Employing Contract Workers – Part I

Background:
An amendment to the Personnel Companies Law states that a personnel company worker must be hired by the actual employer at the end of an employment period not to exceed nine months. The amendment was approved by the Knesset eight years ago, but has not been implemented due to the Finance Ministry’s success in delaying it every year through the Arrangements Law.
The Finance Ministry’s opposition stems in part from a desire to control the extent of public service employment. Employing workers in the public sector through personnel companies made it possible to avoid granting these workers the status of civil service workers, with all the rights it entails.
In August 2007 the Finance Ministry again sought to postpone the implementation of the law for another three years, but this attempt failed and the law went into effect in January 2008.
Limits to its application were raised immediately. Experts held there was ambiguity regarding the question of whether the directive to limit the duration of employment applies as of January 2008 or the date when the nine-month employment period began.
In practice it would be simpler to interpret the matter according to the later option, i.e. from the start of the nine-month period at the beginning of October 2008.

The ongoing affair surrounding the Personnel Companies Law serves as an extreme example of the clash between the fundamental desire of the legislating body to prevent prolonged injustice through the employment of temporary workers for an extended period of time (the clear contradiction can be seen in the wording itself: “temporariness over time”) and the resistance by many organization to switch thousands of workers to permanent employment arrangements.
Many organizations found they could bypass the amendment by outsourcing jobs to service contractors based on the assumption the law applies only to workers employed by personnel companies and not by service contractors

What’s the difference?
A personnel company receives payment for the employee placed at the organization, while a service contractor receives money for the service he provides the organization. Therefore in this instance it makes no difference how the service is executed and by whom. The amendment, with all its restrictions, does not apply to this type of service contractor. In principle personnel company employees can be fired and rehired through service contractors.
Dreading their business fate, personnel companies came out against the law according to its current draft. Several months ago the Union of Personnel Companies ran newspaper ads suggesting the public reconsider the expediency of the amendment, which requires service recipients to hire the personnel company employees who worked at their site for nine months. According to the ads, “The Personnel Companies Law puts 60,000 workers back on unemployment!” They are demanding the period of restriction be increased from 9 months to 18 months.

We discussed the issue with Attorney Tzevika Kind, joint owner of personnel company Tafkid Plus and chairman of the Union of Personnel Companies, which is associated with the Federation of Chambers of Commerce.

Transferring personnel company workers to a contract service provider is a legal endeavor. Outsourcing works, and it wasn’t invented yesterday. As personnel company managers you don’t complain that this harms your businesses, but rather raise a much stronger public argument that it harms workers.
That’s right. For example, last month a worker at a guard company that operates at the Electrical Corporation demanded the principle of equal conditions be applied to him. He went to court, which ruled that the amendment does not apply to him since he’s not a personnel company worker.

Like in the past, employers found another way to bypass the amendment. The legislation seeks to moderate the negative impact of the tendency to undermine workers’ rights – and then solutions are found to bypass it.
You’re touching on the heart of the matter. That’s what we claimed about both the Histadrut and the legislation – their starting point is wrong. We went to them and said, ‘You want to require the employer to employ all of the workers only through direct employment. It won’t work because the market won’t tolerate it. You have two options: one, through coercion, let’s force the employers via the law – and that’s what’s done in practice. But there’s another way that doesn’t involve coercion and yet achieves the same desirable result of preserving workers’ rights. Let’s see how we can achieve this together, not necessarily through coercing the immediate employer.’

You’re starting from the assumption that employers object to direct employment of all those who work for them. But let’s take a look at what they object to.
You could claim that it stems from the structural restrictions, and if you neutralize them there’s no problem with direct employment. For instance, if you don’t have to rigidly apply the collective agreement to all of the workers, or if they are given a reasonable opportunity to fire a worker, or if they have flexibility in determining employment regulations that don’t require bypassing them through external service providers.
 
That’s true regarding some employees, but not all of them. Why should an insurance company have to deal with shipping, catering, transportation or security?

These areas of enterprise are not subject to dispute, because that’s classic outsourcing: a worker provides a service you need as an organization and he’s not involved in your core field. The contractor providing the service is the real employer of that worker, only he executes the work on your premises. You don’t manage him, the contractor manages him.
On the other hand the classic personnel company worker is recruited by a personnel company and receives a salary from it, but in practice he’s managed by the organization that places an order for a worker. There are also cases in which he doesn’t even know the personnel company other than as a name on his pay slip, because the organization that employs him is also the one that recruited him. That’s a significant difference, and that’s what creates two types of workers at the same workplace.
We don’t object to this kind of outsourcing, but rather to quasi-outsourcing where the aim is to bypass the Personnel Companies Law. What happened? Following past incidents in which personnel company workers were deprived of their rights the law states that any company that wants to hire employees must receive a personnel company license, secure guarantors, etc. Thus the licensing process formally determines what a personnel company is.
In the second stage, when another amendment to the law set time restrictions on employment and equal job terms, they were applied to the personnel companies because their identity had already been defined. That created situations in which an organization could transfer employment arrangements that were formerly done by personnel companies to service contractors, which are not personnel companies, and therefore the law does not apply to them. These service contractors cannot oversee protecting workers’ rights. In principle this contractor, who recently had a personnel company worker transferred to him, can worsen the worker’s conditions and this can be considered a lawful act. With personnel companies, the organization seeks a worker through the cost plus method. He knows how much the worker earns (and added to this is a certain fee by the personnel company). In the case of a service contractor the organization hiring the services doesn’t get involved in every worker, that’s not supposed to interest him. He pays for the service, which operates transparently. We say organizations have three options: employ a worker directly, through outsourcing or as a personnel company worker. The third option has had its legs chopped off. Though it enabled oversight of workers’ rights, this option has been neutralized. This reinforces the motivation to switch to alternatives that do not allow oversight of these workers’ employers.

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But we haven’t dealt with the question of why they should be employed there as personnel company employees rather than as public service employees.
Because public service has regulatory restrictions. The scope of operations increases and the staff cannot be increased, so what are you supposed to do? The fact is you need more employees. In this situation what’s preferable: bringing in a service provider that’s not committed to maintaining good work conditions because the law doesn’t apply to him, or bringing in personnel company workers employed according to civil service conditions? Who will do a better job of preserving their rights – the service provider or the personnel company? Either way they’re not going to get hired as civil service workers.
The fact is that in the public sector it works – personnel company workers are employed with full equality of job terms.

And what about the private sector, which lacks the structural limitations of the public sector, such as setting standards? What is the organizations’ consideration in this sector in employing personnel company workers?
Financial considerations or even psychological considerations. Why do they do operational leasing rather than buying a car?

Because it’s cheaper.
It’s not cheaper. The leasing company has to make a profit too. It costs more. But organizations want to focus on their core enterprise, they want flexibility. So they buy service. But we also provide service – personnel service – yet we’re restricted.

But we already said above that it’s not the same. With outsourcing the worker is managed by the contractor. In the case of personnel companies you only serve as a conduit for employment, he’s not really your employee. It’s a device intended to circumvent regulations or reduce the costs involved in providing workers their full rights.
It used to be like that and there was a lot of criticism that led to the legislation. Today the situation is totally different. There are no longer cases where workers are employed as personnel company workers for years. Today this framework generally serves the hiring company only when it’s really needed.
For example, when an organization has to execute a certain project for which the workers will no longer be needed upon completion, or when an organization uses personnel company workers for a set period of time to see how they work and then decides to recruit them as regular staff members or forego their services. We claim that this nine-month period is too short. Sometimes large projects go on for much longer or more time is needed to check out the worker. Therefore we suggest an 18-month period, with a possibility for a six-month extension in certain cases.
It’s important to note that personnel company workers do not get hired as permanent workers but as temporary workers. They might retain that status for years, far beyond their temporary period as personnel company workers.

So that’s the crux of the matter, the length of the limitation?
Yes. Both the Histadrut and the Ministry of Industry and Trade realize that nine months is bad for workers. Ranking officials at the Industry and Trade Ministry told me even 18 months is not long. It’s too short a period of time to contribute anything to anyone. Histadrut officials agreed with that.
This situation has been balanced out all over the world. We don’t have to reinvent the wheel. There are several models. For instance, we proposed the French model, whereby if the worker doesn’t want to continue working after nine months he receives a certain amount in compensation. Or if the worker remains for more than nine months until the ceiling we proposed [18 months with an option for a six-month extension in special cases], he receives a 5% salary bonus – a sort of sweeping compensation for temporary employment in excess of nine months.
If the employers are given a reasonable employment period they won’t have to bypass the law in ways that are more detrimental to workers’ rights. Why should a worker get fired after nine months? Why shouldn’t he receive compensation and recuperation pay [which workers only become eligible for after a year of employment]?

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