Guy Davidov*

Collective Bargaining Laws: Purpose and Scope

Abstract: This article argues that the right to bargain collectively should be given to every person working for others for pay who suffers a significant degree of democratic deficits or economic dependency in this work relationship. This would constitute a much broader scope of application compared with the current situation in most countries. This change is justified based on an inquiry into the purpose of laws that allow and promote the practice of collective bargaining, on the one hand; and the purpose of laws that prevent cooperation among potential competitors, on the other. Collective bargaining laws promote workplace democracy, redistribution of resources, and efficiency. It is shown that, as far as the broadened group of workers suggested here is concerned, the goals of competition laws are not contradictory. 1. INTRODUCTION

Labour unions, more or less as we currently know them, have been around at least since the 17th Century.1 Illegal and unpopular at first, they gradually won recognition (to one extent or another) from both the people and the law, eventually becoming during the 20th Century pillars of any industrial relations system, and indeed, major players in any democratic society. Although their membership has declined in recent years, unions still play a significant role in workers protection. But not every worker has the right to join a union, bargain collectively and strike. Those considered independent contractors (as opposed to employees) are expected to play by the rules of the competitive market, which generally prohibit anti-competitive associations. Regulation of labour union activity varies significantly from one legal system to another. But the basic rules are the same in every democratic society: employees have the right to organize (or join a union), bargain collectively and strike; and to the extent that these activities are considered to be economic concentration/cooperation, they are exempted from antitrust regulations. For convenience and focus purposes, let us concentrate on the right to bargain collectively. To be sure, there are certainly instances where the other two rights (to organize and to strike) have a different scope.2 But for the most part, workers join a union in order to bargain collectively,
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Faculty of Law, University of Haifa, Israel. My thanks to Harry Arthurs for inspiring this contribution with his 1965 ground-breaking article (see note 3), and to Michal Gal for valuable comments on an earlier draft. S. Webb and B. Webb, The History of Trade Unionism, rev. ed., London, Longmans Green and Co., 1920, chapter 1. Indeed, unions have always attempted to achieve their goals in ways other than collective bargaining as well, whether through political channels or by offering different services to their

and their ability to strike is an essential element of their ability to do collective bargaining effectively. So who should be considered an employee, for the purpose of having the right to bargain collectively, and who should be excluded as an independent contractor? This is the subject of this article. Since legislatures generally leave this question to the courts, intentionally avoiding any substantive definition of these terms, the problem is essentially one of interpretation. The interpretive approach adopted here is purposive; the article will attempt to identify the purposes of collective bargaining, and deduce the appropriate scope of the right to bargain collectively accordingly. In some cases there may be discrepancies between the original purposes of collective bargaining regulations and their actual consequences. In my view neither should prevail. The goals of different pieces of legislation change over time; the reasons that current legislatures have for leaving a piece of legislation on the statute book are not necessarily the same reasons their predecessors had for legislating it in the first place. On the other hand, the actual consequences of the legislation are not determinative either. The fact that the goals of the legislation were not achieved, or that in practice it achieved different results than intended, may be due to various external reasons that do not necessarily say anything about the potential of the legislation to achieve different goals in the future. A purposive analysis, I believe, should be concerned with the level of justifications. We should focus on ideas that can justify and explain the legislation (in this case, the right to bargain collectively). For this purpose, both the original intent and the actual consequences may be useful sources, but neither is determinative. Any attempt to separate employees from independent contractors in the context of collective bargaining must take into account justifications for both collective action, on the one hand, and competition between workers on the other. When bargaining individually, workers compete against each other to their own detriment. This collective action problem is obviously resolved when they bargain collectively, but the question is for whom should it be resolved. The line between employees and independent contractors is the line between the regime of competition and that of collective action;3 otherwise put, we are looking for the fine line that represents the desirable balance between considerations in favour of competition and those that favour collective bargaining. Part 2 below proceeds with putting forward the purposes of collective bargaining regulations. Part 3 goes on to discuss, in a brief form, the goals and limits of regulations that seek to protect the competitive model. Part 4 then spells out the implications for the scope of collective bargaining regulations. 2. THE PURPOSES OF COLLECTIVE BARGAINING

Regulations that allow, promote or provide structure for collective bargaining can be justified on several different grounds. Most important at least in democratic,

members. See S. Webb and B. Webb, Industrial Democracy, London, Longmans Green and Co., 1926 [1897], and see more recently ILO, World Labour Report 1997-98: Industrial Relations, Democracy and Social Stability, Geneva, International Labour Office, 1997, p. 23-27, 31-32; M. Salamon, Industrial Relations, 3rd ed., London, Prentice Hall, 1998, p. 110-113. See H.W. Arthurs, The Dependent Contractor: A Study of the Legal Problems of Countervailing Power, UTLJ, vol. 16, 1965, p. 89.

advanced economies, which will be our focus here seem to be workplace democracy, redistribution, and efficiency.4 It is hardly surprising that all three justifications/purposes are fiercely contested. There are those who believe that labour unions are nothing but monopolies,5 and that collective bargaining through unions achieves the exact opposite of its intentions: less democracy, regressive redistribution, and inefficiency. It is my view that such criticism is for the most part misguided, and that collective bargaining can be beneficial on all three fronts. Let us briefly consider each of them in turn.6 2.1 Workplace democracy

Probably the most important and least contested justification for workers collective action is found in its democratic attributes. The background story is that in most cases, an individual employee needs her employer much more than the other way around; the costs of switching jobs (including the risk of not finding a new job and the loss of job-specific investments) are normally much more significant for the employee, compared with the employers costs of finding a substitute worker. Moreover, the employer normally has much deeper pockets to sustain struggles than the individual employee.7 The employment relationship is thus often characterized by inequality of

The ILO has maintained that unions fulfil three important functions. The first is a democratic function: allowing all those who have work or want to work to have a say in their working life. The second is of course an economic function: helping to find the best possible balance in the production and the distribution of the fruits of growth. The third, which derives from the first two, is a social function: ensuring that all those who would like to work find their place in society; these organizations can certainly help to eradicate poverty, as well as to combat the social exclusion of the most vulnerable, inner-city violence, social tensions and unrest, and indeed be a contributing factor to social stability. (ILO, World Labour Report 1997-98, supra, note 2, at 27). I will not discuss the third function here, at least not directly, for a number of reasons. First, it seems more relevant to unions in general (rather than collective bargaining per se). Second, in some respects, it is more relevant to developing countries (which will not be considered here). Although in the context of advanced economies as well collective bargaining surely played an important part in the maintenance of social order (see, e.g., A. Flanders, Management and Unions: The Theory and Reform of Industrial Relations, London, Faber and Faber, 1970, p. 252), this no longer seems to be a significant aspect today. To the extent that industrial peace is a major goal of collective bargaining, at the beginning of the 21st century it seems to be (at least in advanced economies) more an issue of efficiency than social stability. Finally, as noted by the ILO itself, this function is derived from the other functions, democratic and economic (redistributive). It is interesting to add that while the World Labour Report seemed to ignore the efficiency consequences, in a more recent report the ILO devotes much attention to the potential efficiency gains of collective bargaining (see ILO, Your Voice At Work (2000), Part I (available at www.ilo.org/public/english/standards/decl/publ/reports/index.htm)). Law and economics scholars, in particular, often argue that the only purpose of collective bargaining laws is to cartelize the labour market so that workers can get higher wages, and that this is merely a result of interest group pressure. See, e.g., R. A. Posner, Some Economics of Labor Law, U. Chi. L. Rev., vol. 51, 1984, p. 988. It is worth emphasizing at the outset that the subject of this article is the practice of collective bargaining per se, and the legal rules that allow it. We will not discuss specific methods of action, like the controversial closed shop (in which only union members can be offered employment). The justifications for such methods are separate from those justifying collective bargaining in itself, and will not interest us here. See, e.g., A. Smith, The Wealth of Nations, Harmondsworth, Penguin, 1970, p. 169.

bargaining power.8 This inequality, together with the necessarily incomplete nature of the contract of employment,9 lead to the inability of individual employees to take part in decisions that directly affect their lives; employees are commonly subjected to the control of their employers/managers over different aspects of their work life. Otherwise put, the employment relationship is characterized by democratic deficits.10 By joining forces and acting in concert, workers can rectify this situation, to one extent or another, since the employer can be expected to be much less nonchalant about the prospect of loosing the work of all her employees (even if only for a limited time). A union can also provide some financial backing for a prolonged struggle. By bargaining collectively employees are thus able to gain some bargaining power countervailing power to the power of their employer.11 This does not necessarily mean that both parties to the negotiations possess equal bargaining power,12 but the imbalance of power can be expected to be much less dramatic under a regime of collective bargaining.13 And once the bargaining position of employees is improved, the problem of democratic deficits is also expected to be alleviated. More specifically, collective bargaining has two separate attributes that can be considered democratic. One is its civilizing impact on employment relationships, or the subjection of the employer to a rule of law.14 Collective agreements commonly set rules on how workers should be treated, thus limiting the arbitrariness of being subjected to the complete control of the employer. There are rules on who is entitled to a raise and other benefits (usually based on seniority); how to evaluate and promote employees; why and how to discipline and dismiss; and so on. There are also commonly procedures for arbitration by a neutral third party in case of disagreements. This completely changes the situation of the individual employee, who was previously subject to the whims of his managers, lacking both the contractual right and the bargaining power to challenge arbitrary decisions. Under a collective agreement, management decisions must conform to the rules and procedures set out in the agreement, and accordingly are bound to be less arbitrary. And if they are not, the union will challenge such decisions in the name of the employee before a neutral
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See, e.g., P. Davies and M. Freedland, Kahn-Freunds Labour and the Law, 3rd ed., London, Stevens & Sons, 1983, p. 18. And see, for a discussion of this concept and its critique, G. Davidov, The Reports of My Death are Greatly Exaggerated: Employee as a Viable Legal Concept (unpublished manuscript, on file with author). For a discussion see G. Davidov, The Three Axes of Employment Relationships: A Characterization of Workers in Need of Protection, UTLJ, vol. 52, 2002, p. 357. Ibid. The term countervailing power was coined by John Kenneth Galbraith to describe power that is used to restrain private economic power when competition does not perform this function (and in modern economies, and particularly in labour markets, it rarely does). See J.K. Galbraith, American Capitalism: The Concept of Countervailing Power, Boston, Houghton Mifflin, 1956, chapter 9. See K. Klare, Countervailing Workers Power as a Regulatory Strategy, in H. Collins et al. (eds.), Legal Regulation of the Employment Relation, London, Kluwer, 2000, p. 63, 70. In a sense, by organizing into a collective association employees merely mirror the parallel association of capitalists (shareholders) into the firm; see J.R. Commons and J.B. Andrews, Principles of Labor Legislation, rev. ed., New York, Harper & Brothers, 1927, 99-100, and see the U.S. National Labour Relations Act (1935) 1, 29 U.S.C. 151 (referring to the inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other form of ownership association). See A. Cox, Law and the National Labor Policy, Westport, Greenwood, 1983 [1960], p. 12; Flanders, supra, note 4, at 41-2; P. Weiler, Reconcilable Differences: New Directions in Canadian Labour Law, Toronto, Carswell, 1980, p. 30-31.

arbitrator. Collective bargaining thus ensures that the employer will not be able to do anything it pleases (like a ruler in a dictatorship), but will rather be subject to a rule of law, albeit privately negotiated, at least to some extent and with regard to some decisions. This makes the relationship between the employer and its employees much more democratic. The second democratic attribute of collective bargaining is found in the ability it gives employees to voice their views, concerns and demands, and more generally, to participate to some extent in the self-government of the workplace.15 Acting individually, an employee can only convey her dissatisfaction by exiting (and looking for another job), as most employees have to take it or leave it. Exit, however, is hardly a satisfactory option given the risks of loosing job-specific investments and not finding another job. When organizing collectively, employees have another option to convey dissatisfaction; together, they can voice their concerns without fear of loosing their jobs.16 They can change the way their workplace operates, and the way they are being treated, rather than just quit. The collective voice can be concerned with the smallest day-to-day actions, or with the broader view on the future and management of the firm, or even with the yet broader sphere of society at large.17 Indeed, it is concerned with all of these at the same time. The ability to freely voice concerns is democratically virtuous in itself, but collective action offers more than that. By joining forces and threatening to withhold their services together, employees can force the employer into a framework of (albeit limited) joint government. When the union is strong enough, decisions on some issues are only taken after negotiations, with the final outcome representing a compromise between the interests of shareholders (or managers) and those of the employees. And at least to some extent often more than in the larger political sphere employees actively take part in this process, thus participating directly in making decisions on matters that affect their daily lives, and indeed, exercising some democratic self-government.18 Such participation can be instrumental in educating people to the value of democracy and improving their participation in the larger-sphere democratic process.19 It can also be a necessary bridge for politically active workers into higher democratic institutions.20 But most importantly, self-government in the workplace as elsewhere is intrinsically valuable. Indeed, by giving effect to the value of self-determination, it is the mark of a truly human community.21 The ability to bargain collectively is thus not merely instrumental; it is rather an important component of, as well as a mean towards,
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It is often noted with regard to the American National Labor Relations Act that the democratic objective of collective bargaining was one of its unstated goals when enacted. This goal was explicitly and clearly stated by Senator Wagner. See, e.g., J.B. Atleson, Values and Assumptions in American Labor Law, Amherst, U. of Mass., 1983, p. 41-2. The well-known exit-voice distinction from A.O. Hirschman, Exit, Voice, and Loyalty, Cambridge, Harvard, 1971, has been applied to this context by R.B. Freeman and J.L. Medoff, What Do Unions Do?, New York, Basic Books, 1984, chapter 1. See also P.C. Weiler, Governing the Workplace: The Future of Labour and Employment Law, Cambridge, Harvard, 1990, p. 181. See S. Webb and B. Webb, supra, note 2, chapter IV. See Flanders, supra, note 4, at 42; Weiler, supra, note 14, at 32-3. See K.E. Klare, Workplace Democracy & Market Reconstruction: An Agenda for Legal Reform, Cath. U. L. Rev., vol. 38, 1988, p. 1, 4; M. Crain, Building Solidarity Through Expansion of NLRA Coverage: A Blueprint for Worker Empowerment, Minn. L. Rev., vol. 74, 1990, p. 953, 968. And see P. Levine, The Legitimacy of Labor Unions, Hofstra Lab. & Emp. L.J., vol. 18, 2001, p. 529, 567-8 (arguing that civil society, in the sense of participation in the public sphere, is enhanced as a result of unionization, and citing empirical evidence to that effect). Weiler, supra, note 14, at 33-4. Weiler, supra, note 14, at 33.

human freedom.22 This explains why the right to bargain collectively is increasingly being considered a basic human right.23 The process of collective bargaining has been criticized for (undemocratically) giving more weight to those who have more bargaining power because of their wealth or their specific often accidental work environment.24 Indeed, the voices of large employers, and of some specific groups of better-positioned employees, are more strongly heard. But this is hardly unique to the collective bargaining sphere. It is not a failure of collective bargaining itself, only a failure to correct an injustice that characterizes the democratic process at large. The process of collective bargaining is far from being democratically perfect. But it is nonetheless a clear and significant improvement compared with the system of individual bargaining.25 Critics of collective bargaining further assert that in practice, unions are often undemocratic, detached from the true interests of local employees, and corrupt. There is probably some truth to such accusations unions are not immune to the ills of all large bureaucratic organizations and indeed, different regulatory reforms can and have been suggested to address these concerns. But the prevalence of such problems should not be overstated.26 Overall, the democratic benefits of collective bargaining and certainly the potential democratic benefits far outweigh the pitfalls. 2.2 Redistribution

A second purpose of collective bargaining, one that appears to be straight-forward, is to redistribute power (and as a result resources) from employers to employees. This is based on two background assumptions: that employers usually possess superior bargaining power vis--vis individual employees; and that this power imbalance, and the resulting terms of engagement, are unfair or unjust. While both assumptions are
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B. Langille, Freedom of Association and the Effective Recognition of the Right to Collective Bargaining: A Reflection upon Our Fundamental Commitments (a paper prepared for the ILO, available at www.ilo.org/public/english/standards/decl/publ/papers/index.htm). The right of collective bargaining is embodied in the ILO Constitution (Article III(e) of the Declaration of Philadelphia, which is annexed to the Constitution), as well as in a number of ILO conventions, most importantly the Right to Organize and Collective Bargaining Convention, 1949 (No. 98), Article 4. More recently, it has been included with the core labour standards which have been reaffirmed in the Declaration on Fundamental Principles and Rights at Work (1998) (Article 2(a)) and are understood to be accepted by all ILO members (see there). All documents are available at www.ilo.org. D.M. Beatty, Ideology, Politics and Unionism, in K.P. Swan and K.E. Swinton, Studies in Labour Law, Toronto, Butterworths, 1983, p. 299, at 325 ff. Some may say that this is not enough; indeed, Marxists have vilified the unions (and collective bargaining) for legitimizing management and for failing to challenge the capitalistic system which favours the rich and powerful (see, e.g., R. Hyman, Marxism and the Sociology of Trade Unionism, London, Pluto, 1973, p. 11-25; H.J. Glasbeek, Voluntarism, Liberalism, and Grievance Arbitration: Holy Grail, Romance, and Real Life, in G. England (ed.), Essays in Labour Relations Law, Don Mills, CCH, 1986, p. 57). Whether they are right in demanding revolution rather than reform (see Flanders, supra, note 4, at 38-9) is beyond the scope of this article. It is interesting to add in this context that other critical labour law scholars, while arguing that current collective bargaining jurisprudence serves to reinforce hierarchy and domination (see K.E. Klare, Labor Law as Ideology: Toward a New Historiography of Collective Bargaining Law, Ind. Rel. L.J., vol. 4, 1981, p. 450, 452), nonetheless remain committed to the idea of collective bargaining itself (see Klare, supra, note 19, at 3-4). See Freeman and Medoff, supra, note 16, chapter 14 (concluding, based on empirical evidence, that the American picture of unions as non-democratic institutions run by corrupt labour bosses is a myth).

contested by some,27 they are obviously accepted by legislatures; as a matter of interpretation, both assumptions stand behind any regulation that allows and promotes collective bargaining.28 Without dwelling into a detailed discussion, I will take this redistribution purpose to be valid and desirable at the level of justifications as well, based on values of distributive justice. For a while during the 19th Century, economists believed (and had many others believe) that it is simply impossible to bring about any genuine and permanent rise of wages, since these are set according to the theory of the wage fund, and unions efforts are therefore futile.29 It is now undisputed that through collective bargaining employees can and do achieve better terms and conditions;30 yet it is not at all clear that employers are the ones who pay for this betterment. To some extent, it is possible that unionization increases productivity (see the next section below), and that this increase pays for the higher wages.31 But it is highly doubtful that increased productivity can cover the whole additional cost, so one can assume that employers will shift as much as they can of the additional cost to consumers. In other contexts, such as with minimum wage laws, similar cost-shifting could result in desirable redistribution from many (consumers) to the few employees who are the worst paid. But the situation is radically different with collective bargaining. It is quite possible that the average unionized employee is actually better off than the average consumer, so redistribution from the latter to the former would be unjustified. However, since employers usually have to compete with non-unionized firms, it is doubted whether in practice they can shift much of the additional cost to consumers (if at all). It has also been argued, as with other regulated employment standards, that the betterment in unionized workers terms and conditions, which makes employment more costly for the employer, will result in reduced demand for employees in the unionized sector. Thus, it is argued, the most vulnerable (lowest paid) employees will end up paying for their collective bargaining rights with their jobs. According to this

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On the first assumption, see Davidov, The Reports of My Death, supra, note 8. In some cases this is stated explicitly; see, e.g., the U.S. National Labour Relations Act (1935) 1, 29 U.S.C. 151 (declaring that the Act is intended to redress the inequality of bargaining power). See S. Webb and B. Webb, supra, note 2, at 603. The consensus seems to be that the union/non-union wage differential in North America is 15%; see P. Kuhn, Unions and the Economy: What We Know; What We Should Know, Can. J. of Econ., vol. 31, 1998, p. 1033. See, however, R.B. Freeman and M.M. Kleiner, The Impact of New Unionization on Wages and Working Conditions, J. of Lab. Econ., vol. 8, 1990, p. S8 (finding that the ability of new unions to increase wages decreased significantly during the 1980s, although they were still able to make significant gains in working conditions). On the other hand, see L. Mishel and M. Walters, How Unions Help All Workers, EPI Briefing Paper (Aug. 2003, available at http://epinet.org) (arguing, based on a number of different studies, that during the 1990s American unions have raised wages by roughly 20% and total compensation (i.e. including benefits) by about 28%). The wage differential is usually smaller in other parts of the world, but still significant (see R.B. Freeman, American Exceptionalism in the Labor Market: UnionNonunion Differentials in the United States and Other Countries, in C. Kerr and P.D. Staudohar (eds.), Labor Economics and Industrial Relations: Markets and Institutions, Cambridge, Harvard, 1994, p. 272). Indeed, collective bargaining does not have to be a zero-sum game; it can be beneficial for both parties. See R.E. Walton and R.B. McKersie, A Behavioral Theory of Labor Negotiations, New York, McGraw-Hill, 1965 (distinguishing between distributive and integrative bargaining), and see R.N. Block, Rethinking the National Labor Relations Act and Zero-Sum Labor Law: An Industrial Relations View, Berk. J. of Emp. & Lab. L., vol. 18, 1997, p. 30.

theory, workers released from the unionized sector will then look for work in nonunionized firms, creating a larger supply of workers and bringing down wages there.32 To a large extent, then, the desirability of collective bargaining in terms of redistribution depends on the empirical verdict as to who exactly pays for the higher union wages. Is it, for the most part, employers (i.e. shareholders), consumers (i.e. the public at large), or rather the lowest-paid and non-unionized workers? The evidence suggests that unionization markedly reduces firms profits,33 so redistribution from employers to employees certainly occurs. On the other hand, there appears to be no convincing evidence that unionization reduces employment.34 This can be explained by the fact that collective agreements do much more than set wages; unions also do their best to preserve jobs, whether directly (by insisting on employment levels and layoff policies) or indirectly (various other terms and conditions constrain the firms employment level).35 It can also be explained by the fact that unions are just as rational as employers, and will usually stop short of demanding raises that will end up hurting their own members.36 Indeed, there is evidence that unionization does not come with a decrease in the wages of non-union workers (which one would expect if indeed there are job losses in unionized firms); on the contrary, unionization triggers a voluntary increase in wages at non-unionized firms, as part of their efforts to counter the threat of unionization.37 Overall, then, while one should not belittle the potential impact on consumers and non-unionized workers, for the most part by joining forces workers appear to better their lot at the expense of the employers profits.38 Another important issue that should be examined in this context concerns the impact of collective bargaining on wage inequalities. Within the unionized firm itself, collective bargaining is credited for reducing inequalities by creating pay policies that limit managerial discretion.39 Thus, by forming determinate policies and taking some
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See, e.g., M. Friedman and R. Friedman, Free to Choose: A Personal Statement, New York, Harcourt Brace Jovanovich, 1980, p. 233-4; R.A. Posner, Economic Analysis of Law, 5th ed., New York, Aspen, 1998, p. 350-1. For summaries, see Freeman and Medoff, supra, note 16, chapter 12; Freeman, supra, note 30; Kuhn, supra, note 30. Freeman and Medoff, supra, note 16, at 120; Kuhn, supra, note 30, at 1044 (while it seems plausible and, indeed, even likely that unions reduce labour input to firms along certain dimensions (such as weekly hours, and annual weeks worked per employee), I have seen no convincing evidence that they reduce employment levels in affected firms.); J. Pencavel, Labor Markets under Trade Unionism: Employment, Wages, and Hours, Cambridge, Blackwell, 1991, p. 44 (at the moment, the evidence regarding the effect of unionism on employment is not only meager, but also quite inconclusive.); W.M. Boal and J. Pencavel, The Effects of Labor Unions on Employment, Wages and Days of Operation: Coal Mining in West Virginia, Q. J. of Econ., vol. 109, 1994, p. 267 (examining the impact of unionism on the coal mining industry in West Virginia between 1897 and 1938 a period in which union density rose from zero to 56%, dropped back to zero and then rose to complete coverage and finding only a negligible impact on the level of employment). Kuhn, supra, note 30. See in this regard Galbraith, supra, note 11, at 115 (arguing that, as a general rule, one finds the strongest unions where markets are served by strong corporations and there are rewards that can be shared). See, e.g., G. Corneo and C. Lucifora, Wage Formation under Union Threat Effects: Theory and Empirical Evidence, Lab. Econ., vol. 4, 1997, p. 265 (finding empirical support for the threat effect theory; the effectiveness of the threat is shown to be correlated to local union density). See D. Belman, Unions, The Quality of Labor Relations, and Firm Performance, in L. Mishel and P.B. Voos (eds.), Unions and Economic Competitiveness, Armonk, M.E. Sharpe, 1992, p. 41; K.G. Dau-Schmidt, A Bargaining Analysis of American Labor Law and the Search for Bargaining Equity and Industrial Peace, Mich. L. Rev., vol. 91, 1992, p. 419. Freeman and Medoff, supra, note 16, chapter 5.

subjectivity out of the process of wage determination, collective bargaining decreases pay differences that are often unjustified.40 It has further been shown that through collective bargaining, unions are able to achieve some standardization of wages lower wage differentials across firms within the same industry.41 On the other hand, collective bargaining has an opposite impact on wage inequalities between unionized and non-unionized workers. This is obviously the case if collective bargaining causes the involuntary shift of workers from the unionized to the non-unionized sector, which brings down wages in the latter. But even if, as suggested above, unions have a positive effect on wages in non-unionized firms, workers in non-unionized firms will usually enjoy a smaller average increase. And since higher-paid workers are generally better positioned to unionize, wage inequalities can be expected to increase.42 Furthermore, through collective bargaining, those who are better positioned (because of their wealth or the work environment) are able to get more than others; teachers, for example, have always been able to get more from collective bargaining than retail workers. This can also exacerbate existing inequalities, between different unionized sectors.43 The final verdict concerning the impact of unions (and collective bargaining) on inequality will thus depend on empirical estimates as to the relative weight of inequality-reducing versus inequality-increasing effects. In their 1984 influential book, Richard Freeman and James Medoff estimated that the reduction in inequality far outweighed the increase.44 This has been corroborated by more recent studies; it has been shown that the fall in unionization rates in the U.S. accounts for some of the rise in wage inequalities in recent years.45 There is also some evidence although not unequivocal that unions have the effect of reducing wage inequalities based on race and gender.46 All this certainly serves to alleviate the fear that collective bargaining
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While reducing inequalities that are based on irrelevant differences (such as sex or race) and are thus completely unjustified, collective agreements can also be expected to reduce differences in pay between more productive and less productive employees. The justifiability of better pay based on merit may be contested, but there is no doubt that more effort justifies higher wages. In this sense, the lessening of wage differences by collective bargaining may be both inequitable and inefficient. However, it is doubted that this is a major problem, especially since collective agreements often include variations in pay for productivity-related reasons (e.g. bonuses). Freeman and Medoff, supra, note 16, chapter 5; T. Lemieux, Unions and Wage Inequality in Canada and the United States, in D. Card and R.B. Freeman, Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, Chicago, University of Chicago, 1993, p. 69. See M. Friedman, Capitalism and Freedom, Chicago, University of Chicago, 1962, p. 124; Beatty, supra, note 24. See Beatty, supra, note 24. Freeman and Medoff found that unionism reduces inequalities between white-collar and blue-collar workers, since union wage gains accrue primarily to blue-collar workers in the United States (supra, note 16, at 89). But since the service sector is continuously growing relative to manufacturing, and since union membership has, generally speaking, grown in the public sector while dropping in manufacturing, the relevance of this estimate for today is doubtful. Freeman and Medoff, supra, note 16, at 90-3 (concluding that, overall, trade unionism in the U.S. reduces wage inequality by around 3 percent. For the reasons mentioned in the previous note, among others, such an estimate is necessarily limited to a specific time and place). This is especially true for men, since among women unionization rates declined for low-waged workers but increased for higher-waged ones. Significantly, a US comparison between the private sector (where unionization declined) and the public sector (where it rose) showed that unionization substantially slowed the growth in wage inequality in the latter. See D. Card, The Effect of Unions on Wage Inequality in the U.S. Labor Market, ILRR, vol. 54, 2001, p. 296. Re race, see Freeman and Medoff, supra, note 16, at 49-50. Re gender, see A.F.M. Shamsuddin, The Effect of Unionization on the Gender Earnings Gap in Canada: 1971-1981, Applied Econ.,

has the perverse effect of increasing inequalities. Overall, the process of collective bargaining appears to be a reasonable (though certainly not perfect) redistributive process. 2.3 Efficiency

Perhaps the most complicated question regarding the justifications for collective bargaining concerns its impact on economic efficiency. At the most basic level, laws promoting collective bargaining were designed to limit industrial conflict, which was obviously seen as detrimental to efficiency.47 But the actual impact of unions (or collective bargaining) in terms of economic efficiency is highly controversial. In terms of allocative efficiency, standard neo-classical analysis suggests that collective bargaining wage effects cause misallocation of resources, since they bring down the number of workers employed and the quantity of goods produced in the unionized sector from their (efficient) market levels.48 However, as already noted, in practice unionization does not appear to reduce employment. And in any case, even if such inefficiencies exist, they are estimated to be rather trivial in magnitude.49 Much more significant is the impact of collective bargaining on productivity. Here one can expect to see competing forces. On the one hand, the reward for effort (and so presumably, motivation) is reduced; and restrictive work rules may limit managements ability to utilize the workforce in the most efficient way. On the other hand, under a collective agreement regime, turnover rates are lower, since voice is used instead of exit;50 more information is expected to flow between workers and from workers to management (information which without job security workers may prefer to withhold51); morale (and so presumably motivation) is often higher; firmspecific investments are increased, since there is less risk of loosing them;52 and management, induced by the higher costs to reduce prior inefficiencies, is expected to be more rational and professional (the shock effect). To be sure, lower turnover, higher information flows and increased firm-specific investments can result, to some extent, from job security even when voluntarily instituted (i.e. without the presence of unions). But this is rarely offered, especially in the age of the New Economy.53
vol. 28, 1996, p. 1405; M.M. Elvira and I. Saporta, How Does Collective Bargaining Affect the Gender Gap?, Work and Occupations, vol. 28, 2001, p. 469. See, e.g., the U.S. National Labor Relations Act 1, 29 U.S.C. 151 (the refusal by some employers to accept the procedure of collective bargaining lead to strikes and other forms of industrial strife and unrest, which impar[e] the efficiency of commerce). See B.T. Hirsch and J.T. Addison, The Economic Analysis of Unions: New Approaches and Evidence, Boston, Allen & Unwin, 1986, p. 181. R.H. DeFina, Unions, Relative Wages, and Economic Efficiency, J. of Lab. Econ., vol. 1, 1983, p. 408. Freeman and Medoff, supra, note 16, chapter 6. For example, it is speculated that without some job security, senior workers may not willingly train juniors if their jobs are threatened, and workers in general will not provide information to management about labour-saving innovations. See O.E. Williamson, The Economic Institutions of Capitalism, New York, Free Press, 1985, p. 255. A common mistake of lawyer-economists is to equate what is with what is efficient; in the current context, Richard Posner has argued that if job security is not offered, it must be inefficient, and more generally, if unions enhance productivity they should be growing, and so the decline of the unionized sector tells us that they do not (supra, note 32, at 357). This argument, however, is circular; it assumes that the market currently works perfectly (efficiently) to prove that current market structures/choices are efficient. The fact is, there are various market failures that cause

47

48 49 50 51

52 53

10

The empirical evidence suggests that the positive effects of unionization on productivity are stronger.54 Understandably, though, the potential for increased productivity does not materialize when the parties adopt a particularly adversarial stance.55 Indeed, it is the state of labor relations, rather than unionization and collective bargaining per se, [that] determines productivity.56 The impact is also smaller, or even negative, when there are no competitive pressures to improve productivity (as in the public sector).57 Not less important is the impact of collective bargaining on productivity growth, which is considered to ultimately determine the increase in a societys standard of living. Since collective bargaining results in lower profits for the firms, this can be expected to lower investment in unionized firms, including investment in research and development, which in turn can lower productivity growth. Lower productivity growth can also be expected if unions oppose technological change. On the other hand, investment can simply be shifted to a non-unionized environment rather than be lowered overall; and higher union wages may induce management to look for new (labour-saving) technologies. The empirical evidence on these conflicting hypotheses is relatively scarce and far from conclusive. It appears that unions do not generally hinder technological change.58 There is evidence that unionization reduces investment in research and development (in the specific firm) in the U.S. and Canada,59 but not in the U.K.60 Richard Freeman concluded a number of years ago that productivity growth is slower in unionized settings, but only to a modestly and statistically insignificant degree.61 This seems to be a reasonable summary even after taking into account the more recent studies. A related concern is whether firms invest the optimal amount of resources in workers training. The importance of such training transcends the particular firms
firms objections to unions, most obviously the reluctance of managers to relinquish some of their unilateral powers, even when such a step is efficient. Moreover, Posner appears to equate profitability with efficiency, but in fact, job security may not be voluntarily introduced because it reduces profits (i.e. changes the distribution between workers and shareholders), but it can still be efficient overall. For summaries, see Freeman and Medoff, supra, note 16, chapter 11; Kuhn, supra, note 30. And see K.B. Clark, The Impact of Unionization on Productivity: A Case Study, ILRR, vol. 33, 1980, p. 451 (finding productivity gains of 6-8% in the cement industry in the U.S. as a result of unionization). Freeman and Medoff, supra, note 16, chapter 11; Kuhn, supra, note 30. Freeman, supra, note 30, at 291 (summarizing the research in different countries). On the importance of competition to increased productivity see Freeman and Medoff, supra, note 16, at 179. With regard to the public sector, Hirsch and Addison, supra, note 49, report in their review of the studies that in almost no case is there evidence of a positive union productivity differential (at 200). And at least one recent study found a negative effect in the public sector (C.M. Hoxby, How Teachers Unions Affect Education Production, Q. J. of Econ., vol. 111, 1996, p. 671). Note, however, that public sector productivity is more difficult to measure. Thus, for example, the negative effect found by Hoxby on the productivity of teachers was based on subsequent high school dropout rates. It is virtually impossible to control for the numerous other factors that influence the dropout rates in such a study. See J.H. Keefe, Do Unions Hinder Technological Change?, in Mishel and Voos, supra, note 38, 109. But see B.T. Hirsch and A.N. Link, Labor Union Effects on Innovative Activity, J. of Lab. Research, vol. 8, 1987, p. 323. See B.T. Hirsch, Firm Investment Behavior and Collective Bargaining Strategy, IR, vol. 31, 1992, p. 95; J.R. Betts et al., The Effects of Unions on Research and Development: An Empirical Analysis Using Multi-Year Data, Can. J. Econ., vol. 34, 2001, p. 785. See N. Menezes-Filho et al., R&D and Unionism: Comparative Evidence from British Companies and Establishments, ILRR, vol. 52, 1998, p. 45. Freeman, supra, note 30, at 292.

54

55 56 57

58

59

60 61

11

productivity considerations; it is directly related to the competitiveness, adaptability and growth of the economy as a whole, especially in the New Economy which puts more emphasis on knowledge and skills.62 Absent unionization, firms may underinvest in training because they fear loosing their investment as a result of quits. By reducing quits, collective bargaining can bring the investment in training closer to what is socially optimal.63 There are other efficiency attributes that should be considered. The process of collective bargaining can reduce transaction costs (the costs of bargaining).64 It can also improve the administration and enforcement of workers rights, since unions are often much more capable of enforcing such rights even legislated rights than labour inspectors or the courts. Not less important, collective bargaining can correct a number of market failures that impinge on overall efficiency, even when this is not (at least not necessarily) captured by workers productivity. First, many aspects of the work setting are public goods, which will be under-produced because of collective action (or free-riding) problems. Whether it is safety conditions, lighting, heating, grievance procedures, pension plans or other policies, once the good is in place everyone can enjoy it, but no individual employee will be willing to pay for it, or even invest the time in fighting for it, by herself. By acting together they can choose what is in fact rational for all of them.65 Second, by bargaining collectively workers can share information, which should help them overcome barriers to informed bargaining.66 Indeed, to this end, unions can both serve as a source of information regarding employee needs and preferences (with respect, for example, to fringe benefits) and assist employees in evaluating complex wage and benefits offers.67 Third, union representation can limit occurrences of workers short-sightedness (as a result of bounded rationality) that might produce outcomes that are not in the workers long-term interest.68 Fourth, management will be restricted by the collective agreement from some inefficient actions, whether it is discrimination between workers, arbitrary and capricious behavior by foremen,69 or opportunistic decisions such as firing senior workers just before they become eligible for pension rights. Indeed, economic theorists of all persuasions have increasingly recognized that unions ability to enforce labor agreements, particularly those with deferred claims, creates the possibility for improved labour contracts and arrangements and higher economic efficiency.70 To some extent collective bargaining can also correct externalities, that is, minimize the problem of wage setting policies (and other management decisions) that ignore their effect on others.71 Finally, unions make sure
62

63 64 65 66 67 68 69 70 71

Since I mentioned competitiveness, I should note that the simplistic assumption that unions equal rigidity which equals competitive disadvantage has been exposed as baseless. See, e.g., the different contributions in Mishel and Voos, supra, note 38. See A.L. Booth and M. Chatterji, Unions and Efficient Training, Econ. J., vol. 108, 1998, p. 328. Williamson, supra, note 52, at 255. See C.R. Sunstein, After the Rights Revolution: Reconceiving the Regulatory State, Cambridge, Harvard, 1990, p. 49-51. C.R. Sunstein, Human Behavior and the Law of Work, Virginia L. Rev., vol. 87, 2001, p. 205, 210. Williamson, supra, note 52, at 254. This was recognized already by J.S. Mill, Principles of Political Economy, New York, Augustus M. Kelley, 1961 [1848], p. 937. Sunstein, supra, note 66, at 210. Williamson, supra, note 52, at 256. Freeman and Medoff, supra, note 16, at 11. And see Williamson, supra, note 52, at 255. See J. Stiglitz, Democratic Development as the Fruits of Labor (Keynote Address, Industrial Relations Research Association, Boston, January 2000) (available at www.irra.uiuc.edu).

12

that the preferences of all workers are considered, including older workers who are more tied to the firm. Without the existence of a union, firms signals and incentives are based only on the preferences of the marginal worker, the one who might leave because of (or be attracted by) small changes in the conditions of employment.72 There is thus ample theory and evidence to suggest that the process of collective bargaining can improve efficiency. At the very least, the discussion so far seems enough to refute the once-common claim that unions (and collective bargaining) significantly impair efficiency. To sum up, then, we have seen that collective bargaining is most strongly justified in terms of democracy, but can also serve to achieve (even if not without some complications) progressive redistribution and economic efficiency. Before we make inferences on what kind of workers should be able to enjoy collective bargaining, we must review the purposes of the opposite legal regime. To this we now turn. 3. THE GOALS AND LIMITS OF COMPETITION LAWS

Competition is considered the essence of free markets. To be sure, perfect competition, which assumes perfect information and rationality and no barriers to exit or entry, never exists; it is not clear that competition is necessarily efficient, given the advantages of economies of scale;73 and one may doubt whether the whole notion of striving for dominance is ethically sound.74 Nonetheless, capitalist societies are undoubtedly built on the premise that competition is (generally speaking) desirable, and this shall be our starting point as well. Somewhat paradoxically, markets have to be regulated in order to be more free free from the abuse of power and otherwise unfair practices of some that limit the freedom of others (in this case, the freedom to compete). The broad objective of competition laws, then, is to protect competition by preventing business practices that adversely interfere with the competitive process. It is widely agreed, however, that this process is protected not for competitions own sake but to achieve other objectives.75 One commonly agreed objective is the achievement of allocative efficiency: the invisible hand of a competitive market will presumably guide societys resources in the optimal way, so competition is expected to yield the best allocation of resources (in accordance with consumers choice), the lowest prices and the highest quality of products and services.76 But herein the consensus ends. There are those who believe efficiency to be the sole object (or the sole appropriate object) of competition laws, and argue among themselves on what kind of efficiency should be promoted other than allocative and whether antitrust laws indeed promote efficiency or not.77 Many describe the goal as consumer welfare, but while some
72 73 74 75 76 77

Freeman and Medoff, supra, note 16, at 9-10. Particularly in small markets; see M.S. Gal, Competition Policy for Small Market Economies, Cambridge, Harvard UP, 2003. See R. Whish, Competition Law, 4th ed., London, Butterworths, 2001, chapter 1 for a brief review of the arguments. See The World Bank and OECD, A Framework for the Design and Implementation of Competition Law and Policy, 1999, p. 4. The term allocative efficiency refers to the most efficient placement of resources. Productive efficiency is understood as the effective use of these resources to create maximum wealth. For the negative view see R.H. Bork, The Antitrust Paradox: A Policy at War with Itself, New York, Basic Books, 1978. For a glimpse at the debate see E.M. Fox and J.T. Halverson (eds.),

13

understand this simply as dictating non-restriction of output, for others it is a combination of allocative and productive efficiency,78 and yet others put their emphasis on the maximum possible opening of markets (which justifies much broader antitrust restrictions), arguing that diversity of sources of goods and services also serve consumers welfare.79 This last approach is sceptical of the efficiency generated from firms independent decisions, relying instead on the process of competition itself on the existence of numerous competitors in a state of rivalry to maximize consumer welfare.80 Part of the debate concerning the efficiency of antitrust laws has been on whether innovation is more likely in a competitive market or not. In the age of the New Economy, the subject of innovation has moved to the forefront, at least rhetorically.81 Innovation is considered an aspect of efficiency ("dynamic efficiency"), but the argument in favour of innovation goes beyond it as well; it speaks for the potential for progress more broadly. Nonetheless, while innovation is considered by some to be a major goal of competition laws,82 it is not at all clear whether cooperation between potential competitors is harmful or desirable in this respect. The conventional assumption maintains that competitive rivalry is conductive to innovation, but it has also been persuasively argued that cooperation between competitors sometimes improves, and creates better incentives for, innovation.83 It has been mentioned that a broad understanding of consumer welfare includes the diversity of sources, which supports the existence of a large number of (necessarily small) businesses.84 But the argument in favour of small businesses, like the argument in favour of innovation, can also be understood quite apart from its efficiency attributes. At least some scholars believe that competition laws are (and should be) designed to protect and promote pluralism, economic independence, decentralization of economic decision-making and generally the dispersal of power, all epitomized (in this context) in the continued existence of numerous small businesses.85 On this view, economic freedom and competition are sources not only of prosperity but also of political freedom. The protection of the little guy (and his

78 79 80 81

82 83

84 85

Industrial Concentration and the Market System, ABA, 1979; J.C. High and W.E. Gable (eds.), A Century of the Sherman Act, Fairfax, George Mason, 1992. See Bork, supra, note 77, chapter 4. See G. Amato, Antitrust and the Bounds of Power: The Dilemma of Liberal Democracy in the History of the Market, Oxford, Hart, 1997, p. 110. See E.M. Fox, The Modernization of Antitrust: A New Equilibrium, Cornell L. Rev., vol. 66, 1981, p. 1140. See R.J.R. Peritz, Competition Policy in America, rev. ed., New York, Oxford UP, 2000, p. 305 ff. The Microsoft trial, for example, appeared in public largely as a fight between the Governments argument that Microsofts practices obstructed innovations of other firms and Microsofts argument that the Government infringed on its freedom to innovate. See T.M. Jorde and D.J. Teece, Introduction, in T.M. Jorde and D.J. Teece (eds.), Antitrust, Innovation, and Competitiveness, New York, Oxford UP, 1992, p. 3. See T.M. Jorde and D.J. Teece, Innovation, Cooperation, and Antitrust, in Jorde and Teece, ibid., at 47; S. Deakin, T. Goodwin and A. Hughes, Co-operation and Trust in Inter-Firm Relations: Beyond Competition Policy?, in S. Deakin and J. Michie, Contracts, Co-operation, and Competition, Oxford, Oxford UP, 1997, p. 339, 358-9. Admittedly, in small market economies too much diversity could be inefficient, if no competitor is large enough to enjoy the advantages of economies of scale. See Gal, supra, note 73. See, e.g., Fox, supra, note 80.

14

small business) is thus considered desirable both on egalitarian grounds and on a certain notion of democracy.86 More generally yet, concentration of power and resources in the hands of the few is considered a threat to individual freedoms, and indeed, to the very notion of democracy. Even apart from the value of small businesses, competition laws can thus be seen as an attempt to protect democracy from the abuse of private economic power.87 Finally, but not less important, it has been suggested that antitrust laws have a distributive goal, namely to prevent unfair acquisitions of consumers wealth by firms with market power.88 While this formulation is far from common, the basic idea of protecting consumers (and not necessarily efficiency) is shared by many others. In the U.S., all these considerations were influential in the past,89 but have lost some ground in recent years in favour of a stricter pro-efficiency approach under the influence of the Chicago School.90 In Europe, protecting economic freedom is still considered (at least implicitly) one of the goals of competition law;91 the small business has even been dubbed the darling of the European Communities Commission.92 The need to restrain private economic (and hence political) power for democratic reasons has also been prominent, especially in Germany.93 To be sure, in Europe as well, voices expressing such concerns have weakened in recent years, but unlike the developments in the U.S., economic efficiency is far from being an exclusive goal. A multiplicity of goals all those mentioned above and some others have all played a part in European competition law.94 This brief outline of the goals of competition laws serves to highlight their limits as well. The competitive process is valued and protected, but not in every case and not to every extent. Indeed, concentrations, as well as agreements between businesses, are not prohibited per se, even if they clearly interfere with the competitive process. Rather, they are limited by competition laws (broadly
86

87 88 89

90

91 92 93 94

As Justice Brandeis once put it, there is a widespread belief that only by releasing from corporate control the faculties of the unknown many, only be reopening for them the opportunities for leadership, can confidence in our future be restored only through participation by the many in the responsibilities and determinations of business, can Americans secure the moral and intellectual development which is essential to the maintenance of liberty. (Louis K. Liggett Co. v. Lee, 288 U.S. 517, 580 (1932) (Brandeis J., dissenting)). See Fox, supra, note 80; D. Millon, The Sherman Act and the Balance of Power, S. Cal. L. Rev., vol. 61, 1988, p. 1219. R.H. Lande, Wealth Transfers as the Original and Primary Cocnern of Antitrust: The Efficiency Interpretation Challenged, Hastings L.J., vol. 34, 1982, p. 67. See, e.g., United States v. Trans Missouri Freight Association, 166 U.S. 290, 324 (1897); United States v. Aluminum Co. of American (Aloca), 148 F.2d 416, 428-9 (2d. Cir. 1945); Brown Show Co. v. United States, 370 U.S. 294, 344 (1962). Exemplified by Bork, supra, note 76. The U.S. Supreme Court has accordingly narrowed the scope of per se antitrust violations and instructed courts to examine the actual impact on competition, in terms of economic efficiency, in an increasing number of cases. See Continental T.V. Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977); California Dental Association v. Federal Trade Commission, 526 U.S. 756 (1999). See also the Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (issued Apr. 1992, revised Apr. 1997) and Antitrust Guidelines for Collaborations Among Competitors (issued Apr. 2000) (both available at www.usdoj.gov), which concentrate solely on economic efficiency. David J. Gerber, Law and Competition in Twentieth Century Europe, Oxford, Clarendon, 1998, p. 418. Whish, supra, note 74, at 14. Gerber, supra, note 91, at 418. Ibid., at 418-420.

15

understood) only to the extent that they are inefficient, limit innovation, infringe upon individual freedoms or the democratic process, or unfairly distribute resources from consumers to firms. 4. EMPLOYEE COMPETITION
AND THE

LINE

BETWEEN

COLLECTIVE ACTION

AND

The discussion so far reveals an interesting correlation albeit with differences in emphasis between the purposes of collective bargaining laws and competition laws. Democracy is a primary concern of the former but is also a concern of the latter. Efficiency is at the heart of competition laws but it can also be seen as one of the goals of collective bargaining. Distributive concerns are stronger in laws that promote collective bargaining, but arguably can be found in competition policies as well. This requires us to move from the general to the specific: we have to look at a given situation to assess which of the conflicting policies can better promote these mutual goals. The scenario that interests us here is that of seemingly independent workers who perform more or less the same service for a specific client/employer. Take for example a group of truck owner-operators working for a car-manufacturing firm doing transporting jobs. Should they be allowed to bargain collectively vis--vis this firm? A simple intuitive answer is that if they suffer from inequality of bargaining power, collective bargaining can alleviate this problem and prevent (to some extent) unfair results. But this cannot be the solution. While inequality of bargaining power is, as we have seen, the background fact for both the democratic and redistributive justifications, it is not a justification in itself. The capitalistic system is full of unequal relations and allows them to some extent. It is only when the inequality reaches a certain level, or produces certain outcomes, or manifests itself in certain ways, that it is considered unfair or illegitimate. In itself, inequality of bargaining power is thus much too broad as a measure. It includes any situation in which a firm has more power to determine the price than its clients, customers or suppliers, whether because of market failures or the current allocation of resources.95 This includes almost every transaction in the market. If we do not accept inequality of bargaining power per se, we do not accept the market ordering, and while possible of course, this would be at odds with the basic tenets of both collective bargaining and competition laws. Other than being too broad, inequality of bargaining power is also too vague a criterion to determine the line between employees and independent contractors. It would be practically impossible to measure or assess the relative bargaining power of the parties. Much more sensible is to look for more observable characteristics of the relationship that put the justifications into play. Let us examine, then, what conclusions can be drawn from each of the three justifications for collective bargaining, while taking into consideration the parallel purposes of competition laws. In terms of the democratic justification, a useful question is whether the worker suffers from democratic deficits in her relationship with the employer/client. Most obviously, democratic deficits are apparent when the worker is subject to the direct control/subordination of the employer, unable to influence decisions that directly affect her life. But democratic deficits can exist when there is indirect and

95

See Davidov, The Report of My Death, supra, note 8.

16

obscure control/subordination as well.96 Either way, when such deficits are present, there is a clear case for collective action in terms of the democratic justification. And the goals of competition laws do not appear to conflict with this conclusion. This is not a case of dangerous economic concentration, in the sense that too much economic and political power will be held in the hands of the few, threatening the democratic process or the viability of small businesses. Quite the contrary; concentration in such cases is necessary to countervail the power of the employer/client. It is without concentration that the viability of the (seemingly) independent workers is threatened, and so are, in some cases, our basic democratic principles. So individual freedoms and the democratic process will only be enhanced from cooperation between potential competitors in this case. Admittedly, it is not always easy to recognize democratic deficits, and even when it is, there is no clear dichotomy between perfectly democratic and nondemocratic relations. There is rather an endless spectrum of possibilities, and courts will have to decide not only that there are democratic deficits, but also that these are significant enough to warrant collective action. But while undoubtedly difficult, this task is certainly possible. There is an obvious difference between the average employee and the average firm/independent contractor in terms of their ability to control their own work. For the employee, the situation can be rectified by collective bargaining. In borderline cases, a court will just have to assess where the worker is on this spectrum, and whether her situation warrants collective action. And with the help of various indicia to recognize democratic deficits,97 I believe that the number of difficult cases will remain quite minimal. Moving to the redistributive purpose of collective bargaining, how can we characterize the workers that should be allowed to bargain collectively in terms of this justification? The discussion above suggests two general conditions. First, the workers must be in a disadvantaged position vis--vis their client/employer (in terms of power/resources). And second, collective action must result in redistribution from the client/employer (for the most part) and not from consumers or more vulnerable employees. Two useful characterizations that capture the first condition are democratic deficits (again) and economic dependency. The existence of democratic deficits not only supports the democratic justification, it also suggests imbalance of power that calls the redistributive goal into play. The existence of economic dependency, in the sense of (asymmetrical) inability to spread risks,98 similarly suggests that the worker is in a disadvantaged position in terms of both power and resources. Redistribution in favour of workers can thus be justified when the relationship is characterized by either democratic deficits or economic dependency. There is still the question of the second condition. In the case of traditional employees, we have seen that those who pay for the higher union wages are for the most part the employers, out of their profits. Will this be the case with seemingly independent workers like the truck owner-operators as well? There is no reason to believe otherwise. As long as they are in a disadvantaged position individually, in terms of democratic deficits and/or economic dependency, one can assume that the employer/client is using his advantage to enjoy higher profits. Collective bargaining can be expected to improve the workers bargaining position (thus changing the
96 97 98

See Davidov, The Three Axes, supra, note 9. Ibid. See ibid.

17

distribution of wealth), not to put the employer/client out of business or to trigger significant price rises or reductions in employment levels. Indeed, like with traditional employees, collective bargaining by our owner-operators can be expected to have a role in reducing inequalities as well.99 Once again, the conclusions derived from the justifications for collective bargaining do not in fact conflict with the parallel goals of competition laws. As we have seen, the latter are concerned with protecting consumers, in particular from unfair takings of resources by firms with market power. The concentration of power among weakly positioned workers is intended to countervail the power of others, thus restraining (rather than intensifying) the problem of market power. This will not help consumers, since the workers are expected to capture all the gains themselves. But it is not expected to harm consumers either. This brings us to the final justification, that of efficiency. Obviously the situation is more complicated here. We have seen that collective bargaining can be efficient, but this is fiercely contested. And on the other hand, efficiency is considered a major goal of competition laws. Let us examine, then, how the different considerations discussed above relate to our truck owner-operators, who are seemingly independent, but let us assume, have a relationship with the client that is characterized, to one extent or another, by democratic deficits and/or economic dependency. We have seen that the impact of collective bargaining on allocative efficiency is expected to be minimal (if at all). As for productivity, with regard to traditional employees we have seen that one can expect to see, on the one hand, reduced motivation (because there is less reward for individual effort) and reduced ability of management to utilize the workforce efficiently (because of restrictive work rules). On the other hand, collective bargaining brings with it lower turnover rates; better information flow (between workers and from workers to management); higher morale (and so presumably, motivation); increased firm-specific investments; and more rational and professional management (assuming that management is induced by the higher costs to reduce prior inefficiencies). All these effects, both positive and negative, will be much less pronounced with regard to more independent workers, even if they suffer from democratic deficits and economic dependency, since they have less contact with management and other workers, and presumably management interferes less with their work. Indeed, the more the workers are independent and detached from the direct control of management, the less collective bargaining will have an impact on their productivity. But to the extent that the above-mentioned effects will still be at play, there is no reason to expect the results to be any different than for traditional employees. Hence, the impact of collective bargaining on the productivity of seemingly independent workers can be expected to be much less significant, but if at all similar to that of traditional employees, i.e. more positive than negative. The same appears to be true with regard to productivity growth, the
99

To be sure, one can expect inequalities between the seemingly independent workers and traditional employees, to the extent that there are any in favour of the former, to increase, just like the inequalities between the unionized and non-unionized sectors (or between the betterpositioned and the less-powerful unionized employees). But first, it is not at all clear that such inequalities exist; many who are now considered independent contractors in fact earn less than comparable employees (see OECD, Employment Outlook, 2000, chapter 5 (The Partial Renaissance of Self-Employment)). And second, any inequality-increasing effects will be outweighed by the reductions in inequalities among the workers who will now bargain collectively and between comparable workers across firms.

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investment in training, the saving of transaction costs and the correction of market failures. Overall, there seem to be little risk of inefficiency as a result of cooperation among workers that are disadvantaged in their relationship with a specific employer/client, whether in terms of democratic deficits or economic dependency. Quite the contrary; if at all, efficiency is expected to improve, as is the case with traditional employees who share the same characteristics. The considerations behind competition laws will thus not be jeopardized. 5. CONCLUSIONS

While most legal systems around the world still maintain a dichotomy between two categories employees and independent contractors a growing number of systems now offer a third, intermediate category. In Ontario, for example, as in most other Canadian provinces, this is the category of the dependent contractor.100 Such a third category is intermediate in two respects. First, it captures workers with characteristics that are somewhere in between the paradigmatic employee and independent contractor. And second, it brings one into the realm of protection only for particular purposes, usually collective bargaining. Thus, dependent contractors in Ontario can bargain collectively like employees, but they do not enjoy any other legal protections. And the situation is quite similar in other legal systems featuring a third category.101 The main characteristic of workers in this category, as set out by legislation in Ontario (and, whether explicitly or implicitly, elsewhere as well) is economic dependency. In some jurisdictions, a certain level of control/subordination is still required,102 but in others (such as Germany) the existence of economic dependency is sufficient.103 In these countries the right to bargain collectively is not limited to workers who are subordinated to their employer, but is rather enjoyed by all economically dependent workers as well. A review of the fundamental purposes of indeed, justifications for laws allowing or encouraging collective bargaining, on the one hand, and laws protecting competition on the other, provides a strong justification for this policy. Collective bargaining can be good for democracy, progressive redistribution and efficiency, and this is true for every worker who is in a position of economic dependency on a specific employer. In this context, the best understanding of economic dependency is by reference to the inability to spread risks. It has further been shown that the same considerations warrant the extension of collective bargaining rights to all workers who suffer democratic deficits in their relationship with a specific employer. Together, these two criteria provide a useful test for determining the line between employees (or, if one prefers, dependent contractors) and independent contractors.

100

101 102 103

Ontario Labour Relations Act, S.O. 1995, c. 1, Sch. A, 1(1). And see B.A. Langille and G. Davidov, Beyond Employees and Independent Contractors: A View From Canada, CLLPJ, vol. 21, 1999, p. 7. See ibid, at note 48. In Ontario, for example, a dependent contractor is a person in a position of economic dependence upon, and under an obligation to perform duties for the employer (emphasis added). See Collective Agreements Act 1969 (as amended 1974), section 12a; case 5 AZB 29/96, (1997) Arbeit und Recht 499 (Federal Labour Court, Fifth Senate), translated in 17 ILLR 41; W. Dubler, Working People in Germany, CLLPJ, vol. 21, 1999, p. 77.

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Based on a broader approach to the interpretation of the concept of "employee",104 my view is that a strong showing of either democratic deficits or economic dependency should be enough to warrant inclusion within the collective bargaining regime; a requirement that both characteristics must be present (as in Ontario) cannot be justified. A showing of some democratic deficits alongside some economic dependency should similarly be sufficient. Some legal systems exclude different groups of workers from the ambit of collective bargaining. North American legal systems, for example, exclude domestic and agriculture workers (among others).105 Such exclusions have been widely criticized,106 and indeed, the discussion of justifications taken above reveals no reason for them. On the contrary, the need for collective bargaining is even stronger for such relatively weak groups of workers.107 In the absence of strong arguments to the contrary, all workers in a position of democratic deficits and/or economic dependency vis--vis a specific employer should be allowed to join forces with their peers and bargain collectively.108

104 105 106

107

108

Davidov, The Three Axes, supra, note 9. See, e.g., National Labor Relations Act, 29 U.S.C. 152(3); Ontario Labour Relations Act, S.O. 1995, c. 1, Sch. A, 3. See, e.g., Beatty, supra, note 24; M.H. LeRoy and W. Hendricks, Should Agriculture Laborers Continue to be Excluded From the National Labor Relations Act?, Emory L.J., vol. 48, 1999, p. 489. The plight of agriculture and domestic workers in the U.S. is documented in Human Rights Watch, Unfair Advantage: Workers Freedom of Association in the United States Under International Human Rights Standards (Aug. 2000, available at www.hrw.org/reports/2000/uslabor), especially chapter VI. The situation of supervisory, managerial, and confidential employees, who are also excluded (to different extents) in North American jurisdictions (see, e.g., NLRB v. Yeshiva University, 444 U.S. 672 (1980)), is somewhat more complicated. Their exclusion is based on arguments for the purity and effectiveness of the collective bargaining process itself. While certainly open to strong criticism as well (see, e.g., Crain, supra, note 19), such exclusions require a deeper examination which will not be carried here.

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