Editorial | Renewed case for unemployment insurance

Justice David Batts’ ruling that the security guards hired by Marksman Limited are not independent contractors, but employees for whom the company is obligated to pay statutory deductions – as it would for its normal staff – stands on its own merit.

Indeed, as this newspaper had already suggested, the development demands that the government, via legislation, clearly defines who is an employee and what taxes, and other charges, are incurred on behalf of that worker by her or his employer. Similarly, the broad parameters of what makes for an independent contractor, including the minimum operational autonomy that category of worker must enjoy, ought also to be established.

The impact of the judge’s decision on the private-sector industry – the possibility of job losses included – and what should be the response to this threat, is a different matter entirely. Some security company bosses have proposed special labour market carve-outs and subsidies for their industry. That is untenable.

However, the development should put squarely back on the agenda the question of a national unemployment insurance (UI) scheme, which should be accompanied by, as we have argued for more than a decade, the repeal, or radical overhaul of the redundancy law. Indeed, a UI scheme was among the recommendations of the Government’s COVID-19 Recovery Task Force. Earlier this year, the finance minister, Nigel Clarke, reported that various agencies were conducting technical analyses of the idea. The minister should provide an update of that work and assure Jamaicans that it is not one of those policy proposals that falls between the cracks.

FALLOUT

Hopefully, the predicted job fallout in the security sector does not materialise. But it is a possibility. In that event it is not clear, given Justice Batts’ ruling, what would be the rights, if any, to redundancy pay for those guards who are let go. But the issue underlines the relevance of a fulsome review of the redundancy law – not only in respect to this matter – and the logic of an unemployment insurance scheme.

We are aware of the social context in which the redundancy legislation was developed – as an attempt to provide employees who worked at an establishment for a prescribed period with a softer landing if they are separated from their jobs because of nothing they did, but because it is in the interest of the firm to do so. Ostensibly, the task the worker performed became redundant.

Or, in bad business cycles, firms may have to downsize or restructure in order to survive. On these occasions, the balance sheets of companies tend to be at their weakest. Nonetheless, firms, in this situation, if they decide to let go staff, have to pay compensation at a rate of two weeks’ pay for each year of employment, up to 10 years. Thereafter, the compensation rises to three weeks’ salary per year.

A potential, if unintended, consequence of this arrangement is the weakening of the company’s chances of a recovery if it has to meet significant redundancy obligations when it is weakest, rather than investing available cash in efforts at resuscitation. Indeed, it is sometimes to avoid this possible liability, in addition to an effort at saving on other staff costs, that encourages companies to hire people as independent contractors rather than employees. Justice Batts’ ruling will require that firms take a more consequential look at these decisions before embarking on them.

REMOVE CONTINGENT LIABILITY

However, a properly constructed and well-managed unemployment insurance scheme, to which employers and workers contributed, would remove the contingent liability of redundancy payments from firms, thereby placing them in better stead if they ever have to restructure and make staff redundant. But it is not only the specific circumstances of individual firms and their employees that support the good sense of an unemployment insurance scheme.

There, too, are also those systemic events, such as the COVID-19 pandemic, which as Dr Clarke explained in March, “exposed a glaring gap” in Jamaica’s social security arrangements. Within a short time the economy shed 150,000 jobs, or more than 13 per cent of the workforce. Most of these workers were furloughed without pay or the safety net of unemployment insurance, except for a handful in a few sectors, where the Government contributed to maintaining jobs for a while.

It is possible that some employees may go through their working lives without ever accessing unemployment insurance, and may therefore question the fairness of their contribution. It may be possible in those circumstances that these workers, at retirement, receive a calibrated top-up on their national pensions. In any event, it is time to rev up discussion on the issue.