March 2006 – Contracts of employment

I have always felt that it needs a special kind of self-confidence, bordering on masochism, to embark on a career in soccer management. The football manager, after all, is rarely more than a few poor results away from dismissal.

A lucrative contract can help to cushion the blow, providing some comfort through weeks and sometimes months of inactivity before the toughest of the breed will step back on to this rollercoaster of a job.

The decision by Stuart Pearce, the Manchester City manager, to work without a contract, therefore, is either to be admired for its reflection of self-belief or derided for its naivety in such an uncertain profession.

“There is a contract there, but it’s not signed. Bits of paper don’t really mean a great deal to me,” he said in a recent interview. “To shake the chairman’s hand and look him in the eye and get an honest answer from him means a hell of a lot more.”

In our contractual arrangements, at least, I can relate to Mr Pearce. I work for several masters in arrangements that are underpinned by nothing more than verbal agreements. It seems to work, although I can tell him that the handshake, the verbal promise and the eye contact don’t amount to a row of beans.

To abandon formal contractual arrangements is to put yourself at the whim of expediency. Come budget time, the costs of your work will be weighed against those of the potted plants, the paperclips and other various office sundries. The trusting working arrangement you enjoyed with one manager is destroyed overnight when they move and a new one arrives who doesn’t know you from Adam.

This helps to explain why French students have been rioting at the Sorbonne over the past two weeks. The source of the unrest has been new two-year job contracts for those under the age of 26 that employers can break-off without any explanation.

France introduced the new employment arrangements – called the First Employment Contract (CPE) – in an attempt to address a 20 per cent unemployment rate among 18 to 25-year-olds that is twice the national average. Poor job prospects was one of the underlying causes of disenchantment behind the unrest that erupted in the Paris suburbs last year.

In the UK, where the standard employment contract is somewhere in between that of France and that of the US in the levels of job protection it affords, it is difficult to see what all the fuss is about. It is not unusual these days for graduates to start work on some kind of probation allowing the employer to escape a poor selection decision.

Such deals work both ways. They allow an employer the opportunity to give someone a chance without the consequences of a bad choice proving prohibitively costly. Once in the system a disruptive employee can survive for years, moving between departments, leaving a trail of disgruntled colleagues in their wake, particularly if they were recruited by a weak manager who is reluctant to invoke disciplinary action.

Too much contractual protection can leave employers like those in Spain, so reluctant to bind themselves to a heavily regulated employment contract that some people have found themselves in almost permanent temporary work.

Mr Pearce is canny enough to understand that a contract is indeed a two way agreement. He says he does not like the idea of being shackled to a club by an expensive contract that would need to be bought out by a new employer should he choose to leave. Besides, he says, “If at some point in the future this club don’t want me to be their manager, I'm not going to argue with them about giving me a pay-off for this or that. I wouldn’t want their money.”

These are noble sentiments. The idea seems so simple and so fair that I sometimes wonder why we have contracts at all. The reason is that contracts are about more than money. They underline certain standards and expectations from both parties. One of the oldest - the marriage contract – appears to be going out of fashion, at least among heterosexuals.

But marriage is more than a contract. It provides a collective identity for both parties that influences their relationship with other people. An employment contract does much the same thing. It establishes long term faith in a relationship that may be tested on many occasions over the years.

One of the big problems with the employment contract is the way that it has moulded the human resources job in some cases to one that is dealing too heavily with the comings and goings of employees and too little with employee development. What heartless work it must be to spend much of your time worrying about how to get rid of people. Contract-free employment means that it is important to work hard at maintaining relationships.

My middle son spent the winter working in Wengen, the Swiss ski resort, as part of a gap year between school and university. It wasn’t all skiing and partying. There were toilet and bar cleaning duties and a few days working the lifts until he undertook some ski instructor-training and began to grace the slopes in his red instructor’s jacket.

The pay was not great but to be provided with some costly instruction for what was never more than a seasonal job showed an admirable act of faith on the part of his Swiss boss. What it means is that work will always be available for him there throughout his time at university.

The best advice he and his friend were given before starting work in Wengen was to always turn up for work ten minutes early so that they “showed willing”. Nothing could have endeared them more to their employer.

The sense of reliability that accompanied this calculated enthusiasm increased their visibility and their earnings potential since, after a while, they began to be recommended for private instructing arrangements with the promise of good tips.

It is difficult to equate these casual but important learning experiences with the attitude of protesting students who on their banners last week were describing the new French employment contracts as “Slave labour by the back door”.

“You can't live with a knife at your throat,” said one student. Such comments would be understandable in an unsophisticated labour market characterised by bad management and unstable businesses. But businesses that want to remain competitive are finding that they cannot afford to treat employees in an arbitrary way.

Enlightened fund managers are beginning to look at labour turnover figures and the way they balance against training costs when they make their investment decisions. The best companies know they can no longer afford to play fast and loose with their employees. To do so would be to ruin the more stable relationships that have been established with trade unions.

There remains an important role for the employment contract, even for football managers, but employees and employers should try to experiment more with looser, more trusting arrangements that emphasise the mutual benefits. As Stuart Pearce once said in his inimitable style: “I can see the carrot at the end of the tunnel.”