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Innovative employment contracts:
flexible friend or fashionable foe?

Flexible forms of employment are on the increase in the UK. This trend is supported by the government, the CBI, all the major political parties, the European Commission and most academics and journalists in the field.

The main benefits are reported to be

  • greater efficiency in use of resources - including human resources
  • greater productivity
  • improved competitiveness
  • greater ability to respond to fluctuations in demand
  • employees are better able to dovetail work with other life commitments (e.g. through term-time working)
  • workers gain wider experience, improve their skills, develop their "employability" and commercial "edge" by working on a variety of limited term contracts in a variety of employment situations.

That's the theory. For those eager to build a portfolio career in a clover-leaf organisation, achieving a high income, job satisfaction, personal autonomy and a good work-life balance, a la Charles Handy, things couldn't be better.

But does the theory match the reality? Some think not.

Flexible work and "contract chaos"

The trend to more flexible forms of employment has inevitably led to the rise of a variety of innovative forms of contract. ESRC funded research at Birkbeck College, University of London, is examining the effects on companies and employees of the use of new forms of contract.

Preliminary conclusions from the research state the following:

  • there is a growing scepticism in organisations about flexible employment practices
  • there is developing a form of contract chaos, with organisations unable to keep track of the the variety of contract being used
  • the range of employment contracts among people working together leads to  low perceptions of fairness and low trust - in other words to a poor "psychological contract"
  • the attempt to achieve performance gains through a cost-reduction strategy is backfiring at high cost to both employer and employee, as this is linked to lower commitment and possibly to lower effort
  • Human Resource specialists are responding not to the evidence of organisational psychologists and other researchers but to imperatives of cost and fashion which are often imposed on them by the boardroom.

This is pretty damning stuff, although the authors acknowledge the tentative nature of these findings. But is it a fair picture of the current state of play?

Focus on temporary contracts

The study so far focuses on the variety of short-term/temporary contracts. These are certainly on the increase:

  • between 1992 and 1996 total UK numbers in temporary work rose by 30% (total employment rose by 2.4% in that period)
  • fixed term contracts rose by 25%
  • agency temping rose by 37%
  • 9.2% of all employees are temporary
  • 57% of firms use temporary workers.

Various models have been suggested to unify the employment trends at work here, looking at the roles of core and complementary workers in organisations. But there are complex processes at work, with reasons for employing temporary workers varying from sector to sector and firms within industrial sectors - even departments within the same company may face different considerations and imperatives.

Broadly, however, these imperatives include

  • the need to cut costs
  • the need to concentrate on a company's core function(s), while outsourcing non-core activities to whoever can deliver them most cost-effectively
  • pressures or requirements to develop internal markets
  • legislation for compulsory competitive tendering and "best value" in public bodies
  • preparations for privatisation, sell-offs, demerger etc.

Often changes to the structure of employment in a company are the result of a major restructuring/business process re-engineering exercise. And often these are conducted by highly paid consultants, who in this study are accused of following management fashion rather than responding to the particular needs of the organisation.

One of the outcomes of this kind of business transformation are new forms of employment supported by innovative contracts:

  • fixed term contracts
  • use of casual labour
  • outsourcing
  • use of agency labour (whose contract may be with agency, rather than with the organisation worked for)
  • freelance consultancy (often using previously employed people on job-by-job contracts but now also allowed to work elsewhere)
  • "company first" contracts (where workers have a contract to work a set number of hours for a company that has first call on their services but otherwise are free agents)
  • annualised hours contracts
  • term time working (with "holidays" unpaid, or covered by small retainer)
  • "zero hours" contracts
  • other forms of variable hours contracts

The second half of this list might well be forms of non-standard permanent employment, but no doubt there existence in an organisation which also employs non-permanent workers might all be considered to add to the "contract chaos".

Temporary workers in the real world

The reasons cited in the study for the use of flexible contracts are essentially cost, flexibility and fashion. Not mentioned are

  • organisational uncertainty
  • fixed term tasks, and
  • staff pull (as opposed to organisational push).

For example, many firms are unwilling to raise unrealistic expectations and knowingly set up a permanent contract - with the consequent redundancy implications - when a job has a limited life. There are a number of good reasons why it may have a limited life:

  • because the organisation has not yet decided how to move forward
  • the job may have a fixed outcome after which the post is no longer needed., or
  • it may be expedient to appoint a temporary job holder whilst the requirements for the permanent candidate are decided - it may even be the job of the temporary employee to determine what the job involves.

The Birkbeck study however does attempt to tackle the issue from the employee's point of view, saying

"In the UK much of the research and policy on new forms of employment has been dominated by labour economists who tend to under-emphasise the subjective expectations and the experiences of employees".

So the study is a deliberate attempt to redress the balance.

The desire for security

The study cites examples where employees are outsourced to organisations which are more demanding, but where they may become more successful and more secure, and others where people working for temporary agencies have a reasonable expectation of both security and interesting work. However, insecurity is seen as one of the most pronounced features of this new world of work.

Insecurity, however, is by no means limited to those in temporary work. The long hours culture which has developed and the increase in work-related stress are signs that the other 91% of employees (the "permanent" ones) are also under increasing pressure, often feeling that their job is on the line.

How security affects work performance is double-edged. On the one hand it can, as the authors of the study assert, erode commitment. But equally, there is plenty of evidence that when employees enter the "comfort zone" of a "job for life" there can be a tendency to coast, and just do enough to get through the day. This can often be very frustrating for workers on attachment to particular projects, people on temporary contracts and consultants, whose reputation and chance of future work is on the line, but is jeopardised by sluggish and complacent responses from permanent staff who may have no incentive to invest in the ownership of a project.

The "psychological contract"

One of the more tentative areas of the study relates to the concept of the "psychological contract", or the "set of unwritten reciprocal expectations between the individual employee and the organisation". The use of fixed term contracts is claimed to have a negative impact on the psychological contract, albeit an indirect one.

This is because of a a connection between permanent contracts, "progressive" HR practices (such as filling vacancies from within the organisation!) and a "positive" psychological contract and greater organisational commitment. It is claimed that

"The study provides some very tentative support for the negative role of fixed term contracts, although the findings are more clear-cut in demonstrating the perceived advantages of a set of human resource policies which include job security and use of an internal labour market".

But in many ways this does no more than to state the obvious: give someone a job for life, and isolate them from external competition for promotion, and they are less likely to leave the organisation. But whether this improves the organisations competitiveness, or enables individuals to maximise their potential is quite another matter. It seems like a return to the Seventies is being argued for here. But having job security, or a "positive psychological contract", on the Titanic would be of arguable worth - in the end the illusion catches up with you.

HR and non-core workers

There are some important issues to be explored here, but it is equally important not to underpin research with a nostalgia for a world of work which has gone for good.

The key issues are

  • how to develop a strong sense of commitment in all workers, core and non-core, permanent and non-permanent
  • how to develop effective working relations between payroll staff and external contractors
  • how to tackle issues such as training and career development for non-permanent staff
  • how to tap in most effectively to the knowledge base of non-permanent workers, whose experience outside the organisation can be of immense worth.

Having sensible and equitable contract arrangements is essential for the smooth running of all organisations. Permanent staff as much as non-permanent can become demotivated when colleagues are enjoying better pay and conditions for comparable work. Fairness all round, rather than uniformity in types of employment, must be the goal.

Further details

Further details of the study, Innovative Employment Contracts: A Flexible Friend?, by David Guest, Kate MacKenzie Davey and Christopher Smewing, are available from the Department of Organizational Psychology, Birkbeck College, University of London, Malet Street, London WC1E 7HX, UK.

Tel: +44 171 631 6751
Fax: +44 171 631 6750

A study by researchers at Birkbeck College, University of London, challenges the current wisdom about the value to organisations of flexible working arrangements. Flexibility reflects on this.


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