The right to withdraw capital

If there is a "right" to withdraw labour, is there a similar "right" to withdraw capital?

The right to withdraw capital

By Quentin Langley

Dateline 20 October 2000

It is widely asserted, but rarely argued, that workers have a fundamental right to withdraw their labour. The lack of argument to back such an assertion is interesting, as neither the Universal Declaration on Human Rights (UDHR) nor the International Labour Organisation’s (ILO’s) Declaration on Fundamental Principles and Rights at Work mentions any such right. The nearest we get to this is that both the UDHR and the ILO firmly oppose slavery and forced labour. This is only a peripherally related issue as the right to withdraw labour is normally said to apply to free persons who have voluntarily entered a contract of employment.

What, then, does this “right” amount to? Is it a right to break a contract? It is nothing of the sort. Most jurisdictions allow strikers to be sacked for striking, though often with the proviso that all must be sacked, not merely the ringleaders. There is nothing in law to prevent management from dismissing the entire workforce and hiring new employees, though there may be practical constraints if labour, or the skills required, are in short supply.

Except in military service employees usually have the right to resign their employment, subject only to the notice periods specified in their contracts. The notice period required of employees is characteristically the same as required of employers. Subject only to these contractual obligations there is not, in general employment a restriction on the right to withdraw labour. So why should there be any such restriction on the right to withdraw capital?

In some parts of the USA there is not. California law, for example, allows termination at will, but this is unusual in the protected labour markets of the European Union.

In the UK, and this is typical of European countries, there are elaborate protections built into statute to prevent “unfair” dismissal. While such protections, in the Employment Protection Act and the Employment Protection (Consolidation) Acts, only apply after a year’s service (lowered from two years by the current Labour government) they are a clear barrier to flexible employment practices.

Legislation requires that an employer who wishes to dismiss a protected worker (with certain exceptions, anyone employed for more than 12 months) must observe criminal standards of proof for incompetence or a disciplinary breach. No allowance is made for cultural clashes or difference of management style. Even then, save in the most serious cases, such as theft or violence, dismissal is not available for a first offence. Normally the employer must go through the stages of “oral warning”, first written warning”, and “final written warning” before dismissal is an option. Even after all these processes the employer must allow an internal appeal and then appeal to an Industrial Tribunal and then an Employment Appeal Tribunal are possible.

It goes without saying that a worker who wishes to resign must merely give the appropriate notice. No requirement to show conspicuously unfair treatment, to prove it beyond all reasonable doubt, or to allow the employer a right of appeal is considered necessary. And surely this is right? Employment is a contract. If I hire services through a contractor rather than full time employees there is no obligation beyond that which is contractual. If I choose to “fire” my newsagent because he had no copies of the Economist this morning, that is no-one’s business but mine and his. If I choose to “fire” him because someone has opened another shop that is closer, or just on whim, that is my right too. If I hire a butler through Butler Services Limited the same applies, though if I employ a butler it does not.

Outsourcing is, of course, an excellent way of avoiding the obligations of employment protection legislation. The customer is not obliged to have any reason to end the outsourcing contract and the contractor, who could not easily fire employees for disciplinary or competence matters, can make them redundant when business declines. But business should make the decision to outsource, or not, according to commercial not legislative criteria.

Another way of evading the legal requirements is that employers fire workers in clear and knowing defiance of both their own procedures and the law, almost daring workers to seek legal redress. They do this knowing that many employees do not know their rights, do not see any way to finance an action, or fear that the publicity surrounding an action will make it harder to find new employment. Often it is easier to quietly agree a statement that the person has resigned.

Another nasty side-effect of over-bearing legislation is that employers are often forced to extend the process of seeking a dismissal over several months at a cost of enormous stress and unpleasantness for all concerned. Sometimes employers bully employees, or deliberately make their lives unpleasant to provoke resignation. But this, too, is allowed for in legislation, and can be construed as constructive dismissal.

At root, employment is a contract which brings together one person’s labour and another person’s capital. Both sides should have an equal right to withdraw from the arrangement if it suits them to do so. Banks are not required to jump through bureaucratic hoops before withdrawing credit facilities, nor could they, as their customers can withdraw their capital at a moment’s notice, subject only to contractual constraints. So employment protection legislation does nothing for contractors, the self-employed, or small businesses. It does nothing to stop the market withdrawing capital from public companies either. It provides no protection at all to the most dynamic sections of the economy.

The only people to benefit from the legislation are union members. They will know of the legislation and have the means to finance an action. The legislation was written at a time when unionised labour in large manufacturing industries formed a much larger proportion of the workforce. By enacting the laws the then Labour government was repaying a debt to the unions that had financed its election, but the legislation has no basis in the modern economy, in natural justice, or in any internationally recognised notion of human rights.

Copyright © 20 October 2000

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