Beyond collectivisation: Reforming contract law

Karl Johnson

Getting people to think about contract law is hard. Even devoted political enthusiasts tend to have little interest in law reform unless they are presented with a pre-formed proposal to support. Most people have no legal training, and so, few of them, even those active in politics, have the confidence in their knowledge of the law to think about how things could be different. Though they might develop complex and original ideas, they rarely think to consider legal solutions to political and economic problems.

This makes it hard to acquire momentum for law reform beyond the legislative ‘quick fixes’ that are a feature of every government. Though we expect hundreds of acts to be passed in a single parliament, any genuine criticism of the direction of law is impossible, leaving us unable to diagnose the deficiencies in judge-made common law or consider the role of Parliament in correcting them.

Large areas of law have gone without such criticism for many years, especially contract law. Our lives are governed by contracts, particularly employment contracts. It is incontestable that that the relationship between the suppliers and consumers of labour should be on fair terms. Too often, they are not.

English contract law is built around the idea of two equal parties bargaining out of free will. On signing a contract, it is assumed that you and your employer came to a mutually beneficial agreement through honest negotiation, and that you read through it with the confidence to bargain over and contest terms you did not like. The law has no right to interfere with this process; in the 19th century pro-laissez-faire judges regarded contracts between citizens as sacred bonds, untouchable by public policy.

This attitude does not take into account the employer’s greater strength in bargaining, the expendability of labour or the job-seeker’s desperation to find work. While it is possible to void a contract on grounds of duress, this requires ‘a coercion of the will, which vitiates consent’, going beyond the ordinary pressure of market conditions. There is no legal relief for those forced to work in conditions to which they did not wish to consent.

Until recently, collective bargaining offered a solution. When organised into unions, labour was of equal strength with employers. In their 1897 book Industrial Democracy, the Webbs called for collective agreements to replace individual contracts, so that the weaker employee could not be isolated and overwhelmed in the formation of their contract. With contracts created through collective bargaining,

‘absolutely no room is left for the influence upon the negotiations of individual idiosyncrasies, temper, ignorance of fact, or deficiency in bargaining power, whether on the side of the employer or the operative.’

Collectivisation introduced uniform terms to large-scale workforces. Whilst master and servant had long been equal under the law, collectivisation allowed the servant to match the master’s ability to utilise their rights. But this did not necessitate a substantial change in the law. By the mid-twentieth century, the labour force was dependent on collectivisation but the law still primarily served individualist interests.

Over the past few decades, the benefits of the era of collectivisation have been lost. Only 29% of British workers were working under collective agreements in 2012. In most large companies the workforce is now effectively divided. The first person is an employee, the second is nominally self-employed, the third is a temp, the fourth an apprentice, and so on. Exploiting such a workforce is easy.

The solution to the decline in collectivisation and proliferation of bad contracts is to introduce legislation with the objective of correcting inequality of bargaining power in individual cases, and providing an incentive for employers to bargain with collectivised workforces. The resulting law would look something like this:

‘Where an employee is earning under a certain threshold and has entered into a contract individually, as a result of the employer’s refusal to recognise collective agreements, then in the event of a dispute there will be a rebuttable presumption that he was subject to duress, regardless of the cause of the dispute.’

If the employer is unable to prove he had not subjected his employee to duress, he would be liable to pay compensation for the civil wrong of forcing someone into working for them through unscrupulous use of superior bargaining power.

Claims could be heard by employment tribunals, provided current difficulties in accessing them are resolved. Although possibly destructive to some large, unethically run companies, such a law could be effective in changing working conditions nationally. An employer could avoid it entirely by contracting with a collectivised workforce.

Speaking to the Fabians’ New Year Conference, Ed Miliband promised of a Labour government ‘As well as tackling inequalities of income and wealth, we will tackle inequalities of power.’ Given the realities of unskilled working conditions in Britain today, the delivery of that vision requires a commitment to employment law reform.


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