In the management of corporate affairs we came across decent sounding terms such as ‘downsizing’, ‘right-sizing’, ‘organizational’ ‘restructuring’ and ‘redundancy’ in the decade of 1990s. Prior to that, when such sophisticated ideas from the West had not entered our corporate world, this process was simply known as retrenchment or ‘chhanti’ in Urdu. However, the main difference between termination of employees under retrenchment and right-sizing is that now the companies offer lucrative severance packages in order to attract the targeted employees to resign from service. Instead of totally relying on terms of employment in the case of management and statutory provisions in relation to unionized employees, companies try to make their separating employees’ immediate future secure so that they may comfortably find an alternate job without worrying about their daily sustenance.
Due to increasing global competition and worldwide economic recession, companies have been compelled to resort to downsizing for survival. This trend has become a norm all over the world. The hard reality of the situation is that downsizing is not so in real terms. As an alternative, the jobs done by the departed employees are assigned to contractual employees providing specific services. The advantages of this arrangement are many.
The cost of employees employed by contractors is almost one third of that of permanent employees, they are easily replaceable and they always remain available for work and no long term liability is incurred by the company on their behalf. At the same time, companies have to safeguard against the legal risks involved in such an arrangement or in direct recruitment of temporary employees. Nevertheless, jobs and services offered on contracts remains to be the most popular system with the employers all over the world.
While in Pakistan contractors are engaged by employers to get certain jobs done, in the United States similar services are provided by temporary staffing agencies. If proper care is not taken in avoiding the relationship of employer and employee between the main employer and the contractor’s employees, then the latter may be prompted to use the legal recourse for getting the status of company’s permanent employees, thereby securing all the associated benefits.
Since laws protecting the employee rights, especially those relating to employment, are similar in most countries, I am quoting below an extract from an article titled Beware the legal risks of hiring temps, which appeared in the October 2002 issue of USA’s Workforce magazine, and fully describes the magnitude of penalty a company may have to pay in case employees of a third party are mishandled.
“Recent court cases dramatically highlight the legal and financial risks of improperly classifying and treating temporary staff. In a well-publicized class-action case, a federal court approved a $97 million settlement between Microsoft Corp. and a group of so-called “permatemps” who were mischaracterized as “temporary” workers and denied valuable employee benefits and pension benefits over the course of several years. The legal damage award utterly wiped out any financial or administrative benefits that Microsoft might have realized in structuring as “temporary” its relationship with the affected employees.”
In a similar case here a few years ago, the court had awarded huge benefits to the bagging contractual employees of Pak Saudi Fertilizer Company, Mirpur Mathelo.
The above two cases show how important it is to understand the way relationships with contractors or temporary employees are structured. It is, in fact, the first key to managing legal risks. Despite clear instructions and guidelines from the human resource department, many supervisors and line managers commit mistakes while managing such employees, which sometimes turn out to be costly for the company. In such an arrangement, you have got to make sure you don’t blur the line between the contractor’s and temporary employees and your regular staff.
In order to stay on the safe side, a few tips are helpful. In case of employees hired from a contractor, the company should not try to control or supervise them directly. Let the contractor set their pay and terms of employment. They should not be coached or counselled regarding job performance or issue reprimand. Do not routinely include them in the company’s employee functions. Do not allow them to utilize facilities intended for employees. Do not make any statement in correspondence with the government departments wherein you appear to be the “real” employer.
In case of temporary employees, it is safer not to employ them on jobs of temporary nature likely to last for more than nine months, and of permanent nature likely to last for more than three months. Do not include their names in company’s telephone directories. Do not let managers issue the company business cards or employee badges without HR and legal approval. Do not discuss job opportunities and the temporary employee’s suitability for them without involving the human resource department.
Mindful of the extensive use of job out-sourcing by companies, government and its social welfare departments are becoming vigilant to safeguard the interests of contractor’s employees. Overtime courts have also given rulings directing strict compliance of laws on old age pension and medical benefits in relation to these employees. If this trend continues, then after a few years the engagement of contractors to perform certain jobs may not be as feasible a proposition for the companies as it is at present.
