Submission totheVictorianGovernment

VictorianInquiryin to theLabourHireIndustryand InsecureWork

27November2015

ABOUT THEHOUSINGINDUSTRYASSOCIATION...... 2

1.INTRODUCTION...... 3

2.THERESIDENTIALCONSTRUCTIONINDUSTRY...... 5

3.LABOURHIRE...... 6

4.INSECUREWORK...... 8

5.REGULATORY POWERS...... 14

HousingIndustryAssociationcontact:GilKing

ExecutiveDirector-VictoriaHousingIndustryAssociation70JolimontStreet

EastMelbourneVIC3002Phone:0392808200

-i-

ABOUTTHEHOUSING INDUSTRY ASSOCIATION

TheHousingIndustryAssociation(HIA)isAustralia’sonlynationalindustryassociationrepresentingtheinterestsof theresidentialbuildingindustry,includingnewhomebuilders,renovators,tradecontractors,landdevelopers,relatedbuildingprofessionals,andsuppliers andmanufacturersofbuildingproducts.

Asthevoiceoftheindustry,HIArepresentssome40,000memberbusinessesthroughoutAustralia.Theresidentialbuildingindustryincludes landdevelopment,detachedhomeconstruction,homerenovations,low/medium-densityhousing,high-riseapartmentbuildingsandbuildingproductmanufacturing.

HIAmemberscompriseadiversityofresidentialbuilders,includingtheHousing100volumebuilders,smalltomediumbuildersandrenovators,residentialdevelopers,tradecontractors,majorbuildingproductmanufacturersandsuppliersandconsultantstotheindustry.HIAmembersconstructover85percentof the nation’snew housingstock.

HIAexiststoservicethebusinessesitrepresents,lobbyforthebestpossiblebusinessenvironmentforthebuildingindustryandtoencouragearesponsibleandqualitydriven,affordableresidentialbuildingdevelopmentindustry.HIA’s missionisto:

“promotepoliciesandprovideserviceswhichenhanceourmembers’businesspractices,productsandprofitability,consistentwiththehigheststandardsofprofessionalandcommercialconduct.”

TheresidentialbuildingindustryisoneofAustralia’smostdynamic,innovativeandefficientserviceindustriesandisakeydriveroftheAustralianeconomy.Theresidentialbuildingindustryhasawidereachintomanufacturing,supply,andretailsectors.

TheaggregateresidentialindustrycontributiontotheAustralianeconomyisover$150billionperannum,withoveronemillionemployeesinbuildingandconstruction,tensofthousandsofsmallbusinesses,and over200,000sub-contractors reliantonthe industryfor theirlivelihood.

HIAdevelopsandadvocatespolicyonbehalfofmemberstofurtheradvancenewhomebuildingandrenovating,enablingmemberstoprovideaffordableandappropriatehousingtothegrowingAustralianpopulation.NewpolicyisgeneratedthroughagrassrootsprocessthatstartswithlocalandregionalmembercommitteesbeforeprogressingtotheAssociation’sNationalPolicyCongressbywhichtimeithaspassedthroughalmost1,000setsofhands.

Policydevelopmentissupportedbyanongoingprocessofcollectingandanalysingdata,forecasting,andprovidingindustrydataandinsightsformembers, thegeneralpublic andon acontractbasis.

TheAssociationoperatesofficesin23centresaroundthenationprovidingawiderangeofadvocacyandbusinesssupport,includingservicesandproductstomembers,technicalandcomplianceadvice,trainingservices,contractsandstationary,industryawardsforexcellence,andmemberonlydiscountsongoodsandservices.

1.INTRODUCTION

HIAwelcomestheopportunitytorespondtotheVictorianGovernment’sinquiryintotheLabourHireIndustryandInsecureWork (Inquiry).

HIAnotesthattheinquirywasannouncedinSeptembertoexaminethepracticesoflabourhirecompaniesandinvestigateinstancesofshamcontracting,phoenixactivityandinsecureworkinVictoria.

ABackgroundPaperentitled‘VictorianInquiryintotheLabourHireIndustryandInsecureWork’(BackgroundPaper)wassubsequently releasedinOctober.

Asageneralcomment,whilstHIArespectstheVictorianGovernment’s prerogative toinquireintothistopic,manyoftheseissueshavealreadybeenconsideredinrecentyears1andtheindustrialterms,conditionsandprotectionsforworkersarematterslargelycoveredbyfederalstatutesandthemodernawards.HIAadditionallynotesthataministerialworkinggrouponvulnerablevisaworkerschairedbyEmploymentMinisterMichaeliaCashisconsidering licensingoflabourhirecompaniesaspartofitsdeliberations.2

HIA’ssubmissiontotheInquiryrelatetotheresidentialconstructionindustry,whichreliesoncontractingandlabourhireworkarrangements,inadditiontodirectemploymenttobuildandrenovate thestate’sprivatedwellingstock.

1.1GENERALCOMMENTS

Independentcontractingisaquintessentialfeatureoftheresidentialconstructionindustry.

HIAestimatesthatindependenttradecontractorsperformupto80percentoftheconstructionworkthatoccursonadetachedhousingsite.Thissubcontractsystemcontributesstronglytotheefficiency,adaptabilityandcost-competitivenessofthehousingindustry.

Fortheirpart,contractorsinthehousingindustryareessentiallysmallbusinesspersonsworkingforthemselves.Theydonotwishtobeemployeesandmostarenotmembersofunionseventhoughtheyhave theright tobe.

Tothisend,HIAisdisappointedthattheInquiryislargelypremisedonanassumptionthatindependentcontractingandlabourhirearrangementsareinferiorto(andlesslegitimatethan) directemployment.

HIAparticularlydisagreeswiththecharacterisationofnon-permanentworkarrangementssuchaslabourhire,independentcontractingandthoseholdingworkingvisasas‘insecurework’.Assessingnon-permanentworkarrangementsthroughthisprismismisconceivedandanimproperbasisthroughwhichtoassessorconsiderthevariousformsofworkarrangementsthatcurrentlyprevail.Theterm‘insecurework’isnotalegaltermand,as

outlinedwithintheBackgroundPaper,itis‘notaclearlydefinedconcept’.GainingprominencethroughtheACTU’sIndependentInquiryintoInsecureWork,itisatermofartdesignedto drive a certainviewofnon-permanentworkarrangements.

Similarly,termssuchasdependantcontractoraddnothingtounderstandingthenature,reasonandextentofnon-permanentworkarrangements.

HIAdoesnotsupportshamcontracting.Againhoweverthisisanareaofconfusionand,attimes,misrepresentation.Althoughshamcontractingiswhereemployees,atfactandlaw,areforcedintoservicecontractsoraredeliberatelymislabelledascontractors,ithasbeenfalselycharacterisedovertheyearstobe“dependentcontracting”and“labouronly”subcontracting.

HIAsupportsstronglawsandpenaltiesapplyingagainstbusinessesandindividualsthatevadetheirlegalobligationsbutHIAisunawareofsignificantissueswithintheVictorianresidentialconstructionindustrytojustifyfurther reforminthisalready highly regulatedarea.

Forinstance,therecentFairWorkOmbudsmanauditofresidentialbuildingbusinessesthroughoutAustralia,includingVictoria,failedtofindprimafacieevidenceof“shamcontracting”.

HIAacknowledgesthattherecanbeconfusionoverworkerstatus.TheBackgroundPaperreferencesthe variousVictorianand Commonwealthlegislationthatregulatesworker’srightsandentitlementsbutfailstonoteorobservethatoneoftheproblemsdrivingtheambiguityastoaworker’sstatusisthedivergenttreatmentandconflictingdefinitionsofwhoisacontractor/employee/workerunder the variouslegislation.

WhilsttheCommonwealthFairWorkAct2009(the‘Act’)reliesonthecommonlaw,theprogressiveuseofdeemingprovisionsinstatebasedlegislationforpayrolltaxandworkerscompensation(andotherpurposes)thatdeemindependentcontractorstobeemployeeswhentheyarenot,hascreatedconfusion,costanduncertainty.

InHIA’ssubmission,ratherthanundermineindependentcontracting,governmentpoliciesshouldrespectandpromotethechoiceofindividualstooffertheirservicesasanindependentbusiness.SuchmeasureswouldboostproductivityandcompetitivenessoftheVictorianbuildingindustry andprovidebenefitstothecommunityingeneral.

ThebalanceofHIA’s submissiontotheInquiryaddressesthefollowingmatters:

  • AsnapshotoftheresidentialconstructionindustryandthecontributionitmakestotheVictorianeconomy;
  • Labourhirearrangements inthe industry;
  • ‘Insecurework’and ‘shamcontracting’;and
  • ThelimitationsofVictoria’slegislativepowersoverindustrialrelationsandrelatedmattersandthecapacitytoregulatethesematters.

2.THERESIDENTIALCONSTRUCTIONINDUSTRY

The buildingindustryrepresentsanimportantcomponentoftheVictorianeconomy.

In2014/15privatedwellinginvestmentrepresented6.3%percentofGrossStateProductinVictoria(AustralianBureauofStatistics[ABS]5220.0).However,whencombinedwiththoseprimaryandsecondarybusinessesthatindirectlysupplytotheconstructionindustry,theoverallimpactonresidentialbuildinginvestmentisfarstrongerintermsofbothstateemploymentandproductivityoutput.Thisflow-onimpactisreferredtoasthemultipliereffect.

IndependentresearchbytheCentreforInternationalEconomics(CIE)showsthatforevery

$1increaseinconstructionactivity,GDPwillriseby$4.75asaresult.Thisclearlyhaspositiveimplicationsforemploymentattheeconomywidelevel.Theeconomicbenefitsofincreasesinconstructionactivityareevengreaterinsituationssuchasthecurrentonewhere the economyisnotatfullemployment.

Intermsofemployment,anextra$1millionofconstructionexpendituregenerates9constructionjobs.Theinitialeffectoftheadditional$1millionworthofconstructionis9positionsinconstruction-relatedfields,suchascarpenters,bricklayers,plasterers,etc.Inadditiontothisinitialeffecttherearealsoproductioninducedeffectsgenerating7jobsacrossthosebusinessesmanufacturingthematerialsneededfortheadditionalconstruction,suchasconcreteandsteelframes,andthosebusinessessupplyingandservicingtheconcreteandsteelframebusinesses,suchasaggregatequarryingandrawsteelproduction.

Inotherwords,overandabovethedirectcontributionofconstructionactivitytotheeconomy, the constructionindustryhas'flow-on'impactsontheactivities ofother industries.

Thecyclicalandprojectnatureoftheresidentialconstructionindustrydemandsflexibleformsofengagement.Businesses,particularlysmallbusiness,mustbeagiletorespondtoexternalmarketforcesand“down” cycles wherethereis alullinconstructionactivity.Operatinginaverycompetitivemarketwherelowprofitmarginsaremaintained,itisunworkableforthesefirmstomaintainfulltime,directlyengagedworkforces.Projectbasedengagementbyitsverynaturerequires‘non-permanent’workarrangements.

OfnoteisABSdataon(nationwide)dwellingcommencementsdemonstratingthesecircumstances, forexample3:

  • Between December 2003 and March 2005 dwelling commencements

decreasedby15.3%;

  • BetweenJune2009andJune2010dwellingscommencements

increasedby52%;

  • BetweenJuneandDecember2012dwellingcommencementsdecreased

by18.1%;however

  • Between March 2012 and September 2014 dwelling commencements

increasedby59.3%.

3SeeABS8752.0 -Building Activity,Australia

3.LABOURHIRE

Thetermsofreferencerefertotheextent,natureandconsequenceoflabourhireemploymentinVictoria,includingbutnotlimited to:

i.the employmentstatusofworkersengagedby labourhirecompanies;

ii.the use oflabour hireinparticularindustriesand/orregions;

iii.the useandimpactoflabourhirearrangementsin thesupplychainsofparticularsectors,andtherolesandresponsibilitiesofvariousentitiesinthosesupplychains;

iv.the applicationofindustrialrelationslawsandinstruments;

v.the legalrightsandobligationsoflabour hireemployees,companiesandhostorganisations/entitiesandanyambiguitythatexistsbetweenthem;and

vi.allegationsthatlabour hireandsham contractingarrangementsare beingused toavoidworkplacelaws,andotherstatutoryobligations,andthecurrenteffectivenessoftheenforcementofindustrialrelations,occupationalhealthandsafetyandworkerscompensationlaws.

HIArespondstotheseissuesinthe followingterms:

3.1THE EMPLOYMENT STATUS OF WORKERS ENGAGED BY LABOUR HIRECOMPANIES

HIAnotesthataccordingto2010ABSfigures,workerscontractedtolabourhirefirms,whoarethenhiredout toa‘host’representaround1%ofallemployed people.4

FarfromaneworemergingtypeofworkarrangementinAustralia,formanydecadeslabourhireor “on-hire” arrangements havebeeninplacein theconstructionindustry.

Theessentialqualityofalabourhirearrangementisthesplittingofcontractualandcontrolrelationships. The‘standard’arrangementis:

  • theworkeratthesiteisunderthedirectionorcontrolofthehostorclientorganisationsinrelationto theperformance ofwork;
  • thelabourhireagencyhasresponsibilityforthe wagesandotheron-costsofthe worker andhasadirectcontractualrelationshipwiththem;and
  • theclientorhostpaysthelabourhireagencyforprovidingthelabourandthushasacontractualrelationshipwith the labour hireagency.

Thereareanumberofdifferingmodelsunderwhichworkersmaybeengagedunderlabourhirearrangementsincludinglabourhireemployeeservices;contractorservicesunder‘Odco’arrangement;and viaGroupTrainingOrganisations/Groupapprenticeshipschemes.

Undertheemployeeservicesor“onhire”model,thelabourhireagencyisemployeroftheworkerandisresponsiblefortheirentitlements.Thereisnoemploymentrelationshipbetween the hostandtheworker.

4ABSdatareferredtoin2015ProductivityCommissionInquiryintoAustralia’sWorkplaceRelationsFrameworkIssuesPaperatpg. 5

Thecontractorservicesor‘Odco’createsanindependentcontractingarrangementwheretheworkersareneitheremployeesofthelabourhireagencynorthehostbusiness,butareindependentcontractors.Thisisa legally tested andacceptedmethod ofengagement;thesekindsofarrangementswereupheldinafullFederalCourtdecision,BuildingWorkersIndustrial UnionofAustralia vOdcoPtyLtd5morethan2 decadesago.

Anotherformoflabourhire,facilitatedbygrouptrainingorganisation/groupapprenticeshipschemeshasalsoevolvedtoprovideessentialsourceofworkforcedevelopmentfortheindustry.

HIAoperatessuchascheme.Underit,apprenticesemployedbyHIAarehiredoutundercontractualarrangementstoHostTrainerswhoprovidetheactualon-the-jobtrainingtotheapprentices.

Thisisacommonarrangement,endorsedandsupportedbyallgovernments.Itallowsapprenticestoobtainandcompletetheirapprenticeshipswhilebeingexposedtoadiversityofworkopportunitiesandconstructionenvironments.Italsoallowsbuildersandcontractorstotrainapprenticeswithoutcommittingtoafull3/4yearcontractoftrainingforwhichtheremaynotbe workavailablein thefuture.

3.2THEUSEOFANDIMPACTOFLABOURHIREINTHERESIDENTIALCONSTRUCTIONINDUSTRY

Labourhireprovideseffectiveshort-termlabourtomanybuildingprojects,especiallyforspecialisedtasksandskillssetssuchasscaffoldingandexcavation.

Furtherandasreferredtoearlier,groupapprenticeshipschemesareanimportantsourceofapprenticeshipand skillsdevelopmentinthe housingindustry.

Infact,theconceptofgrouptrainingarosefromaneedexpressedbysmallbusinessemployersinthebuildingandsimilarindustrieswhofounditdifficulttocommittofixedfouryeartrainingcontracts.

GTOsareabletoplayaneffectiveroleinassistingtraineesandapprenticesfromcommencementthroughtocompletionbecausetheyhaveinplacepastoralcareandsupportmechanismsthatmay nototherwisebeinplacefordirectlyindenturedapprentices.

According toBuchananandEvesson:

‘Attheirbesttheyhelppromotedecent,sustainablework-basedlearningsituationsbyfacilitatingafairersharingoftherisksassociatedwithemploymentandskillformation.Theyareabletodothisbecausepolicyfromanearliereranurturedanetworkofgrouptrainingorganisationsbuiltaroundapracticalvocationalethic.Thisisanethicthatblendsthebestofcommercialcompetence,acommitmenttodevelopingcoherentoccupationalstructuresandanethosofcareandsupportatboththe personalandlocal level.’6

5(1991)99ALR735

6SeeJohnBuchananandJustineEvesson“Creatingmarketsordecentjobs?Grouptrainingandthefutureof work”. AustralianNationalTrainingAuthority,2004

Dependingonthetraderequiredorskillinvolved,labourhirearrangementsmaybeutilisedbythe principalcontractor/builderor tradecontractor.

Furtherandbyobservation,thevastmajorityofapprenticesinthebuildingandconstructionindustryaretakenonbycontractors.Oftenasinglepersonworkingasacontractorwillhaveoneor twodirectlyindenturedapprentices.

HIAsupportscontinuationofthecurrentsystemallowinglabourhirein thehousingindustry.

3.3THEAPPLICATIONOFINDUSTRIALRELATIONSLAWSANDTHELEGALRIGHTSANDOBLIGATIONS OF PARTIESTO LABOURHIRE ARRANGEMENTS

HIAdoesnotconsiderany ambiguityexistsin the applicationorunderstandingoflegalrightsandobligationsofworkersengagedunderlabourhirearrangementsinsofarastheconstructionindustry isconcerned.Thereisno “dual”or “joint” employmentrelationship.

Workersengagedunder labourhirearrangements(apart fromindependentcontracting/Odcoarrangements)areemployeesofthelabourhirefirm.Theseemployeesarecoveredbytherelevantmodernawardsand/orindustrialinstruments,theActandrelatedacts.Theyhaveaccessto unfair dismissalrights,anti-discriminationlawsandother rights.

Inturn,thelabourhirecompanies,astheemployer,areresponsibleforcompliancewiththerelevantindustriallaw,instrumentsandthemodernawards.Theyaresubjecttoextensiverulesandregulationsunder theselaws.

Hostcompanieswillhavecommonlawresponsibilitiesandstatutoryworkplacehealthandsafetyobligationswithrespect to workersundertheircontrol.

4.INSECUREWORK

Thetermsofreferencerefertotheextent,natureandconsequenceofotherformsofinsecureworkinVictoria,includingbutnotlimitedto:

i.theuseofworkingvisas,particularlyininsecure,lowpaid,unskilledorsemi-skilledjobsandtrades;

ii.exploitationofworkingvisaholdersandothervulnerableclassesofworkersincludingfemaleworkers;

iii.sham contractingand theuseof‘phoenix’corporatestructures;

iv.theimpactofinsecureworkonworkers,theirfamiliesandrelationships,andon thelocalcommunity,includingfinancialand housingstress;

v.the socialandeconomicimpactsforVictoria;and

vi.thewaysinwhichunscrupulousemploymentpracticescreateanunevenplayingfieldfor competingbusinesses.

HIArespondstotheseissuesinthe followingterms:

4.1THE USE OF WORKING VISAS, PARTICULARLY IN INSECURE, LOW PAID,UNSKILLED ORSEMI-SKILLEDJOBS ANDTRADES

HIAisnotawareofaproblemwiththeusageof 457workingvisasintheresidentialconstructionindustry.

Infact workersontemporary workvisas representonlya smallfractionoftotalworkersintheindustry.

RecentdataoftheDepartmentofImmigrationandBoarderProtectionindicatesthatonly340visasweregrantedtoconstructionworkersinVictoriain2014/2015whichissome3.6%oftemporary workvisasinthatstate.

4.2SHAM CONTRACTING ANDTHEUSE OF‘PHOENIX’CORPORATE STRUCTURES

Independent Contracting

TheBackgroundPaper statesthat:

‘Thekeyconsequenceofanindependentcontractingarrangementisthatmostemployment-relatedprotections,suchasminimumwages,paidleaveentitlements,regulatoryofengagementandnoticeofterminationdonotapply…Thisisappropriateforthosegenuinelyconductingtheirownenterpriseandconstructingouttheirservice…’7

HIAsubmitsthatwhiletheBackgroundPaperattemptstopresent‘allsides’onthisissue,itmissessomeofthekeyaspectsofthecontractingmodel,particularlyintheresidentialconstructionindustry.

TheAustralianeconomyisnotstatic–demandrisesandfallsovertime,insometimesveryunpredictableways.Inaboom,whendemandforbuildingworkishigh,contractorsareabletopickandchoosetheirwork,andcanobtainpremiumremuneration.Whentheeconomyisinrecession,demandfallsandcontractorsmaystruggletokeeptheirbusinessesafloat.Butanemployee(whiletheyremaininemployment)ispaidmoreorlessthesameregardlessofeconomicconditions.

That,andnotlegaldefinitions,istherealdifferencebetweencontractorsandemployees–contractorsareinbusinessandtakerisksinordertomakeaprofit(butsometimesincuraloss),whileemployeestakenorisksandreceivesteady,predictableremuneration.Fromtimetotime,contractorsreceiveless,overall,fortheireffortsthanwouldanemployeeperformingthesamework.Andfromtimetotimetheyreceiveconsiderablymore.Contractorschoosetoworkunderthesearrangementsbecausetheywanttoruntheirownbusinessesandmakemoney.Builderschoosetoengagethembecauseitisthemostcosteffectivewayofdoingmuchbuildingwork.Contractorsdonotwanttobetreatedasemployeesasitwouldeffectively limittheirincome.

It isalsoimportant tonotethatcontrarytotheobservationswithin theBackgroundPaper that‘thetraditionalmodelofongoing,fulltimeemploymenthasbeenunderchallenge’andthat‘formsofnon-permanentemploymenthavecombinedtoerodethattraditionalmodel’8adecadeagothe DepartmentofEmploymentandWorkplaceRelations (DEWR)statedintheirsubmissiontotheHouseofRepresentativesenquiryonlabourhireandindependentcontractingthatcontractarrangementsareessential to AustralianbusinessesastheyenablethemtocompetemoreeffectivelyinAustralianandinternationalmarketsandadapttochangingeconomicconditions.

Non-permanentformsofengagementarecriticalandsitalongsidesocalled‘traditionalforms’ofemployment.Havingavarietyofformsofengagementshouldbeencouragedinordertosuittheneedsofbothbusinessesandindividuals.Specificallyindependentcontractingisbasedonachoiceofworkoptions,forboththe hirerandthecontractor.

Contractingprovidessubstantialbenefitstosubcontractors,headcontractors/builders,consumersandtheeconomygenerallywhicharenotavailableusingemployeesalone.Thesebenefitsinclude:

  • Higherlevelsofproductivity;
  • Guaranteedhigherqualityofwork;
  • Paymentbyresultswhichleadstostablecostsatgreaterrewardsforproductivity;and
  • Capacityto organise worktosuitthemselves.

Independentresearchhasshownthatthe housingindustryissignificantlymoreefficientthancommercialconstruction.

TheProductivityCommissionfirstanalysedtheeffectsofrestrictiveworkpracticesinthecommercialsectorin1999whilstin2003Econtechconductedathoroughanalysisofthedifferentcoststructuresapplyinginthehousingandcommercialconstructionsectors.Econtechfoundthatthesametaskscostanaverageof10%moreinthecommercialsectorthanintheresidentialsector.Labourcostswereonaverage19%higherinthecommercialsector.Thisanalysisunderstatedtheactualcostdifferentialbyexcludingsiteallowanceswhichareaconsiderableadditionalcostforcommercialprojects.Ofspecificrelevanceisthatindustryestimatessuggestthattheimpactof siteallowancesforlargeprojectsinVictoriaisanadditional3to4%oftotalprojectcosts.Thisdatahasbeenregularlyupdated,the latestbeingin2013.

Inthosejurisdictionsmostaffectedbyrestrictiveworkpractices,namelyVictoriaandWesternAustralia,thecostdifferencebetweenthesectorsisevengreater.OfnoteisthatinVictoria,standardtaskssuchaslayingaconcreteslabcost19%moreinthecommercialsectorthanintheresidentialsector Victoriaalsohavemuchhigherrates ofindustrialdisputation,withanannualaverageofmorethan500workingdayslostperthousandemployees.

ShamContracting

8BackgroundPaperpg.11

Independentcontractorsarefoundinnearlyeveryindustryandacrossallsectors.HIAacknowledgesthattherearewidelydivergentviewsaboutwhethershamcontractingisinfactawidespreadproblembutinsofarasthehomebuildingsectorisconcerned,‘shamcontracting’isneither rifenor amajorproblem.

InNovember2011,thethenAustralianBuildingandConstructionCommissioner(ABCC)released a ReportofhisinquiryintoShamContractingintothe buildingindustry.The Reportfoundthat'shamcontracting'isnotrifeintheindustryoreven‘widespread’(contrarytoclaimsbytheCFMEU)andalsorejectedproposalsforradicalactionsuchaschangestolegislation.

Ofinterest,CFMEUclaimsmadeinits‘RacetotheBottom’publicationaresaidintheReport to beunsubstantiatedand involve a misuseofstatistics.

Theconceptofshamcontractingisfoundinthe“shamarrangement”provisionsoftheAct(ss.357-359),whichiswhereanemployerattemptstodeliberatelydisguiseanemploymentrelationshipasan independentcontractingrelationship.

These provisionsprohibitanemployer from:

  • Representing to an individualthat thecontractofemploymentunderwhichtheindividualis(orwouldbe)employedbytheemployerisinfactacontractforservicesunderwhichtheindividualperforms(orwouldperform)workasanindependentcontractor (s.357(1)).
  • Dismissing,orthreateningtodismiss,anemployeewhoperformsparticularworkfortheemployerinordertoengagethemasanindependentcontractortoperformthesameorsubstantiallythesame,work(s.358).
  • Makingastatementtoanemployeeorformeremployeethatitknowsisfalseinordertopersuadeorinfluencetheindividualtoenterinto acontractforservicesunderwhichtheindividualwillperformthesame,orsubstantiallythe same,workasanindependentcontractor (s.359).

Undersubsection357(2)adefenceisavailabletoanemployerifatthetimetheymadetherepresentationtheydidnotknow,andwerenotrecklessasto,thetruenatureoftherelationshipi.e.whether contractwasacontractofemployment.

Failuretocomplywiththeshamarrangementprovisionsattractspotentialpenaltiesofupto

$51,000perbreachforcorporateentitiesandupto$10,200perbreachforinvolvedindividuals.

In2006,thethenWorkplaceRelationsMinisterdescribedthepurposeoftheseprovisions.Theyare:

‘aimedatpreventingemployersfromenteringintoshamcontractingarrangements

…whereanemployerseekstoavoidtakingresponsibilityforthelegalentitlements

duetoemployeesbyseekingtodisguiseasanindependentcontractingrelationshipwhatisinrealityanemploymentrelationship.’

Asnotedabove,shamcontractingismisrepresentinganemploymentarrangementasacontract for services.

Frequentlytheterm‘shamcontract’isincorrectlyusedaspejorativelabeltodescribeallthatisundesirablewhenworkisperformedbycontractorsasopposedtodirectlyemployedlabour.Shamcontractingisalsooftenconfusedwithunrelatedconceptssuchas‘hybridemployees’,‘dependentcontractor’,‘quasi-contractor’and ‘labouronlycontractor’.

Theconceptofa‘dependantcontractor’isspecificallyreferencedwithintheBackgroundPaperandisanotheracademicconstruct.TheconceptwasdevisedbyaCanadianacademicover50yearsagobutstillisnotanacceptedlegalcategory.Thegeneralthesisisthatifa self-employedpersonprovidestheirservicestoonlyone,orpredominantlyonlyone,organisationtheyrequireregulationundertheworkplacerelationsframework,whetherthe‘dependentcontractor’wantssuchregulationornot.

InarecentarticlefortheMelbourneUniversityLawJournalacademicShaeMcCrystalhasmused:

‘Whiletheirranksincludegenuinelyentrepreneurialworkers,increasinglyalsotheyincludelowpaid,lowstatusworkers,whomaybedependent’ononeengager(so-called‘dependentcontractors’),orwhomayworkforanumberofengagers(independentcontractors)butareentirelyreliantontheirownlabourtosupportthemselvesandtheir families …’

Thisreflectstheviewamongstmany“labourlaw”scholarsthatsuchself-employedworkersshouldbetreatedlikeemployeesandprovidedwithaccesstomainstreamcollectivebargainingrights.Inthiscontext,iteasytoconsiderthecontractualarrangementsofsuchworkersasa‘sham’or asanindicationofavoidanceoflabourlawprotections.

Thisargumentishowever flawedon anumberoflevels.

Ifapersonisinbusinessesinhisorherownaccountthentheyareofferinga“contractforservices”regardlessofwhether or notalloftheir incomecomesfromonlyonesource.

Furtheritisalsoagrossover-simplificationtoconcludethat,forexample,ifacontractorworksawholeyearforasingleprincipalorbuilderthattheyarereallyanemployeeandhenceshouldbetreatedlikeone.

Economicandbargainingpowerincontractingrelationshipswillvarywithsupplyanddemand,andisnotnecessarilyalwayswith the headcontractor or builder.

Far fromit;the headcontractor maybemuchmorerelianton the continued good workoftheso-called‘dependentcontractor’thanviceversa.Abuilderwhocannotgetgoodreliabletradespersonsisatthemercyofclientspointingtocompletiondatesanddamagesclauses.

Once a builderhasfoundsuchtradespersons,thebuildernaturallywantsandneedsto hangon tothem.

Thetermsonwhichthecontractorperformsworkmay,andnormallydo,varygreatlyovertime,and thewayinwhichtheworkisperformedisstillatthecontractor’sdiscretion.Unlikeanemployee,thecontractorstillneedstoworkproductivelyandeffectivelyiftheyaretomake aprofit.

Nordoesworkingforonlyoneheadcontractornecessarilymakeaperson‘dependent’inanypejorativesense.Anemployeemustadheretotheiremploymentorresign– acontractorcancomeandgoandhasachoiceofwheretheywork.Ifthecontractoratanyparticulartimecannotnegotiateacceptableratesandterms,theyarefreetoworkelsewhere.

Thefactthattheydonot,indicatesnotthattheyare‘dependant’or‘employee-like’andrequirethelaw’sprotection,butthattheyarehappywithinamutuallybeneficialbusinessrelationship.

Theideathatworkingforasingleheadcontractoris‘dependentcontracting’andabadthingwhichshouldbediscouragedbylawiswhollywrong,andwouldmerelyleadtothebreak-upofmanyhappyandefficientlong-standingbusinessrelationships, for novalidreason.

AgainstthisbackdropHIAconsidersthatthecurrentprovisionsprovidesoundandeffectiveprotectionsagainstshamcontractinganditisunnecessaryandundesirablefortheVictorianGovernmenttolegislateanyfurther.ThecurrentlegaldefinitionintheActisthecorrectapproachtothe issue.

TheBackgroundPapersuggeststhattheshamcontractingprovisionsapplytocircumstancesinwhicharelationshiphasbeen‘mischaracterised’9.Thisisincorrect.Amischaracterisationorthemisclassificationofanemployeeasanindependentcontractorisnotsham contracting.

TheFWOintheir2011report“Shamcontractingandthemisclassificationofworkersinthecleaningservices,hairandbeautyandcallcentreindustries”importantlydistinguishedcontraventionsoftheFWAshamarrangementsprovisionswiththemisclassificationofemployeesasindependentcontractors.

Toavoidconflatingthemintotheoneterm,theFWOusedtheterm“shamarrangements”todescribebehaviourthatcontravenestheshamarrangementsprovisionsoftheActand“misclassification”todescribeasituationwheretheworkerisconsideredanemployeebutnodeliberatefalsehoodisapparent.

TheBackgroundPaperstatesthatmisclassificationaffects13%ofcontractorswithinthebuildingandconstructionindustry.Thisfigurewastakenfromresearchentitled‘Working

Arrangementsin the BuildingandConstructionIndustry–Further researchresultingfrom the2011Sham ContractingInquiry’(Report) andHIA wouldcautionagainstrelyingonthisdata.

Firstly,theresearchwascommissionedbyFairWorkBuildingandConstructionandwasinresponsetooneoftherecommendationsarisingoutofthe2011ShamContractingInquiry.Secondly,theReportsstatedaimwasto‘capturearepresentativesnapshotofworkarrangementsintheindustry’;althoughitisarguablethatninefocusgroupseachinvolvingbetween6-8peopleand1350surveyresponsesishardly‘representative’giventhesizeoftheindustry.FinallytheReportdidnotsurveysinglydetachedhousingandindicatedthatjust5%oftherespondentswereengagedinresidentialbuildinginvolvingfourormoredwellings.

IfaproperassessmentofallegedshamcontractinginVictoriaistobeundertaken,accurateandreliabledatamustbeprocured.

Phoenixactivities

HIAsupportsgovernmentactionstoreduceanddiscouragethe use ofPhoenix companies.

Itisworthnotingthatthereisnocurrentstatutorydefinitionofwhatisa“phoenixcompany”althoughtherearearangeofcorporationsandtaxationlawstargetedtowardsfraud,directorsduties,insolventtradingandunpaidtax liabilities.

The mandatorylicensingofbuildersinVictoriaandhomeownerswarrantyinsurancesystemreducesthe ability ofdirectorstoutilisephoenixarrangements.

Inordertobelicensedresidentialbuildersaresubjecttostrictfinancialandpersonalprobityrequirements.Directorswhohavecontrolledaninsolventcompanymayalternativelybeautomaticallyexcludedfromconsiderationorwilltypicallyfailthe“fitandproper”personrequirements,forexampletheBuildingPractitionersBoard(BPB)mayrefusetoregisteranapplicantifanumber‘goodcharacter’requirementsarenotmet(s170(c))andinstancesofinsolvencyunderadministrationisa relevantfactor.

5.REGULATORYPOWERS

Thetermsofreferencehighlightthatinmakingrecommendations,theInquiryshouldhaveregardtomatters including:

i.thelimitationsofVictoria’slegislativepowersoverindustrialrelationsandrelatedmattersandthecapacitytoregulatethesematters;

ii.the powersof the Commonwealthastheyextendto workvisas;

iii.regulationinotherAustralianjurisdictionsandinothercountries,includinghowother jurisdictionsregulatelabourhire;

iv.theimpact,benefits,orpossibledrawbacksofanyregulatoryregimeapplyingtolabourhirebusinesses,onVictorianbusiness;

v.the abilityofanyVictorianregulatoryarrangementstooperatein theabsenceofanationalapproach;

vi.regulatory mechanisms to meet the objectives of protecting the rights ofvulnerableworkers;and

vii.Australia’s obligations under international law, including International LabourOrganisationConventions.

HIArespondstotheseissuesinthe followingterms:

5.1THELIMITATIONSOFVICTORIA’SLEGISLATIVEPOWERSOVERINDUSTRIALRELATIONSANDRELATEDMATTERSANDTHECAPACITYTO REGULATETHESEMATTERS

Referralof powers

HIAnotesthatin1996,Victoriawasthefirststatetoreferitsindustrialrelationspowerstothe Commonwealth.

HIAsupportsthisongoingreferral.CommunityandeconomywidebenefitshaveflowedfromVictoriaadoptinganationalapproachtotheregulationofindustrialrelationsmattersincludinggreaterefficiencies,lessuncertaintyforworkersandbusinessesandtheminimisationof“forum shopping”.

HIAdoesnotsupportanyfurtherunderminingofthenationalsystembypiecemeal,statebasedlegislation.

Independent Contracting

InHIA’ssubmission,anyfurtherstatelegislativeinterventiontoregulatetheroleofcontractorswillimposemorecostandunnecessaryconfusionandinconsistency.

Contrarytotheperceptionthatthereisalackofentitlementsfornon-permanentformsofwork,thecurrentregulatoryregimeprovidesarangeofentitlementswhichflowfromthedifferingtreatmentanddefinitionsof‘employee’,‘independentcontractor’and‘employer’across Commonwealthandstatejurisdictions.

Asnotedearlier,independentcontractorandworkerarrangementsareregulatedat anumber oflevels,leading toa variety ofassessmentmethods including:

  • Thecommonlawforworkplacerelationspurposes.
  • TheCommonwealthsuperannuationguaranteelawswhichunfortunatelymovebeyondthecommonlawprovidingthatifapersonworksunderacontractthatiswhollyorprincipally(morethanhalf)forthelabouroftheperson,thepersonisdeemedtobeanemployeeoftheotherpartytothecontract.
  • TheincometaxlegislationadoptstheAlienationofPersonalServicesIncomeTest(APSI).Thistestdifferentiatesindependentcontractorarrangementsinrelationtotaxationfrom PAYGemployees.
  • Atastatelevel,acontractorcanbeseparatelydefinedunderpayrolltaxlaws,workplacehealthandsafetylaws,workerscompensationlaws,longserviceleave:
  • workplacehealthandsafetylegislationimposesdutiesonbeyondthetraditionalconceptof theemploymentrelationshipapplyingobligationson“personascarryingoutabusinessorundertaking”regardless ofwhetherornottheyarean employer;
  • workers’compensationlegislationappliesbenefitstocertainworkersunder a“contract for service”;
  • harmonisedpayrolltaxprovisionscoverscontractorsperformingworkotherthanpursuanttoatradeorbusinesswhichtheycarryonanddonotsub-contract to anyoneelse;
  • anti-discriminationlegislationappliestobothcontractorsandemployees;and
  • constructionindustrylongserviceleaveinsomejurisdictionsextendsto“labour only” subcontractors.

BecauseofthedifferinglegislativeapproachatastateandCommonwealthlevels,uncertaintiesaboutthestatusofcontractors,haveimposedconsiderablecostsonindustryandprogressively eroded theindependentstatus ofsubcontractors.

TheIndependentContractorsAct2006issquarelyaimedatrecognisingcontractingasalegitimateway ofperformingworkintoday’seconomy,itsobjectivesbeing:

  • toprotectthefreedomofindependentcontractorstoenterintoservicescontracts;and
  • torecogniseindependentcontractingasalegitimateformofworkarrangementthatis primarily commercial;and
  • to preventinterferencewith thetermsofgenuineindependentcontracting.

TheseobjectivesreflecttheExplanatoryMemorandum(EM)totheIndependentContractorsBill2006which statedthat:

‘[theBillwill]enshrineandprotectthestatusofindependentcontractorsandencourageindependentcontractingasawhollylegitimateform ofwork’.

TheEMfurtherobservedthat:

‘Facilitatingtheuseofindependentcontractorsandtheflexiblearrangementsaffordedbythemisimperativetocontributingtothedynamicefficiencyoftheeconomy.StatelawswhichcreatebarrierstotheuseofindependentcontractorsinAustralianworkplacesmeanthattheseflexiblearrangementsarestifled.

…

However,contractingrelationshipscontinuetobedraggedintothesphereofemploymentlawbyvirtueofStatedeemingprovisionswhichdeterminecertainindependentcontractorstobeemployees.Thisdistortsflexibilityandchoiceandinterfereswiththeintentionof thepartiestothe originalcontract.’

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HIAwouldalsohighlightthatallegationsofshamcontractingandOdcostylearrangementsare ‘oftensubject to closescrutinybythe courts’10, infact the FWO hasappealed to the HighCourtinthematterofFairWorkOmbudsmanvQuestSouthPerthHoldingsPtyLtdOrs11toscrutinisesucharrangements.InthatcasetheHighCourtisbeingaskedtoconsiderthe‘triangular’relationshipbetweenabusiness,alabourhirecompanyandanindividualinthecontextofthecurrentshamcontractingprovisions.Itisofnote,thatanearlierdecisiontheFull FederalCourtheldthatsucharrangements did notcontravenethe law.12

Whereacontroversyexists,inHIA’sviewthecourtsaretheappropriateplaceforthistobedealtwith,particularlyintheseoftencomplexsituations.Thisisevenmore relevantgiventhealreadysaturatedlegislativeframeworkandthelimitsonthestate’slegislativepoweroverindustrialmatters.

PhoenixActivities

Asnotedabove,thereisnodefinitionofa ‘phoenixcompany’howeverthereare a number ofCommonwealthlawsinplace to addressandregulatecorporateinsolvencies.

UndertheCorporationsAct2001,directorshaveadirectandpositivedutytopreventtheircompanyfromtradingifitisinsolvent.Acompanyisinsolventifitisunabletopayallitsdebtswhentheyaredue.Directorsmustpreventtheircompanyfromincurringdebtswherethecompanyisinsolvent,orbecomesinsolventbyincurringthedebt(s)andatthattime,therearereasonablegroundsforsuspectingthecompanyisinsolvent,orwouldbecomeinsolvent.

Therearevariouspenaltiesandconsequencesofinsolventtrading,includingcivilpenalties,compensationproceedings,criminalchargesand/ordisqualificationfrommanagingacorporation.

Acompanymustalsokeepfinancialrecordsto correctlyrecordandexplaintransactionsandthecompany’sfinancialpositionandperformance.Afailureofadirectortotakeallreasonablestepsto ensure acompanyfulfilsthisrequirementcontravenesthelegislation.

Directors’alsohavefiduciarydutieswhichincludethedutiestoactingoodfaithinthebestinterestsofthecompany,toactforpropercorporatepurposesandtoavoidconflictsofinterest.Ithasbeenheldthatthedutyofdirectorstoactingoodfaithandinthebestinterestsof the companyincludesconsiderationof the interestsofcreditorsuponinsolvency.Undertaxationlaws,directors’personalliabilitymay arisewheretheCommissioner ofTaxationissuesaDirectorLiabilityNotice(“DLN”)underSection222AOEoftheITAAtothedirectorsatatimewhenthecompanyhasfailedtoremittax.Theobjectivesoftheseprovisionsaretoensurethatacompanysatisfiesparticularincometaxobligationsorispromptlyplacedintovoluntaryadministrationor liquidation.

10BackgroundPaperpg.12

11HCATrans284(4Novembers 2015)

12FairWorkOmbudsmanvQuest SouthPerthHoldings PtyLtd OrsNo.P16of2015

LiquidatorsandexternaladministratorshaveobligationstoinvestigatecausesoffailureandidentifyandreportbreachesoflawtoASIC.Thisisaimedatensuringinappropriatedirector/corporatebehaviour is identifiedandaddressedbythepartycapableof takingdisciplinaryaction,generally the corporateregulator.

Liquidatorsalsohavepowerstoinvestigateandvoidcertaintransactionssuchasunfairpreferencepayments.

ASIC,inturn,hasanumberofpowerstotakeactionagainstsuchreportedbreachesanditisimportantthatASICtakeeffectiveactionagainstreportedbreachesinordertoensurethedeterrentintentofthecurrentlawsisbeingmet.

Itisclearthatthecurrentlegislativeschemeisintendedto‘coverthefield’.Theabovelawsprovideasolidandsoundregulatoryframeworkforregulatinginsolvenciesandcallsbyvariouspartiesforfurtherlawsorregulatorypowersareusuallymadeincircumstanceswhereexistingpowershavenotbeeneffectivelyused.

5.2THEIMPACT,BENEFITS,ORPOSSIBLEDRAWBACKSOFANYREGULATORYREGIME APPLYING TOLABOUR HIREBUSINESSES,ON VICTORIANBUSINESS

TheBackgroundPaper observesthat:

  • Nootherstatejurisdictionregulateslabourhirecompanies.Infact,WAandSAprovidespecificexclusionsforthe industry;and
  • Whereanissuehasbeenidentifiedwithinasector,specificmechanismshavebeenputinplacetoaddressthoseconcernsspecificsectorialconcerns.Thissuggeststhatanindustrybyindustryapproachismoreappropriatewhenassessinglabourhirearrangementsandbroadgeneralisationsaddlittle.

Asnotedinearliersubmissions,theCommonwealthcurrentlyhasaministerialworkinggroupconsideringtheoptionsofregulatinglabourhirebusinesses.HIAdoesnotconsideritappropriatethattheVictoriangovernmenttakestandaloneactionswithrespecttotheseissuesatthistime.