need  to  be  examined  to  enhance  their  capacity  to  facilitate 
recruitment, retention and the scope for progression within the labour market. 

Self-employment  is  also  providing  a  means  of  coping  with  restructuring  needs,  reducing 
direct or indirect labour costs and managing resources more flexibly in response to unforeseen 
economic  circumstances.  It  also  reflects  the  business  model  of  service-oriented  business 
delivering  completed  projects  to  their  customers.  In  many  cases  it  reflects  a  free  choice  to 
work  independently  despite  lower  levels  of  social  protection  in  exchange  for  more  direct 
control over employment conditions and terms of remuneration. Self-employed workers in the 
EU-25 numbered over 31 million in 2005 or 15% of the total workforce21. Those who are self-
employed on their own account and without employees constitute 10% of all workers in the 
EU-25.  Although  agriculture  and  retailing  still  hold  the  larger  share  of  this  category,  it  is  a 
growing feature of the construction and personal services sectors associated with outsourcing, 
subcontracting and project based work.  

However,  there  is  evidence  of  some  detrimental  effects  associated  with  the  increasing 
diversity of working arrangements22. There is a risk that part of the workforce gets trapped in 
a succession of short-term, low quality jobs with inadequate social protection leaving them in 
a  vulnerable  position.  Such  jobs  may  however  serve  as  a  stepping-stone  enabling  people, 
often those with particular difficulties, to enter the workforce. 

EU-15  data  show  that  around  60%  of  those  who  had  taken  up  non-standard  contractual 
arrangements in 1997 had standard contracts in 2003. However, 16% of them were still found 
in the same situation and 20% of them had moved out of employment23.There is also a strong 
gender dimension and intergenerational dimension to the risk of having a weaker position in 
the  labour  market,  since  women,  older  and  also  younger  workers  engaged  on  non-standard 
contracts  have  fewer  chances  to  improve  their  position  in  the  labour  market24.  It  has  to  be 
taken  into  account  however  that  different  Member  States  have  very  different  rates  of 
transition.  

The recent Employment in Europe 2006 report25 refers to findings that stringent employment 
protection  legislation  tends  to  reduce  the  dynamism  of  the  labour  market,  worsening  the 
prospects of women, youths and older workers. The report underlines that deregulation "at the 
margin", while keeping stringent rules for regular contracts largely intact, tends to favour the 
development  of  segmented  labour  markets  with  a  negative  impact  on  productivity.  It  also 
stresses that workers feel better protected by a support system in case of unemployment than 
by  employment  protection  legislation.  Well-designed  unemployment  benefit  systems, 
coordinated with active labour market policies seem to perform better as an insurance against 
labour market risks. 

workers  are satisfied  with  their  working  schedule compared  to 23%  wishing  to work more  hours  and 
9% wishing to work less hours. 
ibid,  also  Industrial  Relations  in  Europe,  2004.  Self-employment  is  particularly  significant  in  Poland, 
Hungary, Lithuania, Latvia and Estonia among the new EU Member States, and also in the UK, Ireland, 
Portugal, and the Netherlands. 
Precarious  Employment  in  Europe:  A  comparative  study  of  labour  market  related  risks  in  flexible 
economies. ESOPE Final Report. Directorate General for Research, 2004. 
Employment in Europe 2004, p. 15, and Chapter 4. It has to be recognized of course that not all non-
standard contracts can be considered as being precarious. 
Employment in Europe, 2004, Chapter 4, p. 181. 
Employment in Europe, 2006, p. 81 et seq. 

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In  the  context  of  globalisation,  ongoing  restructuring  and  the  move  towards  a  knowledge-
based  economy,  European  labour  markets  need  to  be  both  more  inclusive  and  more 
responsive to innovation and change. Potentially vulnerable workers need to have a ladder of 
opportunity  so  as  to  enable  them  to  improve  their  mobility  and  achieve  successful  labour 
market  transitions.  Legal  frameworks  sustaining  the  standard  employment  relationship  may 
not offer sufficient scope or the incentive to those on regular permanent contracts to explore 
opportunities  for  greater flexibility  at  work. If innovation and  change  are to  be successfully 
managed,  labour  markets  will  need  to  address  three  main  issues:  flexibility,  employment 
security  and  segmentation  issues.  The  purpose  of  this  Green  Paper  is  to  promote  a  debate 
about whether a more responsive regulatory framework is required to support the capacity of 
workers to anticipate and manage change regardless of whether they are engaged on indefinite 
contracts or non-standard temporary contracts. 

Questions 

1.  What  would  you  consider  to  be  the  priorities  for  a  meaningful  labour  law  reform 
agenda?  

2.  Can  the  adaptation  of  labour  law  and  collective  agreements  contribute  to  improved 
flexibility  and  employment  security  and  a  reduction  in  labour  market  segmentation?  If 
yes, then how? 

3.  Do  existing  regulations,  whether  in  the  form  of  law  and/or  collective  agreements, 
hinder  or  stimulate  enterprises  and  employees  seeking  to  avail  of  opportunities  to 
increase  productivity  and  adjust  to  the  introduction  of  new  technologies  and  changes 
linked  to  international  competition?  How  can  improvements  be  made  in  the  quality  of 
regulations affecting SMEs, while preserving their objectives? 

4.  How  might  recruitment  under  permanent  and  temporary  contracts  be  facilitated, 
whether  by  law  or  collective  agreement,  so  as  to  allow  for  more  flexibility  within  the 
framework of these contracts while ensuring adequate standards of employment security 
and social protection at the same time? 

4. 

a. 

MODERNISING LABOUR LAW – ISSUES FOR DEBATE 

Employment transitions 

Labour and social security laws in most Member States were designed to provide protection 
for  dependent  employees  in  particular  jobs.  They  may  not  be  sufficient  to  assist  workers  in 
making  transitions  from  one  status  to  another,  whether  in  the  case  of  involuntary 
discontinuities  (e.g.  dismissal  and  unemployment)  or  voluntary  discontinuities  (e.g.  in  the 
case of education and training leave, caring responsibilities, career breaks and parental leave). 
The  problems  of  female  workers  who  are  disproportionately  represented  in  new  forms  of 
work  arrangements  and  who  still  face  obstacles  in  seeking  access  to  full  rights  and  social 
benefits also need to be addressed. 

Opportunities to enter, remain and make progress in the labour market vary considerably, with 
both employment protection legislation and the legal contractual framework at national level 
having a strong impact on job status transitions, especially as regards the position of the long-
term  unemployed  and  precariously  employed  "outsiders".  Examples  of  labour  law  measures 

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supportive of employment transitions which have been developed through a process of social 
dialogue  at  national  level  include  the  Dutch  Flexibility  &  Security  Act  1999,  the  Austrian 
Severance  Act  (Abfertigungsrecht)  200226  and  the  June  2006  Spanish  decree  easing  the 
conversion  of  temporary  labour  contracts  into  open-ended  labour  contracts  with  reduced 
dismissal costs27. The Austrian reform provides an interesting example of a radical shift away 
from a system based on the traditional employment relationship between one worker and one 
firm  to  one  based  on  a  broader  employee  benefit  provision  fund  operated  at  national  level. 
The  link  was  cut  between  being  laid  off  by  an  employer  and  the  payment  of  a  once-off 
severance  award.  The  new  rules  allow  workers  to  leave  when  they  find  alternative 
employment rather than stay in a particular job for fear of losing the accompanying severance 
payment.  The  reform  removed  the  threat  to  a  firm's  existence  which  could  be  posed  by  the 
sudden cost of redundancies, while the employer's contribution to the individual savings fund 
can be spread over time. From the employee’s perspective, the new system reduces the cost of 
job mobility since workers no longer lose all of their entitlement to severance payments when 
taking a new job. 

Adopting  a  lifecycle  approach  to  work  may  require  shifting  from  the  concern  to  protect 
particular  jobs  to  a  framework  of  support  for  employment  security  including  social  support 
and  active  measures  to  assist  workers  during  periods  of  transition.  This  is  what  Denmark 
achieved  by  combining  "light"  employment  protection  legislation,  intensive  active  labour 
market  measures,  and  substantial  investment  in  training  as  well  as  high  unemployment 
benefits with strong conditionality. 

Questions 

5.  Would  it  be  useful  to  consider  a  combination  of  more  flexible  employment  protection 
legislation  and  well-designed  assistance  to  the  unemployed,  both  in  the  form  of  income 
compensation (i.e. passive labour market policies) and active labour market policies? 

6.  What  role  might  law  and/or  collective  agreements  negotiated  between  the  social  partners 
play  in  promoting  access  to  training  and  transitions  between  different  contractual  forms  for 
upward mobility over the course of a fully active working life? 

b. 

Uncertainty with regard to the law 

The  emergence  of  diverse  forms  of  non-standard  work  has  made  the  boundaries  between 
labour  law  and  commercial  law  less  clear.  The  traditional  binary  distinction  between 
"employees" and the independent "self-employed"  is no longer an adequate depiction of the 
economic and social reality of work. Disputes concerning the legal nature of the employment 
relationship  can  arise  where  that  relationship  has  either  been  disguised  or  where  a  genuine 
difficulty arises in seeking to fit new and dynamic work arrangements within the traditional 
framework of the employment relationship.  

Disguised employment occurs when a person who is an employee is classified as other than 
an employee so as to hide his or her true legal status and to avoid costs that may include taxes 

26 

27 

See commentary on these examples cited in Employment Task Force Report, pp. 33 and 35, also OECD 
Employment Outlook 2004, Chapter 2. 
See report in European Industrial Relations Observatory on-line of August 2006,  
http://www.eiro.eurofound.eu.int/2006/05/articles/es0605019i.html.  

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and social security contributions. This illegal practice can occur through the inappropriate use 
of civil or commercial arrangements.  

Action at national level to combat the phenomenon of disguised employment, often developed 
in collaboration with the social partners, has ranged from the introduction of mandatory legal 
presumption rules28 to improving enforcement mechanisms including targeted campaigns and 
special information and awareness initiatives29. Unclear legal definition of the status of self-
employment  in  national  legal  and  administrative  frameworks  may  result  in  persons,  who 
believe themselves to be self-employed, subsequently finding themselves to be classified by 
social  security  agencies  or  tax  institutions  as  a  dependent  employee.  This  can  result  in  an 
obligation  for  the  self-employed/employee  and  his  main  client/employer  to  pay  additional 
social  security  contributions30.  The  Commission  has  stressed  that  the  problem  of  persons 
posing  falsely  as  self-employed  workers  to  circumvent  national  law31  should  be  dealt  with 
primarily by Member States32. 

The concept of ‘economically dependent work’ covers situations which fall between the two 
established  concepts  of  subordinate  employment  and  independent  self-employment.  These 
workers do not have a contract of employment. They may not be covered by labour law since 
they occupy a “grey area” between labour law and commercial law. Although formally ‘self-
employed’, they remain economically dependent on a single principal or client/employer for 
their  source  of  income33.  This  phenomenon  should  be  clearly  distinguished  from  the 
deliberate  mis-classification  of  self-employment.  Already  some  Member  States  have 
introduced legislative measures to safeguard the legal status of economically dependent and 
vulnerable self-employed workers34.  

28 

29 

30 

31 

32 

33 
34 

The Dutch Flexibility and Security Act, 1999, introduced a  mandatory legal presumption whereby an 
employment contract exists when work has been carried out for another person in return for pay on a 
weekly basis, or for at least twenty hours per month during three consecutive months. 
As  a  consequence  of  recent  social  partnership  agreements  concluded  in  Ireland  and  Spain,  the 
respective governments have agreed to increase the number of labour inspectors.  
Second  Career:  Overcoming  the  obstacles  faced  by  dependent  employees  who  want  to  become  self-
employed  and/or  start  their  own  business.  Enterprise  Directorate  General,  European  Commission, 
(2004). p. 8, 29-31. 
Social  partner  organisations  have  observed  that  bogus  "self-employed"  work,  fictitious  service 
provision  and  extended  sub-contracting  chains  have  been  used  to  circumvent  post-enlargement 
transitional restrictions on access to some national labour markets. See Report on the Functioning of the 
Transitional Arrangements set out in the 2003 Accession Treaty - COM(2006) 48, 8.2.2006. 
Accordingly,  the  Commission  welcomes  the  adoption  in  June  2006  of  a  Recommendation  on  the 
Employment  Relationship  at  the  95th  session  of  the  International  Labour  Conference  promoting  the 
formulation and adoption by member states, in consultation with the social partners, of national policies 
for regularly reviewing the scope of their laws, and where necessary clarifying and adapting them, in 
order to guarantee effective protection for workers who perform work in the context of an employment 
relationship.  This  non-binding  instrument  takes  a  strategic  approach,  leaving  the  nature  and  extent  of 
protection given to workers in an employment relationship to be defined by national law and practice. 
This does not mean that these workers are necessarily in a vulnerable position. 
Examples  include  the  concept  of  "employee-like"  workers  corresponding  to  the  civil  law  notion  of 
"parasubordination" in Italy and Germany. In Germany amendments to the Social Code introduced in 
1999 to cover the social security status of economically dependent workers were subsequently modified 
in 2002 (see The Evolution of Labour Law, Vol. 2 pp. 151-153). In Spain, a Self-Employed Workers' 
Statute  is  envisaged,  to  give  effect  to  the  agreement  concluded  on  26  September  2006  between  the 
Spanish government and the main representatives of the self-employed, on the rights and benefits the 
self-employed, including economically dependent workers. 

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While these approaches have been somewhat tentative and partial, they reflect efforts on the 
part of legislators, the courts and the social partners to tackle problems in this complex area. 
The "targeted approach" adopted in the UK to establishing differing rights and responsibilities 
in  employment  law  for  "employees"  and  "workers"  is  an  example  of  how  categories  of 
vulnerable workers involved in complex employment relationships have been given minimum 
rights  without  an  extension  of  the  full  range  of  labour  law  entitlements  associated  with 
standard work contracts35. Anti-discrimination rights, health and safety protection, guarantees 
of minimum wage as well as safeguards for collective bargaining rights, have been selectively 
extended  to  economically  dependent  workers  in  several  Member  States.  Other  rights, 
particularly those relating to notice and dismissal, tend to be restricted to regular employees 
having completed a prescribed period of continuous employment. 

At Community level, the regulation of the working conditions of self-employed commercial 
agents  illustrates  how  Internal  Market  rules  can  closely  resemble  aspects  of  labour  law.  In 
order  to  provide  basic  protection  to  independent  commercial  agents  in  dealing  with  their 
principals,  Directive  86/653/EEC36  laid  down  provisions  concerning,  inter  alia,  payment  of 
remuneration; conditions for the conversion of fixed-term contracts into contracts of indefinite 
duration; as well as compensation in the event of damage suffered due to the termination of a 
contract. 

It has been argued that minimum requirements be introduced into all personal work contracts 
for  services  undertaken  by  the  economically  dependent  self-employed37.  While  increasing 
certainty and transparency and ensuring a minimum level of protection of the self-employed, 
such requirements could, however, have the effect of limiting the scope of these contractual 
arrangements. 

Questions 

7.  Is  greater  clarity  needed  in  Member  States'  legal  definitions  of  employment  and  self-
employment to facilitate bona fide transitions from employment to self-employment and vice 
versa? 

8. Is there a need for a “floor of rights” dealing with the working conditions of all workers 
regardless  of  the  form  of  their  work  contract?  What,  in  your  view,  would  be  the  impact  of 
such minimum requirements on job creation as well as on the protection of workers? 

c. 

Three Way Relationships  

The growing incidence of temporary agency work has led to changes in labour law in some 
Member  States  in  order  to  establish  the  respective  liabilities  of  the  work  provider  and  user 
enterprise  for  safeguarding  workers'  rights.  The  "three-way  relationship"  between  a  user 
undertaking, an employee and an agency, usually arises where a temporary agency worker is 
employed by the temporary work agency, and then hired out to perform work assignments at 

35 

36 

37 

DTI  Discussion  Document  on  Employment  Status,  July  2002;  also  Success  at  Work:  Protecting 
Vulnerable Workers, Supporting Good Employers, UK Department of Trade and Industry, March 2006. 
EEC  Council  Directive  86/653/EEC  of  18  December  1986  on  the  coordination  of  the  laws  of  the 
Member States relating to self-employed commercial agents. 
See especially Perulli, op. cit. Chapter 3. 

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the user firm by means of a commercial contract. The resulting ‘dual employer’ situation adds 
to the complexity of the employment relationship38. 

Temporary  agency  work  is  regulated  in  most  Member  States  through  a  mix  of  legislation, 
collective labour agreements and self-regulation39. The Commission's proposal for a Directive 
on Temporary Agency Workers seeks to establish the non-discrimination principle to ensure 
that  agency  workers  are  treated  no  less  favourably  than  the  ‘regular’  workers  in  a  "user 
enterprise"40.  

Similar problems can arise where workers are involved in extended chains of sub-contracting. 
Several Member States have sought to address such problems by making principal contractors 
responsible  for  the  obligations  of  their  sub-contractors  under  a  system  of  joint  and  several 
liability.  Such  a  system  encourages  principal  contractors  to  monitor  compliance  with 
employment legislation on the part of their commercial partners. However, it has been argued 
that such rules may serve to restrain sub-contracting by foreign companies and could therefore 
present an obstacle to the free provision of services in the Internal Market. In recent case law 
on the posting of workers such a system was considered to be an acceptable procedural means 
of safeguarding an entitlement to minimum rates of pay where this form of worker protection 
is necessary and proportional and in accord with the public interest41. 

Questions 

9.  Do  you  think  the  responsibilities  of  the  various  parties  within  multiple  employment 
relationships  should  be  clarified  to  determine  who  is  accountable  for  compliance  with 
employment  rights?  Would  subsidiary  liability  be  an  effective  and  feasible  way  to  establish 
that  responsibility  in  the  case  of  sub-contractors?  If  not,  do  you  see  other  ways  to  ensure 
adequate protection of workers in "three-way relationships"? 

10. Is there a need to clarify the employment status of temporary agency workers? 

d. 

Organisation of working time 

The failure of the extraordinary EPSCO Council of 7 November 2006 to reach an agreement 
has  highlighted  how  the  provisions  of  Directive  2003/88/EC  and  the  relevant  ECJ 
jurisprudence42 remain particularly challenging for certain sectors such as health. 

The Commission is now reviewing the situation in the light of the stalemate in the Council. 

38 
39 
40 

41 

42 

Temporary Agency work in an enlarged European Union, European Foundation, 2006, p. 1. 
ibid 
Amended proposal for a Directive of the European Parliament and the Council on working conditions 
for temporary workers - COM(2002) 701. 
Provided  that  such  a  system  is  necessary  and  proportional,  the  European  Court  held  that  Article  5  of 
Directive 96/71/EC on posting of workers in the framework of the provision of services, interpreted in 
the light of Article 49 TEC, does not preclude the use of such a system as an appropriate measure in the 
event of failure to comply with the Directive. See Judgement of the ECJ of 12 October 2004 in Case C-
60/03 Wolff and Müller [2004] ECR I-9553. 
In  particular  judgments  of  the  ECJ  of  3  October  2000  in  Case  C-303/98  (SIMAP)  ECR  I-7963,  of  9 
October 2003 in Case C-151/02 (Jäger) ECR I-8389, and of 1 December 2005 in Case C-14/04 (Dellas) 
ECR I-10253. 

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Question 

11.  How  could  minimum  requirements  concerning  the  organization  of  working  time  be 
modified  in  order  to  provide  greater  flexibility  for  both  employers  and  employees,  while 
ensuring  a  high  standard  of  protection  of  workers'  health  and  safety?  What  aspects  of  the 
organization of working time should be tackled as a matter of priority by the Community? 

e. 

Mobility of workers 

The consistent application of EU labour law can be put in question, particularly in the context 
of  the  transnational  operation  of  businesses  and  services,  through  the  variations  in  the 
definitions of worker used in different directives. This is of particular concern when it comes 
to the situation of frontier workers43. 

Outside  of  the  specific  context  of  freedom  of  movement  of  workers,  most  EU  labour  law 
legislation  leaves  the  definition  of  ‘worker’  to  the  Member  States.  It  has  been  argued  that 
Member  States  should  retain  discretion  in  deciding  the  scope  of  the  definitions  of  ‘worker’ 
used  in  different  Directives.  Continued  reference  to  national  rather  than  Community  law 
could, however, affect worker protection especially where freedom of movement is at issue. 
Difficulties  associated  with  the  different  definitions  of  worker  have  emerged  particularly  in 
connection  with  the  implementation  of  directives  on  posting  of  workers  and  transfers  of 
undertakings.  Divergence  in  the  scope  of  national  definitions  of  ‘employee’  in  such 
circumstances is difficult to reconcile with the Community's social policy aims of striking a 
balance between a flexibility and security for employees. 

Question 

12. How can the employment rights of workers operating in a transnational context, including 
in particular frontier workers, be assured throughout the Community? Do you see a need for 
more convergent definitions of 'worker' in EU Directives in the interests of ensuring that these 
workers  can  exercise  their  employment  rights,  regardless  of  the  Member  State  where  they 
work? Or do you believe that Member States should retain their discretion in this matter?  

f. 

Enforcement issues and undeclared work  

Enforcement mechanisms should be sufficient to ensure well functioning and adaptable labour 
markets,  to  prevent  infringements  of  labour  law  at  national  level  and  to  safeguard  workers 
rights in the emerging European labour market44. In this context, undeclared work appears as 
a particularly worrying and enduring feature of today's labour markets, often associated with 
cross-border  labour  movements.  Being  the  main  contributing  factor  to  social  dumping,  it  is 
responsible not only for the exploitation of workers but also for distortions to competition. In 
October  2003  the  Council  adopted  a  resolution  calling  on  Member  States  to  address  this 
problem45.  Suggested  measures  included  preventative  measures  and  sanctions,  as  well  as 
partnerships  between  social  partners  and  the  public  authorities  at  national  level  to  tackle 

43 
44 

45 

See also EP Resolution A5-0338/2000 - OJ C 262, 18.9.2001, p. 148. 
See ILO Report V(1) The Employment Relationship (2005), par 65. See also problems highlighted in 
the Report on the Functioning of the Transitional Arrangements set out in the 2003 Accession Treaty. 
See also Commission Communication COM(2006) 159 “Guidance on the posting of workers within the 
framework of the provision of services”. 
Council Resolution on transforming undeclared work into regular employment - OJ C 260, 29.10.2003. 

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undeclared  work.  These  measures  are  currently  reflected  in  a  mix  of  incentives  for 
transformation  of  undeclared  work  into  regular  work;  sanctions  and  penalties;  better  links 
with the tax system and benefits; and administrative or fiscal simplification.  

The  problem  was  identified  by  UNICE/UEAPME,  CEEP,  ETUC,  as  an  integral  part  of  the 
balance between flexibility and security, as topics for joint analysis in the EU Social Partners 
work programme for 2006-200846.  

Labour Ministries and their services have a crucial role to play in monitoring the application 
of  the  law,  collecting  reliable  data  on  labour  market  trends  and  changing  work  and 
employment patterns, and designing effective and dissuasive sanctions, to combat undeclared 
work  and  disguised  employment  relationships.  In  the  case  of  mobile  workers  in  road  and 
maritime transport, the transnational and offshore nature of operations in these sectors makes 
enforcement a particularly challenging task47. 

There  should  be  more  effective  cooperation  at  national  level  between  different  government 
enforcement  agencies,  such  as  labour  inspectorates,  social  security  administrations  and  tax 
authorities. Improvements in the resources and expertise of these law enforcement authorities, 
and  in  their  cooperation  with  partners,  can  contribute  to  reductions  in  the  incentives  to 
undeclared work. 

Strengthened administrative cooperation at the EU level may also assist the Member States in 
detecting  and  tackling  abuse  and  evasion  of  labour  rules  so  as  to  ensure  compliance  with 
Community law. Article 10 TEC establishes a general rule imposing mutual duties of genuine 
co-operation  and  assistance  on  the  Member  States  and  the  Community  Institutions  and 
requiring  that  appropriate  measures  be  taken  to  help  achieve  the  aims  of  the  Community. 
Illegal practices with an international dimension only serve to highlight the need for increased 
co-operation at the EU level to improve the strategies and inspection tools used in assessing 
working conditions and labour practices. 

Questions 

13. Do you think it is necessary to reinforce administrative co-operation between the relevant 
authorities to boost their effectiveness in enforcing Community labour law? Do you see a role 
for social partners in such cooperation? 

14. Do you consider that further initiatives are needed at an EU level to support action by the 
Member States to combat undeclared work? 

46 
47 

Work Programme of the European Social Partners, 2006-2008, 23 March 2006. 
Road  Transport  Working  Time  Directive  –  Self-employed  and  Night  Time  Provisions,  forthcoming 
research report for DG TREN. 

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