Establishing terms and conditions of employment in non-union organisations HR Management

At the beginning of the 1980s, despite the election of a government hostile to collective labour organisation, it was presumed that the domination of collective bargaining, where in 1984, 71 per cent of the workforce were covered by such agreements, would persist into the future (Millward et al., 1992).

With hindsight it can be seen that this was to be proved wrong, with a notable decline in both trade union density and consequently, collective bargaining coverage during the 1980s and into the 1990s. Indeed, by 1998, collective bargaining coverage had fallen to 47 per cent (Cully et al., 1999). The reasons underpinning this decline are complex and extensive but can be broadly summarized as:

  • constraint and control of the power and influence of trade unions by successive Conservative governments since 1979 hostile to the notion of collective labour organisation;
  • active derecognition strategies and support for such from Conservative administrations;
  • the enactment of employment legislation to constrain and control the power of trade unions;
  • the encouragement and facilitation of the exercise of management prerogative;
  • greater focus on the individual at work;
  • mass unemployment in the manufacturing sector, an area of traditional strength for trade unions, and an expansion in the service sector, an area of traditional weakness;
  • the growth of new managerial strategies such as human resource management, which focused upon the individual at work and managerial prerogative;
  • a move away from collective bargaining in the public sector through a shift in ‘model employer’ policies based on union recognition to a focus on market values and the introduction of competitive tendering whereby private sector firms took over public sector tasks and employment, plus the more extensive use of pay review bodies;
  • encouragement of the growth of new small firms, a sector where union presence is negligible;
  • the failure of trade unions to develop effective strategies to expand existing membership and to enter growth areas of the economy such as smaller firms and the private sector service.

This list is by no means exhaustive and greater consideration can be found in texts such as Noon and Blyton (2002) and Edwards (2002). The combination of these issues and wider market shifts has encouraged and facilitated the growth of the non-union sector. Yet it is important to remember that even when collective bargaining coverage was at its peak in the 1970s, nearly a third of the labour force were excluded from such agreements.

However, it is evident that this figure has grown quite substantially since the early 1980s. These non-union firms may share their representation status but obviously will differ significantly in other respects given the influence of issues such as sector, markets, location etc. However, to facilitate an overview of the non-union sector, the useful distinction based upon firm size and identified by Rose (2001) will be adopted for the purposes of this brief discussion.

Rose argues that it is broadly possible to discriminate between larger and smaller non-union firms when considering the manner in which conditions of employment are established while recognising that there will be areas of commonality and overlap within such divisions. It must be emphasised that such generalisations are sweeping and exceptions to these will be evident. But for the purposes of this discussion these two broad divisions based on size are useful to illustrate the key arguments.

However, those wishing to concentrate upon this issue in greater depth are advised to consult further reading and research (McLoughlin and Gourley, 1994; Guest and Conway, 1999; Scase, 2002; Marlow, 2002). So, it is more usual to find sophisticated substitutionist strategies within larger firms where it is essential to ensure that employees will not experience any motivation or desire to seek union recognition.

Such an approach must ensure that, for most employees, the terms and conditions of employment offered are at the least as good as, if not better than, those in comparative firms that recognise trade unions for bargaining purposes (McLoughlin and Gourley, 1994). Clearly, the aim is to ensure that employees would not find a union presence or collective bargaining beneficial. Such firms might be described as having a ‘soft’ HRM style with a focus upon employee involvement, participation, consultation and participation to ensure high performance and individual commitment to the firm.

To maintain this situation, the organisation must be able to provide what is perceived as a floor of excellent terms and conditions of employment but also promote an environment which rewards individuality while offering effective channels for employee involvement (Colling, 2002). This stance has been described as a somewhat ‘pyrrhic’ or empty victory by Flood and Toner (1997) who argue that if the point of non-unionism is cost containment through the avoidance of collective bargaining and collective leverage, this is unlikely to be achieved through such costly substitution policies.

Given the investment required in terms of finance and management time for high reward, consultation, communication etc., the rewards do seem uncertain. However, the key strategic focus must, of course, be upon the retention of prerogative over decision-making, change management, flexibility and the avoidance of disruptive collective resistance. It might be expected that if there has been an expansion in non-union firms developing this type of substitutionist strategies to avoid recognition, there should be some evidence for an expansion in soft HRM practices and policies in the UK.

However, drawing on the WERS data, this would not appear to be the case, with such high-commitment practices being relatively rare and indeed, most frequently found in unionised firms (Cully et al., 1999). So, it would appear that this type of ‘soft HRM’, non-union organisation remains limited in the UK, which suggests that most non-union firms are not pursuing high-commitment strategies. Many non-union firms have, in the past, actually recognised trade unions, so rather than having a dedicated substitutionist philosophy as described above, they have achieved non-union status by other means such as overt union derecognition.

Claydon (1997) notes that this process can occur incidentally, when membership density and employee support for the recognised union is low and falling to the extent that management are able to bypass the bargaining agenda over time until it withers altogether with little union or employee resistance. Alternatively, management develop specific strategies, such as consultation and communication forums, to gradually eliminate union presence over a relatively lengthy period of time with the clear intent of bypassing and undermining the union presence.

Overall, derecognition has not been extensively pursued in the UK despite the political hostility towards collective organisation and legislation enacted to facilitate the process (Rose, 2001). This is largely because as unions became weaker in the 1980s and 1990s, management have been able to narrow the bargaining agenda substantially while using union channels to introduce change, secure in the knowledge that collective resistance would be unlikely. Hence, there have been relatively few aggressive derecognition campaigns and those that have occurred have, in fact, encouraged renewed union affiliation while generating poorer employment relations at a time when union influence was minimal.

Firms which have neither derecognised unions nor employed substitutionist strategies are most likely to be found in sectors where unions have been traditionally weak, such as private services or in firms which have grown during the 1980s and 1990s. Such firms are either unlikely ever to have considered union recognition, are unlikely to employ those who might seek such recognition or have been able to ignore any approaches from a relatively weak union movement.

In such firms, it would appear that there are a number of initiatives utilised to manage labour and determine the employment conditions. These will range from the unitary application of managerial prerogative to the utilisation of factors such as consultation strategies with elected or appointed employee representatives or communication conduits to share some information (Gennard and Judge, 2002).

Hence, within the non-union sector the determination of terms and conditions of employment would appear to be contingent upon a number of issues. These include the organisation’s preferred management style regarding the employment relationship and the manner in which management prerogative is exercised; issues which themselves are contingent upon the firm’s market position, sector, product and the perceived ‘value’ of their employees.

It is important to note, however, that in recent years, management prerogative has been somewhat constrained by employment regulation introduced by successive Labour governments and also by recognition and implementation of European regulation by such administrations. So, for example, the Employment Relations Act (1999) legislated for statutory recognition of trade unions where the necessary degree of support could be demonstrated, and the Works Council Directive requires representation and consultation in multinational enterprises.

Of particular relevance for this discussion will be the impact of the forthcoming Information and Consultation Directive which will be implemented in 2002 and will require firms with more than 50 employees to consult employee representatives on a range of issues. Although the UK will be phasing introduction of the Directive and already has the reputation for diluting the impact of such directives (McKay, 2001), employers are expressing concern regarding compliance.

Turner (2003a: 4), writing in the Financial Times comments that, ‘Business leaders fear the imposition of bodies similar to works councils, which have a say in actual decisions, as opposed to being informed of plans and consulted on implementation’. The increasing raft of regulation which, on the whole, focuses upon individual employee rights will present increasing challenges to the exercise of unfettered managerial prerogative, even if practised benignly, in larger firms.

To summarise this section, generalising cautiously, it would appear that the large nonunion firm sector has grown for a number of reasons. Since the 1980s the political environment in the UK has supported a non-union stance, whilst market and sector shifts have made this approach increasingly likely. The manner in which non-unionism has emerged in larger enterprises has taken a number of forms; for some firms, there has been the adoption of clear substitution policies to avoid union recognition in the first instance.

Given the level of political encouragement and union weakness, a relatively small number have pursued (either strategically or in an ad hoc fashion) derecognition policies with only limited resistance from unions and their members. Those firms falling outside of these categories are those which have grown in sectors where unions have not traditionally had a strong presence and they have not been able to generate an organizing agenda to successfully generate a demand for recognition.

For employees the consequences differ; for those working in ‘high performance’ firms, employment conditions will be favourable but on the basis of fulfilling high expectations in terms of productivity, loyalty and commitment. For others, their terms and conditions will depend upon the manner in which management prerogative is exercised within the constraints of the firm’s market and sector.

However, as noted above, the unrestrained exercise of managerial prerogative in such firms will be subject to the constraints of both national and European employment regulation which has been growing since 1997. Having offered a brief commentary on the manner in which large non-union firms manage their employees, this is now compared and contrasted to the situation within smaller firms.

  • Establishing terms of employment in small non-union firms

There are a number of differing definitions of a ‘small’ firm. In 1971, the Bolton committee report referred to criteria of independence and a small market share; the Companies Act of 1985 combined turnover and employment criteria, with the EU having the most comprehensive criteria of turnover, employees and independence. In the UK, governments rely on the somewhat simplistic measure of the number of employees within the enterprise such that:

  • small firm – 0–49 employees;
  • medium firm – 50–249 employees;
  • large firm – over 250 employees. (DTI, 1997)

Given the heterogeneity of the sector, it is difficult to find a definition which adequately encompasses all relevant firms. Regardless of how the sector is defined, it is appropriate to consider small firms as a separate entity within the economy. For some time, they have been recognised as being essentially different in their approach to management, markets and business outlook from their larger counterparts; it is no longer presumed that such firms are enterprises which have merely failed to grow to corporate dimensions (Storey et al., 1987).

As Cully et al. (1999) remark, ‘small businesses occupy a distinct part of the lexicon in academic and policy debates’ (p. 251); they have their own associations and government representative at Ministerial level. This is not to suggest that small firms can be easily studied as a single entity. A significant challenge in analysing small firm behaviour is identifying common themes and trends in a sector noted for its heterogeneity.

So, any conclusions drawn and observations made must always be qualified with the same caution applied to large firms, that there will always be a substantial number of enterprises which refute established trends. The number of small businesses in the UK economy has grown somewhat since the early 1980s, levelling out in the early 1990s (for more discussion of such growth, see Storey, 1994).

The DTI (1998: 2) noted that small firms account for 99 per cent of all businesses, 46 per cent of non-government employment and 42 per cent of turnover (excluding the financial sector). It is apparent that small firms are significant employers in the modern economy and so insight into how labour is managed in such firms is critical. However, the study of employment relations in small firms has been largely neglected (Marlow, 2000). The earliest evidence pertaining to the management of people in small firms initially indicated an environment where the close proximity of owner and worker could overcome the traditional tensions between labour and capital (Goss, 1991).

In the late 1960s, a number of studies portrayed employment conditions in small firms as a relative haven of peace and harmony. It was recognised that financial rewards were lower in the sector but this was more than compensated for by low levels of industrial unrest, teamworking with colleagues and low labour turnover (Ingham, 1970; Bolton Report, 1971). This image has since been dispelled by a number of empirical studies undertaken in the 1980s.

These studies found that most small firm employees would prefer to work in larger firms, that there were higher levels of job insecurity and labour turnover and owner/manager strategies for labour control were largely authoritarian or based on benevolent autocracy. It was found that the perceptions of owner managers regarding the employment environment in their firms differed significantly from that of their employees (Rainnie, 1989; Scott et al., 1989; Goss, 1991).

Regarding the establishment of terms and conditions in small businesses, the empirical evidence indicates a high degree of informality. Scott et al. (1989) found that from initial recruitment and selection to point of dismissal, few formal systems or policies were in evidence. The preferred manner of employee recruitment was through the ‘grapevine’, i.e. someone known to an existing employee; for many employees, a contract of employment or, indeed, any formal indication of tasks and duties was non-existent.

Discipline was relatively ad hoc, more dependent on the owner’s perception of the problem rather than any objective standard. Only a tiny minority of firms had union recognition or any form of negotiated terms. For the remainder, owners and management teams unilaterally decided upon payment rates and changes to working conditions. Other studies of the period (Rainnie, 1989; Goss, 1991) revealed similar findings, with the emphasis upon owner prerogative and informality; such findings are confirmed by more recent evidence (Ram et al. 2001; Marlow, 2002).

When analysing such findings, it is simplistic to suggest that such informality and unitarism arise from a strategic goal to construct authoritarian power structures. Rainnie (1989) develops a somewhat deterministic analysis, arguing that the adverse competitive pressures experienced by many small businesses give the owner or management team little discretion in their approach to managing people.

They are forced to minimize labour costs due to external market pressures. Ram (1999) disputes this thesis, suggesting that employees do negotiate around their own employment relationship in small firms but the relatively hidden and individualistic tactics employed somewhat obscure the process. It is also recognised that employers, whether in large or small firms, must have some degree of cooperation and consent from labour so cannot operate on the basis of absolute domination.

Owners must be prepared to enter into some form of dialogue with employees. A further explanation for informality and owner prerogative in small firms is the relative absence of professional personnel managers (Wynarczyk et al., 1993). Finally, it is evident that many small firms work almost entirely in the short term due to restricted and uncertain markets, volatile customer bases and uncertain financial strategies with a negotiated employment relationship.

So, it is difficult for such businesses to develop structured or strategic approaches to managing their labour and, for many firm owners, there is a belief that they simply do not have the time (Storey, 1994). To summarise, although there will always be exceptions, it is apparent that establishing terms and conditions of employment in small firms is likely to be conducted on an informal basis, focused on the individual in a framework unilaterally devised by the firm owner.

For some employees, there will still be room to construct their own social relations of production and engage in mutual adjustment strategies but, for many, there will be little opportunity to exercise any discretion over the manner in which they work and are rewarded. To some extent, increasing employment regulation should address these issues but this does depend upon employer awareness and observation of the legislation.

As Earnshaw et al. (1998) found, increasing regulation and legislation is not a problem for many small owners because they simply do not know about it. Given the increasing number of employees within the small firm sector, there is some cause for concern regarding the level of informality and ignorance that persists surrounding the management of labour. However, this overview must again be qualified with the recognition of heterogeneity amongst small firms such that exceptions to these generalisations will be evident throughout the sector.


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