Putting the record straight: Industrial relations and the employment relationship Keith Sisson WARWICK PAPERS IN INDUSTRIAL RELATIONS NUMBER 88 April 2008 Industrial Relations Research Unit University of Warwick Coventry CV4 7AL Editors Foreword The Warwick Papers in Industrial Relations series publishes the work of members of the Industrial Relations Research Unit (IRRU) and people associated with it. Papers may be of topical interest or require presentation outside of the normal conventions of a journal article. A formal editorial process ensures that standards of quality and objectivity are maintained. Keith Sisson is Emeritus Professor of Industrial Relations at the University of Warwick and was formerly Director of the Industrial Relations Research Unit. He has written and published widely on the role of management in industrial relations and on the development of employment regulation in Europe. This is the second of a series of substantial contributions to the Warwick Papers and builds from the themes presented in Revitalising industrial relations: making the most of the “institutional turn”, published in July 2007. The purpose once again is to reflect on the current theory and practice of industrial relations but here he engages specifically with the concept of the ‘psychological contract’. For many contemporary observers of the employment relationship, the idea of reciprocal, often implicit and informal ties between employers and workers comprises a radically new conception of what happens in the workplace and one derived from beyond the confines of industrial relations. Sisson provides a critique of the concept and sets out a multi-faceted approach to the employment relationship exploring issues of co-operation and conflict. Arguably, such an exercise is critical in a context in which organisations, and the conventional understandings that have bound them, are subject to often quite radical fragmentation, with particular consequences for the employment relationship. Trevor Colling 2 Preface The study of industrial relations in the UK has been going through a period of considerable reflection and introspection from which there appears to be emerging something of a consensus about the essentials for further development. Crucially, in terms of subject matter, there is agreement that what distinguishes the subject of industrial relations is the employment relationship, the institutions or rules involved in its governance and their significance for a wide range of economic, political and social outcomes. Unfortunately the message does not appear to be getting through. The industrial relations perspective on the employment relationship continues to be misunderstood and its significance ignored, which means that any impact that it might have on practice and policy is being diluted. Arguably, too, this could not be happening at a worse time. Not only is this perspective relevant to a number of specific debates such as those surrounding the promotion of the 'psychological contract' and the 'fragmentation' of employment arising from the subcontracting of activities previously undertaken in-house. Even more fundamentally, it is also bears on thinking about the very nature of the work organisation. For here there is what can only been described as a battle of ideas taking place between, on the one hand, the 'resource-based view' and, on the other, the 'nexus of contracts doctrine', with profound implications for society as a whole. The present paper offers a statement of the industrial relations position on the employment relationship. It has two main aims. The first is to deal with the misconceptions and misunderstandings that appear to exist about this position. The second is to demonstrate that, far from being the stereotype with which it is associated, industrial relations is well on course to developing a multi-disciplinary and multi-level synthesis that is highly relevant to issues of practice and policy. The paper, which is intended to be accessible and relevant to members of the policy community as well as colleagues who teach and research in the area, has its origins in an on-going project that I’ve labelled Employment relations matters. The title captures the double intention: to demonstrate the ways in which employment relations matters and to bring people up to date with the matters that the subject deals with. 3 The paper is the second of three dealing with the project's key themes that I’m hoping to publish in the IRRU series. The first, which was appeared in July 2007, deals with the institutional ‘turn’ in economics, politics, psychology and sociology and the potential benefits for the study of industrial relations. The third, which I hope will be available in later in the year, will be concerned with why employment relations is important, focusing not just on business performance, but also individual well-being, human and social capital development, and macroeconomic considerations such as the trade off between wages and employment and the links between inequality and productivity. I'm especially grateful to the editor and colleagues who refereed and commented on an earlier version of the paper. Thanks to them, the final version is considerably more focused than it would have been. 4 Putting the record straight: Industrial relations and the employment relationship Introduction The study of industrial relations in the UK has been going through a period of considerable reflection and introspection in the light of recent changes in the world of work such as the shift in employment from manufacturing to services, the increasing feminization of the workforce and the decline of trade union membership and coverage of collective bargaining. From this there appears to be emerging something of a consensus about the essentials for further development. In terms of subject matter, there is agreement that what distinguishes the subject is the employment relationship, the institutions or rules involved in its governance and their significance for a wide range of economic political and social outcomes (Ackers and Wilkinson, 2003: 30; Edwards, 2003; Blyton and Turnbull, 2004). The employment relationship has always been there or thereabouts in British industrial relations, but during the so-called ‘golden ages’ (Winchester, 1991) was more or less taken for granted, the main emphasis being on the role of trade unions and collective bargaining in its regulation1. In terms of approach, there is agreement that industrial relations is an area of study rather than discipline whose aim, in Hyman's (2004) words, is to develop theory “in” rather than theory “of”. There is also recognition that there are considerable opportunities to develop industrial relations' tradition of tacit theorizing by strengthening links with institutional analysis and explicitly adopting the philosophy of science approach known as ‘critical realism’ (Edwards, 2006). In terms of methodology, there seems to be strong support for a multi-level and multi-disciplinary 1 In the case of the USA, Kaufman (2007) argues that ‘The modern field of industrial relations is in trouble, partly because it has become too narrowly defined around the study and promotion of trade unions and collective bargaining. A rejuvenated industrial relations needs to return to the broader subject domain that characterized it in earlier decades: the study of the employment relationship. This does not mean rejecting trade unions; it does mean framing the field more broadly so it covers all the major actors and institutions in the employment relationship ...’ 5 approach with an emphasis on theoretically informed empirically enquiry involving induction as well as deduction and qualitative as well as quantitative methods (see, for example, Heery, 2005). On the ground, the shift is reflected in a broadening of the issues with which British industrial relations is concerning itself. As recent special issues of the British Journal of Industrial Relations confirm, this is not just a matter of expansion into HRM. Topics will be found there as varied as the 'political economy of immigration', 'new actors in industrial relations', the 'embedded corporation', the 'quality of working life', 'new modes of regulation', 'politics and industrial relations', 'corporate governance' and 'union decline and prospects for renewal'. An important development is that the employment relationship and institutions involved in its governance are not just being studied for their own sake, which is a criticism that has been made in the past (see, for example, Turner, 1968). Rather it is because they are the ‘rules of the game’ linking practice and performance. In other words, the generic features of the employment relationship do not exist in a vacuum. They find expression in institutions reflecting the interplay between internal performance issues and external market, technological and political developments (Grimshaw and Rubery, 1998; 2003). The employment relationship is something that the great majority of us are involved in for much of our lives. Its conduct can be shown to have consequences for a wide range of economic, political and social issues embracing not just business performance (Ashton and Sung, 2002), but also health, personal development opportunities, the family and the development of social capital (Coats, 2004) and significant macroeconomic considerations such as the trade off between wages and employment and the links between inequality and productivity (OECD, 2006). Yet, however self-satisfied the industrial relations community may feel, its position on the employment relationship continues to be misunderstood and its significance ignored. Coyle-Shapiro 6 and her colleagues' The employment relationship: examining psychological and contextual perspectives is a recent case in point. Rather than being multi-disciplinary with the employment relationship as its central focus, industrial relations is seen as only one of a number of perspectives along with social exchange, justice, legal theory and economics (Coyle-Shapiro et al., 2005: 120-1). Not only that. The perspective associated with industrial relations is an extremely narrow one that, arguably, does not do justice to its commissioned chapter on industrial relations (Kelly, 2005), let alone the fruits of the reflection and introspection touched on earlier. 'The focus of an IR approach is on the relationship between the employer and employees, as a collective, and how to regulate the relationship in view of the conflicts that exist'. If anything, their comparison and contrast of the different perspectives on a number of dimensions (see Table 1) suggests that the industrial relations position is even narrower. 7 p y p Social exchange Justice (moral principles Industrial relations Legal (relational model) contracting) Nature of the exchange Mutually beneficial Exploitative Exploitative Mutually benefic Level of analysis Primary emphasis on Individual within Group level (employee Individual within individual level within organizational context collective) organization peer group context Basis of the exchange Tangible and intangible Tangible and intangible Primary focus on tangibles Tangible and inta (approval, support) (morally acceptable (wages and working (recognition, pre treatment) conditions) Regulation of the Self-imposed regulation Societal moral Collective bargaining Acting in good fa exchange/ implications for through trust norms of conduct maintaining the relationship Process of exchange Norm of reciprocity Reciprocation based on Conflicts of interest and Sharing of benefi fairness power - negative and burdens (norm of balanced reciprocity reciprocity) Aims of the exchange Development of an Morally acceptable Productive efficiency and Mutually satisfyi enduring relationship employer behaviour and distributive justice rewarding relatio based on trust satisfactory employee performance Contextual influences on Peer groups Broader social context IR institutions (e.g. Influence of cultu the exchange through importation of Collective bargaining external regulatio prevailing norms of arrangements) obligations conduct Source: Coyle-Shapiro (2005: 125) Such misunderstanding is not important in itself. It is not unique, however, as I've suggested elsewhere (Sisson, 2006). Arguably, too, it could not be happening at a worse time. The understanding of the employment relationship that the industrial relations perspective brings is central to a number of major debates and issues. One involves the psychological contract. With the decline in collective bargaining and growing attention on relations between the organisation and individual employees, this is being promoted as an appropriate framework for understanding developments in the employment relationship. In the words of the Chartered Institute of Personnel Development (CIPD, 2006), 'the psychological contract ... looks at the reality of the situation as perceived by the parties, and may be more influential than the formal contract in affecting how employees behave from day to day'. Complicating matters, however, is that there is a difference of approach which, as the paper argues later, has significant ethical implications. In the older tradition, which is mostly followed in the UK, the psychological contract is seen as 'the perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other’ (CIPD, 2006; see also Herriot and Pemberton, 1997; Guest and Conway, 2002). The dominant view, however, especially in the USA, has come to follow Rousseau (1995) in treating the psychological contract as in ‘essence a belief held by employees … because logically organisations do not have beliefs'. An even more fundamental issue is the 'fragmentation' of employment (Marchington et al., 2005). Most immediately, it arises from the subcontracting of many activities previously performed in-house and takes the form of the controversy over the extension to agency and temporary workers of the individual employment rights enjoyed by permanent employees – at the time of writing, the UK Government is reported as proposing the setting up a special commission to resolve issues raised by a proposed EU Directive on the matter. Subcontracting is only one form of externalisation, however. UK organisations, it is argued, are being subjected to a process of 'permanent restructuring’ (Froud et al., 2000a and b). In part, this reflects a process of 'financialisation', in which competition is based not so much on products and services, but the returns on investment regardless of sector, leading to a variety of investment/divestment forms such as business sell-offs, spin-offs and different forms of buy-outs, along with merger and acquisition. In part, it follows from the widespread adoption of divisionalisation (the break-up of large-scale organisation into semi- autonomous businesses units or Executive agencies), budgetary devolution (the allocation of responsibility for managing activities within financial resources or targets) and ‘marketisation’ (the greater application of market principles to decision making, e.g. in the form of 'competitive tendering' and ‘market testing’, joint ventures and partnerships). The result is that the employer’s traditional functions and responsibilities are often being split between a number of entities: for example, the employer who pays is not necessarily the one who coordinates2. Arguably, too, a fundamental conflict of views is re-emerging about the nature of the work organisation, in which perspectives on the employment relationship are central. On the one hand is the doctrine of the firm as a 'nexus of contracts'. This doctrine, which is being used to legitimize many of the developments described above, has been described as the 'dominant legal and economic perspective' in the UK and the USA (Parkinson, 2003: 485). Largely developed as the result of economists grappling with the need to accommodate the organisation into neo-classical thinking, it starts from 2 The growth of trilateral or multilateral arrangements is leading some employment lawyers to suggest that it is time to replace the ‘contract of employment’ with the ‘personal employment contract’ as the core concept of labour law (Freedland, 2003; 2006; Deakin, 2007). As they recognise, however, English employment law is, for the time being at least, strongly committed to a bilateral contractual way of conceiving of the employment relationship, along with the binary divide between contracts of employment and contracts for services. 10