1  INTRODUCTION

1.1  This submission is made by Master Builders Association of Victoria (Master Builders).

1.2  Master Builders is Victoria’s peak building and construction industry association.

2  BACKGROUND AND PURPOSE OF THIS SUBMISSION

2.1  Master Builders makes this submission in response to calls made for feedback on the Terms of Reference for an Inquiry into Labour Hire and Insecure Work announced by the Minister for Industrial Relations, the Hon. Natalie Hutchins MP on 10 September 2015 and the Background Paper released on 16 October 2015 (Background Paper). Whilst Master Builders has chosen to broadly address the issues raised, it has where appropriate, also provided comment on specific questions raised.

2.2  The building and construction industry is project based and requires different types of work for different periods of time throughout a project. The nature of this type of work necessarily requires the use of independent and skilled contractors to perform parts of the build project. This type of industry necessarily requires a mix of types of employment – and businesses need to be able to have the flexibility to draw upon these employment types.

2.3  In Victoria, construction has 88,896 firms which make up 16.3 per cent of all firms in the State. The great bulk of firms – nearly 99 per cent- are small, employing fewer than 20 people. In fact 60 per cent of all firms are sole practitioners, with no employees at all.

Number of Firms, by Industry

Rank At June 2014

1 / Construction / Victoria
88,896
2 / Professional, scientific & technical services / 67,600
3 / Rental, hiring real estate services / 57,760
4 / Financial insurance services / 46,530
5 / Agriculture / 42,304
6 / Retail trade / 36,034
7 / Transport, postal warehousing / 32,604
8 / Health care & social assistance / 28,896
9 / Manufacturing / 23,120
10 / Accommodation food services / 22,927
11 / Other services / 22,094
12 / Wholesale trade / 22,050
13 / Administrative & support services / 19,910
14 / Arts & recreation services / 7,248
15 / Education training / 6,961
16 / Information media telecommunications / 5,089
17 / Public administration safety / 1,705
18 / Electricity, gas, water & waste services / 1,591
19 / Mining / 871
Unclassified / 11,794
All industries / 545,984
Source: ABS 8165.0

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2.4  The industry makes extensive use of the sub-contracting system – with a relatively small number of building and constructions firms sub-contracting a relatively large number and wide range of service firms.

Number of Construction Firms, Victoria

At June 2014

Employees / Non-employing
0 / Small
1-19 / Medium-sized
20-199 / Large
200+ / Total
Housing / 10,757 / 5,596 / 85 / 8 / 16,446
Non-Residential / 2,387 / 1,135 / 99 / 5 / 3,626
Engineering construction / 1,144 / 1,219 / 119 / 18 / 2,500
Construction services / 39,040 / 26,595 / 671 / 18 / 66,324
Total construction / 53,328 / 34,545 / 974 / 49 / 88,896
Per cent of total Source: ABS 8165.0 / 60.0% / 38.9% / 1.1% / 0.1% / 100.0%

2.5  The nature of this service industry is highlighted in the table below, but some prominent services are carpenters, electricians, plumbers and painters.

Number of Victorian Construction Services Firms, by type of service and size of firm

Employees / Non-employing
0 / Small
1-19 / Medium-sized
20-199 / Large
200+ / Total
Total
Land Development and Subdivision / 2,398 / 235 / 12 / 3 / 2,648
Site Preparation Services / 2,161 / 1,790 / 84 / 0 / 4,035
Concreting Services / 1,772 / 1,409 / 33 / 0 / 3,214
Bricklaying Services / 1,699 / 966 / 9 / 0 / 2,674
Roofing Services / 438 / 666 / 12 / 0 / 1,116
Structural Steel Erection Services / 409 / 410 / 23 / 0 / 842
Plumbing Services / 3,662 / 3,742 / 78 / 0 / 7,482
Electrical Services / 4,260 / 4,955 / 117 / 6 / 9,338
Air Conditioning and Heating Services / 585 / 755 / 54 / 3 / 1,397
Fire and Security Alarm Installation Servi / 363 / 374 / 17 / 0 / 754
Other Building Installation Services / 634 / 560 / 15 / 3 / 1,212
Plastering and Ceiling Services / 2,595 / 1,272 / 23 / 0 / 3,890
Carpentry Services / 6,968 / 3,734 / 57 / 0 / 10,759
Tiling and Carpeting Services / 2,318 / 883 / 9 / 0 / 3,210
Painting and Decorating Services / 3,272 / 1,339 / 19 / 3 / 4,633
Glazing Services / 370 / 367 / 17 / 0 / 754
Landscape Construction Services / 2,273 / 1,612 / 32 / 0 / 3,917
Hire of Construction Machinery with Ope / 193 / 190 / 8 / 0 / 391
Other Construction Services n.e.c. / 2,670 / 1,336 / 52 / 0 / 4,058
Total construction services / 39,040 / 26,595 / 671 / 18 / 66,324
Per cent of total / 58.9% / 40.1% / 1.0% / 0.0% / 100.0%
Source: ABS 8165.0

2.6  The building and construction industry contributes around 7% to Victorian GSP (2013/14). To stifle the opportunity for businesses to employ independent contractors, and for labour hire companies to manage these arrangements, would necessarily have costly and detrimental impacts on the operation of businesses in the building and construction industry. Accordingly, it is important that red-tape burdens that might hamper or reduce the nature of the employment mix in the industry, would have very large consequences for Victoria from the impacts to the building and construction industry.

3  GENERAL COMMENTS IN RESPONSE TO THE BACKGROUND PAPER

3.1  Consistent with previous submissions made to similar inquiries, Master Builders points out our support of labour hire arrangements as a legitimate form of business arrangement. In their correct formulation, they do not equate to sham contracting or otherwise breach workplace laws or other statutory obligations.

3.2  Master Builders notes the benefits of labour hire arrangements set out at pages 8 and 10 of the Background Paper. We endorse the list of benefits there set out, in particular the fact that labour hire arrangements help businesses in the building and construction industry to conveniently access a supply of labour to meet peaks and troughs in demand.

3.3  We note that at page 10 of the Background Paper concerns expressed about labour hire include the assertion that ” labour hire workers may not receive the same rates of pay and other beneficial conditions as direct employees of a host, for example because a collective agreement covering the enterprise does not extend to labour hire staff”. Master Builders does not support the apparent inferences of that proposition.

3.4  Firstly, it apparently infers that an employee of one employer (the labour hire company) should be entitled to enjoy the same rates of pay and benefits negotiated by employees of another employer. As a general principle, they should not. Master Builders notes that under the transfer of business provisions of the Fair Work Act 2009, where an employee is terminated by an employer due to a decision to outsource that function to for example, a labour hire business; and the employee is then employed to perform the same (or similar) work by that new employer within 6 months, that transferring employee is entitled to retain the terms and conditions of his/her original enterprise agreement as a ‘transferring instrument’.

3.5  Secondly, the above proposition also appears to infer that employees of labour hire businesses will receive inferior pay and conditions to other employees. However, as noted on page 20 of the Background Paper, as a default, award coverage of each relevant modern award was extended to deal with agencies supplying labour. For example, the Building and Construction General On-site Award 2010 (the On-site Award) applies equally to employees employed by labour hire businesses to perform work in the building and construction industry as it does to other building and construction industry employees. In addition, it should be noted that in the construction industry a number of labour hire businesses have negotiated enterprise agreements with construction unions such as the CFMEU. An examination of these agreements shows that employees of such businesses have equal, and in some instances potentially superior, rates of pay and benefits than the direct employees of the host.

3.6  It is often the case that all parties to a labour hire relationship have legitimate economic reasons for electing to use that mode of service provision: namely flexibility and accessibility to the market.

3.7  We also disagree with the proposition contained at page 20 of the Background Paper that suggests that in relation to labour hire and insecure work in Victoria “... many rights and

conditions are afforded only to ongoing employees, or long-serving casual employees. Fewer rights, conditions and protections are extended to independent contractors”.

3.8  In regard to the latter point, we note that the Background Paper appears to infer that the FW Act, whilst acknowledged as “the principal source of employment rights and entitlements associated with work in Victoria” should govern independent contractors. Whilst some of the provisions relating to general protections (adverse action) and bullying extend to a broader category of worker that can include independent contractors – the principal piece of legislation dealing with independent contractors is the Independent Contractors Act 2006 (Cth) – legislation that does not appear to have been examined in the Background Paper.

3.9  In regard to the former point, the Background Paper appears to assume that all labour hire employees will be engaged on a casual basis. This is not the case. A point that doesn’t appear to be covered in the Background Paper is that casual employees are compensated for their reduced level of entitlements. For example, under the On-Site Award (which applies equally to both labour hire and non-labour hire employees) clause 15.4 provides that:

“A casual employee must be paid a casual loading of 25% for ordinary hours as provided for in this award. The casual loading is paid as compensation for annual leave, personal/carer’s leave, community service leave, notice of termination and redundancy benefits and public holidays not worked”.

3.10  Master Builders also indicates its policies on the subject of engagement of independent contractors and the legal tests for distinguishing independent contractors from employees, and notes that we do not agree that the creation of a legally recognised category known as ‘dependent contractors’ would solve the problems that flow from sham contracting arrangements.

3.11  Master Builders opposes sham contracting. Sham contracting makes it more difficult for Master Builders’ members who comply with the law to compete. Those members are disadvantaged directly by having to compete against competitors whose costs are illegitimately reduced. In addition, they are adversely affected as taxpayers, where all taxpayers must pay increased taxes because of the “leakage” from the system via the black economy and mechanisms that are constructed to defeat the law. Master Builders has long sought the full effects of the law to be visited on those who operate illegitimately by deliberately misrepresenting the nature of the employment relationship, as proscribed by the Fair Work Act, 2009 (Cth) (FW Act).

3.12  Master Builders does not support sham contracting (eg the payment of “employees” with “independent contractor” rates). Master Builders considers that if there is sham contracting in existence, that there are laws against such behaviour. Master Builders does not consider that those legitimately operating labour hire companies, should be punished for the behaviour of those who are unlawful. Instead, there may be avenues to strengthen the definition of “employee” and “contractor” in order to more clearly ensure that companies cannot operate as sham contractors.

3.13  Master Builders submits that there is very little capacity for independent contractors to “undercut” employee rates in the building and construction industry, because the independent contractors currently are protected from having their rates improperly set. Subsection 12(1) of the Independent Contractors Act 2006 (Cth) (IC Act) enables relevant courts to review unfair or harsh contracts, with paragraph 15(1)(c) of the IC Act specifying a determinative criterion when reviewing a contract as to whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work.

3.14  Master Builders’ solution to better determine the employee/contractor divide is for there to be a supplement to the common law test which is currently contained in the IC Act to add some codified elements. Master Builders’ proposal is based on our strong advocacy of clarity in the legal distinction between an employee and contractor across all laws. The current IC Act provides a basis upon which contracting arrangements can be distinguished from employment arrangements, thus preserving freedom of contract.

3.15  In distinguishing between contractors and employees, it is recommended that the current common law test adopted in the IC Act be modified and codified. Master Builders’ proposal is based on a system of statutory registration that would assist the task of distinguishing contractors and employees more clearly. Three ways to secure this objective follow. In this context we consider that this will reduce the incidence of unions being able to wrongly contend that many bona fide contractual arrangements are artificial and that many subcontractors are, in fact, employees. This would, in our view, also reduce the incidence of disruptive tactics used against contractors and subcontractors from time to time by unions as they seek the right to challenge the bona fide legal status of subcontractors. We consider that unions do have a direct interest in reducing the number and minimising the growth of independent contracts, because that activity decreases their pool of potential members.