Independent Contractors and the Challenge of Vertical Disintegration to Employment Protection Laws

Abstract

During most of this century industrial organization has tended toward vertical integration of production.' Although sectors of the economy differ considerably in their degree of concentration into large firms,2 the general pattern unfurling has been the replacement of small businesses linked by commercial contracts by organizations which direct production through bureaucratic controls. Since the recession at the beginning of the 1980s, however, this trend has been reversed. As well as the decomposition of capital into separate corporate entities in an endeavour to replicate efficient capital markets,3 managers of large firms have exhibited a greater interest in disintegration, by arranging aspects of production through subcontracting, franchising, concessions, and outsourcing.4 Similar developments have occurred in the public sector as one aspect of the policy of privatization.5 Legal regulation of the employment relationship has hitherto matured alongside the growth in vertical integration of production. This coincidence explains in part the limited scope of legal protection for employees. Employment protection rights such as the right to claim unfair dismissal or a redundancy payment typically vest only in employees whose jobs fit into the complementary paradigm form of employment in vertically integrated production: employment which is full-time, stable, and for an indefinite duration. The recent trend towards vertical disintegration of production places many workers outside this paradigm and therefore beyond the range of employment protection laws.