Chapter 4 - Lawlessness
At the moment, despite the propaganda, our industry is actually
free from major disruption. Of course we have day-to-day disputes around the
place at the site level about conditions and about employers honouring their
agreements in relation to safety and so on. They are all dealt with at the site
level. They are dealt with by shop stewards, employers, union officials,
company senior representatives, dispute boards, arbitration commissions and
through consultative procedures. Plenty of devices are available to be used and
they are used on a regular basis.[147]
99.1
Allegations of endemic lawlessness in the building and
construction industry are at the bottom of the Government's determination to
'reform' the industry. Lawlessness, it is claimed, is the root cause of low
productivity and of the poor performance of the industry, by international
standards. Wild claims have been made in the Cole
royal commission report which is replete with detail of alleged lawlessness in
all its industry manifestations. In addition to what is in this report is
information, though much less detailed, in the Building Industry Taskforce
report Upholding the Law - One Year On.
99.2
This chapter commences with some general comments on
the industry which are not emphasised in the royal commission reports, followed
by the findings and recommendations of the Cole royal commission in regard to
lawlessness, particularly allegations against unions and their officials; and, evidence
of disregard of statutory obligations by employers. These matters put this
issue of lawlessness in context and separate the perception from the reality.
Relevant characteristics of the industry
99.3
The Government argues that the unique characteristics
of the building and construction industry, including its culture of lawlessness,
require it to have a separate industrial relations regime, centrally
administered, under its proposed agency of regulation, the Australian
Building and Construction
Commission. The committee majority rejects this narrow 'policeman's vision'
partly for the reason that it is inequitable to place employees in a particular
industry in a position where they have fewer rights than are enjoyed by other
workers. More broadly, it opposes the scheme because it will inevitably cause a
great deal of industrial strife.
99.4
But the committee agrees that there are some
distinctive characteristics of construction work that are important to
recognise, and which have a bearing on this inquiry. Allegations of lawlessness
by workers, mostly through industrial action or the threat of industrial action,
should be viewed in the light of these factors. So should the documented
accounts of illegal behaviour and negligence on the part of employers. The
construction industry, in most essential details, is similar the world over.
The characteristics which bear on the theme of this chapter are as follows:
-
construction is cost-driven and employers are
usually under pressure to reduce cost, with frequent recourse to measures which
deny employees their full entitlements;
-
employees and unions know that if they do not
pursue entitlements either before the project starts, or while it is still
going, they will not be recovered;
-
construction work is dangerous in all places,
the level of danger depending on the competence of management and the quality
of occupational health and safety regulations and the thoroughness of
compliance with them;
-
it is served overwhelmingly by a male workforce
and the work culture is often characterised by the use of coarse language and
rough behaviour; and
-
trade union membership is higher, and
'militancy' is more evident than in other industries, for reasons which arise
from most of the above.[148]
Recognition of these characteristics is important in so far as
they have been largely overlooked by the Government. The industry is organised
like no other. The nature of employment in the construction industry is based
on the project rather than the enterprise. The work is therefore short-term,
with employees moving from one project on one site, to another, within the
space of months, depending on the size of the project. There they will
encounter different conditions of work and different management arrangements
and style on different worksites. Projects draw together a range of workers at
certain points in the process, with specialist tradesmen and women moving in
and out of the site at intervals.[149]
99.5
The financial pressures are evident in the descending
spiral of contractual arrangements that apply to each project. Evidence in
other chapters explains how the cost squeeze bears on cost cutting; the
casualties being the employees working in unsafe conditions, being paid less
than their full entitlements, with their workers compensation and
superannuation entitlements not being paid, or underpaid. The Australian Taxation
Office is frequently omitted from the list of an employer's creditors, on a
'long-term temporary' basis. In these circumstances there is often considerable
animosity generated between employers and employees. The unions are appealed to,
and the result is often industrial strife, mainly through the imposition of
bans. In these circumstances, employers may often complain to their
representative organisation, the Master Builders Association or ACCI, who,
regardless of the facts of the matter, and even in the course of giving sound
advice, may gain an impression that union action is causing hardship to one of
their members. The charge of lawlessness by an employer may indicate a
reluctance to acknowledge a management failure.
99.6
The committee has received a great deal of evidence of
the failure of employers to ensure the proper maintenance of occupational
health and safety standards. Occupational health and safety issues are the most
common cause of industrial disputes in the construction industry, which is not
surprising in a relatively dangerous industry.
99.7
It is reasonable to be shocked by the thought of
violent action and intimidation, for which there can be no excuse, but in the
context of underpayments, dangerous working conditions and given the way labour
is deployed in the industry, it is to be expected that the temper of employees on
some occasions runs several degrees hotter than for those in more sedentary and
less dangerous occupations. The relatively high rate of industrial disputes in
the industry may be attributed to these factors. The operation of the workplace
and the effects that an occupational culture may have on workers needs to be accepted
even if it cannot be understood by those outside the industry.
The nature of lawlessness in the industry
99.8
The use of terms such as lawlessness are intended to
make a political point that there is a continuing culture of violence in the
industry. The committee notes that the term lawlessness appears to recur more
frequently in Government statements than in statements coming from industry,
perhaps for the reason that participants and stakeholders are closer to
operational realities than are the Minister and his personal and departmental
advisors. Witnesses appearing before the committee have stated firmly that they
have no knowledge or evidence of such violence or intimidation as it would be
understood in criminal law, in the industry and in the general community.
99.9
The committee noted that there was a range of evidence
presented on the nature of lawlessness, how it may be defined, and what forms
of lawlessness were to be regarded most seriously. In the previous section the
committee looked at lawlessness in relative terms, and suggested that there
were underlying causes linked to the way the industry operated. The royal
commission saw lawlessness as disregard for the rules set down in statutes or
the decisions of courts and regulatory agencies. This is lawlessness defined by
'black letter' law. The committee believes it is likely that a body such as the
AIRC is less interested in 'black letter' law than in the resolution of disputes, an attitude which Commissioner
Cole and successive workplace relations
ministers are known to be critical of.
99.10
The Master Builders Association quotes Singleton from
the Cato Institute to support the view that law has the function of preventing
disputes between individuals, businesses and investors and to minimise risk and
costs for investment.[150] For groups
such as the MBA and the Ai Group as employer representatives, lawlessness is
any activity which risks investment in the industry, and the main purpose of
maintaining a 'stable' industrial relations climate is to encourage investment.[151] Therefore,
for an organisation like the MBA the most readily identifiable problem for the
industry is criminal and unlawful behaviour that undermines the 'moral fibre'
of the industry and, at a practical level, is behaviour which will act against
investment and productivity.[152]
99.11
The committee majority would not entirely reject this
view because it recognises that without investment there would be no economic
activity. Nonetheless, it is a wholly unbalanced view, rather as if the
committee was to attempt to argue that the product of labour is immaterial, and
that the purpose, and priority, of industry should be maintaining full
employment. What the committee does argue is that the law exists to protect
individuals from exploitation by those in power. The committee majority would argue that behaviour which might
affect investment is not criminal activity, and has not been recognised as such
under either national or international law. The withholding of labour is
intended to bring economic pressure to bear on employers in the expectation
that a bargain can be reached at some point. That such bargaining is now
carried out through means which often involves confrontation is a direct result
of the industrial relations framework that this Government has established. As a
representative of the International Council for Trade Union Rights (ICTUR) pointed
out to the committee:
Economic coercionagain, that is a
term that has its own coloureconomic pressure is part and parcel of collective
bargaining; that is the nature of collective bargaining. We used to have a
system of conciliation and arbitration where, instead of the application of
economic pressure, there was an independent arbitrator who determined a
balanced result. Given that we have moved to a collective bargaining system,
economic pressure is part and parcel of the fabric of that system. So it is
wrong, in my view, to take economic pressure and wrongly characterise it in the
language of the criminal law. There is no doubt that it is economic pressure,
but it is a legitimate part of the system.[153]
99.12
The committee believes that what the Government takes
to be lawlessness relates to the process of negotiation between employee and
employer representatives: that the real issue is not criminality as it would
relate to civil law such as trespass or violence against individuals, but the
process of negotiation, review and compliance with enterprise agreements:
'Illegal' tends to be reserved by
lawyers for conduct which impugns the criminal law. It is a narrower concept,
as normally understood, than the word unlawful, which can involve
interference with contractual relations or tort matters. There is a debate
among lawyers as to whether breach of contract can also constitute unlawful
conductin other words, civil matters.[154]
99.13
The committee believes that the totally opposite
philosophical positions held by the Government and the trade unions on what may
be defined as lawlessness is reflected in the use of their language and the
meaning given to words. The Government tends to apply such terms as 'criminality'
and coercion in regard to any activity in pursuit of collective bargaining. The
implication is that such activity is improper. The ILO would not accept as
reasonable the Government's use of such terminology in this context. As the
national secretary of the CFMEU responded to a Government party senator when
questioned on this matter:
Under your government there is some attempt to add the taint of
criminality to simple bargaining. If you were referring me to the use of
violence, threats of violence or some kind of genuine criminal matter then we
might share common purpose but, based on what you have said to me, I think what
is in your hand are industrial matters.[155]
99.14
Such activities have resulted in the working conditions
that all Australian workers enjoy today.[156]
Use
of commercial and criminal law
99.15
Some industry representatives are arguing for this bill
in the mistaken belief that when the industrial relations system doesn't work
in their favour, they are able to move such matters into commercial and
criminal law to try and redefine the power relationships in their favour. They
are encouraged in that line of thinking by the Government favouring a similar
approach, at least in principle.
99.16
The committee is concerned that the use of commercial
concepts such as 'trespass' and 'coercion' are based on the notion that labour
is a 'commodity' with commercial value and whose regulation and use can be
addressed through civil courts in a similar way to other property rights. This
issue was addressed by ICTUR:
One of the things that bedevils this
debate is that terms in common usage in criminal law now frequently appear in
arguments over industrial matters. For example, right of entry is
characterised as trespass, and bargaining can be characterised as
intimidation or in some circumstances as extortion. These words, which are
dramatic language in popular currency, are used in industrial relations. It
seems to me that there is a blurring of what are appropriate terms for the
criminal jurisdiction, appropriate terms for the civil jurisdiction and
appropriate terms for the industrial relations system. .... it is
inappropriate. It really is a reversion to the culture that permeated through
the common law a hundred years ago. One would hope that we have moved well
beyond that, but it seems that we have reverted to it to some degree.[157]
99.17
In establishing such legislation, the government has
used commercial concepts for the regulation of industrial relations that will
create ambiguity and uncertainty in the regulation of relations between
employers and employees in the industry.[158] Such
legislation will wind back conventions and precedents that have been
established over a century of industrial law practice which has evolved to balance
the rights of both employers and employees.[159] The committee is concerned that by taking
this legislative approach, Australia
is ultimately flouting international law and laying the basis for lawlessness
not only in this industry, but for industrial relations across all industries.[160] The ACTU
told the committee that recourse to a regime of pains and penalties exacerbates
industrial conflict:
and it is why during the major part
of our federal history we have successfully had an emphasis, as a community I
think, on processes of conciliation and arbitration and dealing with industrial
relations issues within that context. You cannot apply commercial law and
concepts of criminal law to what are fundamentally basic rights for people to
associate and to collectively bargain to improve their living standards and
protect their occupational health and safety. If you attempt to proscribe those
basic rights and apply very severe penalties for breaches, it is a recipe for
industrial chaosthat is all that it can be described as. A fundamental breach
of basic rights is proposed in this bill for workers in this industry, and it
cannot, in any sense, lead to greater efficiency, productivity or cost
outcomes. It will be a destructive thing if this bill passes in this form.[161]
99.18
As evidence noted in the previous chapter indicates,
conciliation and arbitration has many champions in the industry and is likely
to gain many more should the industry experience what the proposed legislation
promises.
The findings of the Cole royal commission
99.19
Chapter 2 deals with the Cole
royal commission, in particular with its role in promoting the Government's
industrial relations policy, and in the procedures it adopted for this purpose.
The pretext for appointing the royal commission was lawlessness in the industry
reported to the Minister in a paper by the Employment Advocate in which he describes
the hostile response to the building site visits conducted by his officers.
They were there for the purpose of promoting AWAs, so the response may have
been anticipated. Visits to workplaces by officials carrying out policies
intended to undermine the role of unions and to weaken their bargaining power
might be expected to arouse animosity and even lead to what is loosely termed
'unacceptable behaviour'.
The
CFMEU conspiracy
99.20
The conclusions of Commissioner Cole
as to the causes of unlawfulness are provocative. He notes that:
There is a clash between the short term project profitability of
the providers of capital, clients, head contractors and subcontractors on the
one hand, and the long term aspirations of the union movement, especially the
CFMEU, to dominate, control and regulate the industry for its benefit, and to
what it perceives to be the benefit of its members, on the other hand.[162]
99.21
Commissioner Cole's
argument is that short sighted employers, eager for short term benefits, have
agreed up to now to pay off unions through giving way to their demands. Yet
while employers are merely complicit, trade unions are the real criminals. This
is so, it is argued, because the unions have more bargaining power than the
employer groups. This is evidenced by their ability to organise and engage in
industrial disputes, whereas, presumably, the employers for whom solidarity is
an alien concept (and illegal in many operational circumstances) are left
vulnerable. The royal commission report points out that this state of affairs
will continue, unless broken by the action it recommends, because aspiring lead
contractors who are tomorrow's industry leaders are learning bad habits. The
report makes the point that:
The prospect of industrial disruption is a disqualifying feature
for the obtaining of future work, and thus being a long time participant in the
industry. This is well understood by the contractors, and by the unions. It
places enormous power in the hands of unions. It encourages unions to use that
power to obtain otherwise unattainable outcomes. The threat of the use of power
is as effective as its exercise. Each of the unions and the contractors know
this and factors this circumstance into their relationships.[163]
99.22
The committee majority finds this observation
remarkable, but notes that it comes from one whose experience in industrial law
is in representing building firms in their tussles with trade unions. That does
not necessarily carry with it a close knowledge of unions. It is alleged that
the CFMEU is engaged in a national conspiracy to control the construction
industry. It must be presumed to be 'national', even though it is widely known that
there are differences in the attitudes and opinions of the CFMEU branches
across states. There are historical reasons for this. It may even be observed by
the authors of this majority report, all former trade union officials, that Commissioner
Cole's assertion is far too flattering in
its attribution of such an ambition to the CFMEU, or to any union. Union
officials are often bemused by assumption that they are in possession of vast
reserves of power which they can unleash at a strategic moment. In truth,
unions operate in a chaotic world along with everyone else and meet the
circumstances which arise as best they can, with the material interests of
their members as their first consideration.
99.23
It has to be conceded that the CFMEU has ambitions to
increase its membership to the extent that it can, and works assiduously to
achieve this, as all trade unions do. But there is not a piece of credible
evidence to suggest that the CFMEU has even the remotest ambition to dominate,
regulate and control the industry. The committee does not believe that
investors and leading construction firms have this ambition either, although as
holders of capital and management expertise they would be in a better position
to do so than the CFMEU, which is only one of several unions involved in the
construction industry.
99.24
The committee concludes that it is beyond the bounds of
possibility for the CFMEU to run a conspiracy along the lines suggested in the
royal commission report. The nature of the union's activity, and the large
number of organisers involved at hundreds of project sites across the country
means that a great deal of local activity, even industrial action, may be
unknown to national and state officials. The CFMEU is cast as the bogy man in
this drama, as its treatment at the hands of the royal commission shows.
Leaving aside the fears of the CFMEU, it is unlikely that industry players have
been deceived by this malign campaign.
The
evidence to the royal commission
99.25
In addressing the issue of lawlessness, the submission
from DEWR states that the royal commission found an entrenched culture of
lawlessness in the industry, coupled with widespread inappropriate practices
that act against choice, productivity and safety. The submission also said that
the royal commission found that the industry was found to have a deep-seated
culture of disregard for the law and clear patterns of unlawful conduct.[164]
99.26
Commissioner Cole
found lawlessness and inappropriate conduct exhibited in many ways, including
breaches of the criminal law, breaches of the Workplace Relations Act, breaches
of various state acts in regard to occupational health and safety, and disregard
of revenue statutes of the Commonwealth and the states. Commissioner
Cole specifically found that the CFMEU
regarded such orders as were issued by courts and tribunals as not applying to
it; and the underlying assumption was that no one would be held accountable for
the considerable array of offences that had been committed.[165] The
committee majority notes with interest that the CFMEU has, in fact, been
charged with very few breaches of WR Act section 127 orders. According to
figures provided by the Australian Industrial Registrar, only 15 section 127
orders under the WR Act were issued against the CFMEU for activities in the
building and construction industry in the last five years.[166]
99.27
Over a five year period, the committee notes that the
number of orders that have been issued over the period is extremely low,
indicating that employers have not made use of existing legislation, even when
it can be accessed within 24 hours.
99.28
Over 100 types of unlawful and inappropriate practices
in the industry were listed in the summary report, and Commissioner
Cole made findings about 392 separate
instances of unlawful conduct by individuals, trade unions and employees.
99.29
Under his terms of reference, Commissioner
Cole was obliged to investigate and report
not only on illegal, but 'inappropriate 'conduct. Consideration of the latter
required a more subjective assessment, hinging on whether such conduct could be
considered 'undesirable' or otherwise rather than strictly lawful or unlawful.
The difficulty facing the commission was pointed out by a CFMEU legal official who
noted that 'on any view, a non-judicial body, proceeding without the rules of
evidence and making determinations about "inappropriateness", would
involve an inordinate amount of subjectivity and value judgement'.[167] These
difficulties were overcome. The royal commission lists 88 instances of
inappropriate conduct in its summary of findings.[168] All but
three of these were engaged in by a trade union or a union official.
99.30
It is unnecessary for all the alleged offences to be
listed in this report. As will be noted later in more detail, few of the 392
cases of alleged illegalities have been prosecuted, for the reason that there was
insufficient evidence to proceed. The royal commission is not a court and has
lower evidentiary standards than does a court. But as has been calculated by
the CEPU, based on ATO and royal commission figures, the workforce in the
industry is remarkably law abiding. About 99.94 per cent of those employed in
the industry are law-abiding, with the royal commission accusing only 31 people
out of more than 700,000 employees in the industry. The committee expects that
such figures represent far less incidence of crime than would be represented in
the community overall, and would compare more than favourably with the Victoria
Police.[169]
99.31
In reality, the royal commission provided no evidence
of significant criminality in the industry. As the ACTU observed, the alleged
culture of industrial lawlessness, when examined closely, amounts to not much
more than the exercise of right of entry or the taking of industrial action
outside the restrictive framework of current legislation. In 20 per cent of
cases cited in the report, the laws that are breached are the common law torts
of interference with contractual relations or trespass, rather than any
statutory prohibition. [170]
Cole allegations: the prosecution record
99.32
In his confidential volume of the royal commission
report, Commissioner Cole
cited 92 incidents of unlawful conduct in which 98 people were involved. The
Attorney General referred 31 of these incidents to states and territories for
prosecution. Nine of these referrals are still under investigation, and no
action will be take in regard to the others, as of 25 March 2004. One referral was finalised by Queensland
on the basis that the action could not be undertaken, but it had been referred
to the ACCC for possible breaches of the Trade Practices Act.
99.33
Seven incidents were referred to the Minister for
Justice and Customs. One incident was finalised by the Australian Federal Police
involving a person convicted for offences under the Royal Commissions Act,
another three incidents are unlikely to be successfully prosecuted. Another three
incidents are still under active investigation by the AFP.
99.34
Five incidents were referred to the ACCC, three of them
now discontinued, and the other two incidents are still under active
investigation by the ACCC. In regard to other agencies, two incidents are still
with ASIC and one incident is with the federal registrar who is considering
what action to take.
99.35
The first report of the Cole
royal commission recommended the establishment of an interim body to monitor
conduct in the construction industry, to investigate cases and to proceed with
prosecutions to ensure that current laws were being upheld. As a consequence, the
Interim Building Industry Taskforce was established, commencing operations on 1 October 2002.
99.36
The Attorney General referred 52 incidents to the
Building Industry Taskforce, which has discontinued action in regard to 47
incidents. One incident was finalised in the Federal Court, which found that Baulderstone
Hornibrook had contravened the Workplace
Relations Act by knowingly paying strike pay. Four incidents are still under
active investigation. The Taskforce has a continuing role in the handing of
complaints and, in addition to the referrals from the royal commission it has
received 1,673 calls since it was established. The committee was given the
breakdown of these figures as follows:
-
1,446 at the outside were reports or complaints;
-
293 investigations were under way;
-
10 matters were before the court that are yet to
be dealt with;
-
59 were active investigations;
-
184 investigations were on hold or with a watching brief;
-
21 briefs of evidence were referred to state
police and other external agencies;
-
5 briefs of evidence were with the internal
legal section;
-
4 briefs of evidence were with external lawyers
to adjudicate whether action is warranted or whether it is in the public
interest to take action; and
-
6 have already been dealt with, details of which
appear in Upholding the LawOne Year On:
Findings of the Interim Building Industry Taskforce which was tabled by the
Minister on 25 March 2004.[171]
99.37
The committee observes that this is a very low
prosecution rate. It indicates that the Taskforce had a problem in identifying
cases that could be successfully prosecuted. The Taskforce has reported that the
interim nature of the Taskforce has constrained the development of
relationships with outside agencies, and to date, there has been a general
reluctance by these bodies to follow-up on the matters referred to them by the
Taskforce.'[172]
99.38
The committee has noted in chapter 2, dealing with the
proceedings of the royal commission, that allegations of wrongdoing, arising
out of the royal commission and referred on to law enforcement bodies, continue
to remain on the record without any advice given to people named by Commissioner
Cole as to the progress of investigations. In some cases it is obvious that the
purpose was simply to put individuals on notice of investigation, an intimidatory
tactic common to totalitarian regimes but ludicrously out of place in Australia.
One person so named was asked about this at the committee's Melbourne
hearings:
Senator COOK...Have
you had adverse findings made against you?
Mr
KinghamYes.
Senator COOKHave
any of them been brought to fruition?
Mr
KinghamNot one. I have been interviewed by
no-one in relation to thema task force investigator, a royal commission
investigator, or a federal or state police officer. I have been investigated by
no-one. I have no knowledge about what is going on in relation to them... As I
said earlier, there has been a great disservice and great disrespect not just
to the two blokes that you see sitting here; but to our entire industry. It
does not include just us. Rank and file members, shop stewards, union workers
and, in some cases, employer representatives have also been smeared without any
right to defend themselves. We were denied the right to cross-examine witnesses
who provided information to the royal commission that led it to making its
interim findings against us and against other officials and rank and file
members of the union, which is an absolute travesty of justice. As Tommy
{another witness at the table}pointed out, in this electronic age all of that
is on the Internet. All of that is open to anyone in any country. We have no
recourse. We cannot protest. There is nothing we can do about it to change it.
We cannot even go anywhere to get an indication of whether or not an
investigation is happening. It is clouded in secrecy, and for no good reason.[173]
99.39
The committee is surprised that those responsible for
processing investigations against named individuals would allow these matters
to remain in a state of limbo. It does not reflect well on the integrity of law
enforcement institutions.
99.40
The committee majority notes in conclusion that the
royal commission has put in considerable labour, and a corresponding degree of
publicity, to bring forth a result which will be criticised in time for its
absence of any sense of proportion. That it will secure only a handful of
convictions is not a serious criticism. The criticism has always been that the
royal commission has been a frolic though the peripheries of the industry's
problems.
The
Building Industry Taskforce
99.41
The Building Industry Taskforce has now been left to
pick up the pieces after the royal commission reports and to act as the
repository for all allegations that will be made in future about the industry.
In the executive summary of its 24
March 2004 report to the Minister, the Taskforce described the
extent of the task before it in view of the prevalence of lawlessness. It
states:
Such an overwhelming indictment of the industry's behaviour
means the challenge before the Taskforce is not to simply restore the rule of law
to the industry, it is to introduce the rule of law for the first time.
Approaches for reform which may be appropriate for other industries would
simply fail in the building and construction industry because of the poor state
of workplace relations and the pervading culture of lawlessness.[174]
99.42
This is written very much in the spirit of 'fighting
the good fight'. It maintains the assumption that the construction industry is
a special case, which it is, but not simply because of allegations of
lawlessness. It fails to acknowledge that what is termed lawlessness is a
response to the inadequacies of the Workplace Relations Act. The Taskforce
believes that if it is equipped with additional powers, it hopes to fulfil its
Charter. The committee believes this to be an unrealistic expectation.
99.43
The Building Taskforce has complained about the lack of
informative response from agencies about the outcome of investigations. The Australian
Taxation Office provided evidence to the committee that, while they are not
able to provide details of the actions they have referred to the Taskforce,
they continue to provide advice on the strategies that the ATO is undertaking
to address tax evasion and the use of phoenix companies in the industry.[175] As the ATO
told the committee:
overall we have actioned 85 per cent
of the evidence provided to the royal commission and we are continuing to risk
assess those that are outstanding...It is important to say that evidence to the
royal commission in our hands are allegations which must be tested to see
whether they can be backed up and used to found an assessment. We go through
what we call risk assessment. A lot of effort goes into risk assessment because
we have to make sure that when we commence an investigation there is a
reasonable prospect that it will amount to something.[176]
99.44
It is clear to the committee that the Taskforce has
interpreted the reluctance of law enforcement agencies to prosecute as an
indicator that they have different priorities, and that this will impede the
operations of the Taskforce.[177] The Taskforce's solution to this problem is
to seek increased powers so as to undertake prosecutions in its own right. The
Taskforce director told the committee he had in mind 'coercive powers' akin to those
possessed by other Commonwealth bodies: the Australian Competition and Consumer
Commission (ACCC), the Australian Securities and Investment Commission (ASIC)
and the Australian Taxation Office (ATO).[178]
99.45
The committee majority opposes the continued operation
of the Building Industry Taskforce. There can be no real comparison between the
investigative and prosecution roles of such agencies as the ATO, the ACCC and ASIC
on the one hand, and the Building Industry Taskforce on the other. The
essential difference is than in the case of the three aforementioned agencies,
their functions are essential to the efficient operations of important national
financial institutions. As such they have the authority to set their own
enforcement priorities. These agencies are established under statutes which
assure their independence, which they exercise. In all respects they are
accountable public institutions and report to Parliament.
99.46
The Building Industry Taskforce, on the other hand, is
not a statutory body, but is an entity within a government department. Even
under the proposed legislation, in which the Taskforce would presumably come
within the Australian Building
and Construction Commission (ABCC), its operations could be subject to direct ministerial
control. There would be no question of a Taskforce acting independently of a
minister. In some circumstances there would be every prospect of a Taskforce
armed with 'coercive' powers using them for political purposes. It would have
been nave of departmental officials to have disregarded the likelihood of such
concerns being raised in the senate when advising the Minister about this part
of the bill.
The evidence to the committee
99.47
The committee has questioned a high proportion of
witnesses about their personal knowledge of criminal activity in the industry.
Perhaps not surprisingly, none have admitted any knowledge. These included many
employer association leaders and heads of large contracting firms. None of the
submissions to the committee provided any evidence in relation to criminal
activity in the industry, although those from ACCI, the MBA and Ai Group, among
others, did so in a general way.
99.48
As to allegations that employers were intimidated into
buying industrial peace, there is no evidence in any of the investigations that
the ATO has undertaken. What is clear to the committee majority is that there
is no evidence provided of systemic criminal activity in the industry. The
Taskforce report raises the possibility of organised crime infiltrating the
industry, but this development arises from a comment from the national
secretary of the CFMEU.[179] Even on
that authority, the Taskforce has not seen fit to make investigations.
99.49
What the committee majority has found most revealing
about the evidence it has received is the way it contrasts with the picture of
corruption, bitterness and intimidation which is presented in the reports of
the royal commission. A perusal through several volumes of the commission's
final report would almost lead one to wonder how the industry was still able to
function. Witnesses who appeared before the committee were free with their
comments on systemic weaknesses in regard to industry costs, various inflexible
arrangements, cumbersome legal and administrative processes and the lack of
effective regulations and enforcement of them. There was much criticism with
the difficulty of complying with current laws, including the Workplace
Relations Act, which puts industry participants and the AIRC into legal
straightjackets. Many of the problems complained about related to the slow
response or indifference to matters shown by state governments and their
agencies.
99.50
Yet despite all this, there was a general mood of
optimism. There was evident goodwill shown between trade union and industry
association leaders at several hearings. The committee does not believe that
this was contrived for the committee's benefit. It should be admitted that such
cordiality was less evident in Western Australia
and Victoria. Witnesses from
other states were aware of tensions in the aforementioned states and it was
implicit in the evidence given by the CFMEU, and other unions, that national
policy should not be determined on the basis of what was happening in those two
states. The committee restates its view, made clear in the previous chapter,
that there is a much stronger likelihood of success in pursuing 'culture change',
and genuine reform at state level rather than attempting something similar at
the Commonwealth level. There, the real problems of the industry become remote
from the workplace, take no account of local or state modes of operation, and
are constitutionally impeded.
Lawless employers
99.51
The royal commission unearthed a great deal of
information about the unlawful and 'inappropriate' behaviour of employers. Commissioner
Cole put these into a different category to his
main target, the trade unions. This is one of many actions which give rise to
comment that both the royal commission, and the Government in the
implementation of its recommendations, have shown a lack of balance in addressing
the main concerns of the industry. The royal commission identified illegal
behaviour by employers and acknowledged other problems following from the
failure of state and Commonwealth agencies to ensure compliance with the law. But
the royal commission argued that there were institutions currently responsible
for addressing these problems. That has
not deterred critics from accusations that Commissioner Cole
ignored his responsibilities. The committee notes that the royal commission's
terms of reference may have had some bearing on the way he carried out his
brief. The CEPU has made an observation on this matter:
We agree with the submission of the ACTU that only a small
number of findings were made against employers despite the incidence of the use
of phoenix companies, tax avoidance and non payment of entitlements. Tax evasion of itself is estimated to account
for some $1 billion per annum yet the bulk of the Cole Royal Commission
findings and recommendations and indeed the provisions of the Bill
are aimed at union behaviour and practices.
We believe if the same effort and attention were given to: improving
compliance with State and federal tax regimes including addressing the massive
tax avoidance which characterises the industry; improving security of payment
of employee entitlements; dealing with the incidence of sham employment
arrangements and phoenix companies...In all these areas there is an entrenched
culture of lawlessness on the part of business which is not in anyway dealt
with effectively by the Cole Royal Commission.[180]
99.52
There are a number of serious issues which can be dealt
with briefly about which employees had much to tell the committee. The
committee attaches more importance to these matters than does the royal
commission because grievance by workers can poison the industrial relations of
work sites. Issues like workers compensation premiums may become contentious to
the point where the issue spills over to other workplace matters. Employers who
ignore their obligations to workers will have poor industrial relations records.
Unpaid
entitlements
99.53
The committee was provided with a great deal of
evidence that most industrial relations disputes in the industry were related
to employers not complying with lawful agreements, or employees raising
concerns over occupational health and safety and superannuation payments. These
are not matters of thuggery or criminal behaviour, but employees exercising a
lawful action to ensure that the contracts that they have entered into are honoured.
The committee believes that governmensshould increase funding for the effective
regulation of corporate, taxation and criminal law across the building and
construction industry. The committee notes instances of employer grievances
from the inquiry record:
The operation of the industry could be improved greatly by
federal legislation which addressed real problems. These include massive non compliance by
shonky contractors with workers compensation laws, pyramid subcontracting and
the inappropriate use of the ABN system.
Another problem which arguably needs a federal legislative solution is
abuse of illegal immigrants in the industry, which also renders companies such
as ours uncompetitive.[181]
99.54
The committee majority has been led to the view that
the operations of large contracting firms are probably more likely to lead to
better employment outcomes than for small contractors who are more vulnerable
to cost pressures. As one contracting firm, QR Concrete, saw it, the lower end
of the commercial construction trade shared many characteristics of the housing
industry, engaged in building suburban bungalows and two storey townhouses, where
employee entitlements were not assured:
when it comes to the small end of the commercial market,
things are a lot different because there is nothing in place in many of these
projects and it is very difficult to compete because compliance issues are a
major problem in the fact that there are no agreements in place, contractors don't
pay workers compensation or superannuation and other rightful entitlements to
their employees.....even in the big commercial projects there are still
problems with non-compliance because some of the competitors in this industry
tend to cheat not just their workers but also revenue to State and Federal
Government by no paying payroll taxes, workers compensation levies and other
statutory obligations.[182]
The CFMEU told the committee that in Queensland,
a state with generally harmonious industrial relations, the building and
construction industry has a long history of underpaying workers entitlements and
evading income tax, payroll tax, WorkCover premiums, superannuation and
redundancy entitlements. The underpayments were estimated to be $1.3 billion
per annum.[183]
99.55
Another view is presented by the Australian Workers
Union:
in terms of the industry, the major problems we see are either
unsafe management practices or incompetent management practices. In terms of
criminality, that has not been the experience of the Australian Workers Union.
What frustrates me is the situation with some workers who work on road
maintenance down in Gippsland. The company became insolvent and there was about
$4 million of workers entitlements which we had to recover for the workers.
The directors are gone; they do not feel any obligation. We have had to
negotiate with their client VicRoads to make sure that money which VicRoads had
to pay the insolvent company was put aside to pay the workers....What
frustrates me is, whilst there is a lot of discussion perhaps in headline
issues about criminality in some quarters by conservatives, we have 50 people
who spend their time maintaining roads, clearing road kill off the roads, very
basic maintenance of country roads. In the summertime they are the trained
bulldozer operators who then are used to put out bushfires and all the other key
work which is important in fighting summer fires. I have never seen any Liberal
politician raise what happens to these workers.[184]
99.56
The CFMEU told the committee that employees are well
aware of their lack of protection of rights such as superannuation, workers
compensation and occupational health and safety standards and, with the union, have
worked hard to monitor their legal entitlements. Given the tight margins and
timeframes that companies operate under, employees and unions are under
pressure to recover legal entitlements while contracts last and there is
funding available to meet these obligations.[185] The
committee was also told that Queensland
building industry employers have an abysmal history of poor compliance with
industrial awards, and that approximately 35 per cent of employers in the
industry attempted to comply with their award or EBA.[186]
99.57
Finally, the national office of the CFMEU has assembled
a depressing list of details about the extent of unfunded entitlements over which
it has had to pursue employers. This amounts to theft on a grand scale.
Although reported to the royal commission there was no investigation
recommended. Over $30 million in unpaid entitlements has been recovered by the
CFMEU in recent times, which is considerably les than would have been owed, and
does not include the proceeds from unreported local site organisers' efforts on
behalf of individuals.[187] The CFMEU submission
also refers to an estimate that workers in all industries are short changed by
an average $240 per year in employer superannuation contributions. This is a
particular problem in the construction industry. Even the royal commission
papers note that just under 20 per cent of workers in the industry have no
superannuation, and a further 17 per cent have payments in the funds but make
no regular contribution.[188]
Tax evasion
99.58
As stated in the introductory chapter, tax evasion is
the most serious of all offences in the industry because it is the key
indicator of business honesty. Tax compliance, rather than the conduct of industrial
relations, is the key indicator of the extent of integrity in an industry. Tax
evasion is linked to industrial relations because of the high use of
contractors and cash payments in the industry. A number of submissions point
out that the current taxation system provides significant incentives for both
employers and employees to engage workers as independent contractors rather
than employees, even through they have a management relationship that is clearly
one of employer to employee. Employers are estimated to save on wages a minimum
of 25 per cent on standard hours and 40 per cent on overtime hours. In addition they avoid payroll tax, workers
compensation premiums, superannuation contributions and redundancy entitlements.
The committee notes the concerns that such practices encourage a culture of
avoidance not only of taxation but also avoidance or underpayment of workers
entitlements, including superannuation. It also places enormous difficulties on
honest contractors trying to compete in the market place and puts a further
burden on taxpayers who are effectively subsidising employers in the construction
industry.
99.59
The ATO is also aware and concerned about the use of
contractors in the sector and notes the complexity of defining responsibilities
for work between an individual contractor or employee, and how such responsibilities
can be defined through the taxation system.[189] The
committee notes with concern the evidence from the ATO that tax evasion and non-compliance
in the construction industry continues to be a severe problem for the industry.[190]
On those sites that are probably between that $2 million to $10
million turnover. The employer group is sometimes obviously lower as well, but
a lot of the time we find that the weekly wage is paid and tax deducted. That
which relates to overtime or weekend work is paid in cash. Then there will be
other sites where the majority of the pay is in cash without having
withholding. A lot of those types of activities usually are involved in phoenix
activities as well....We have a mix of cases. On occasions when you front the
taxpayer, it is that the employer had said that they were going to be paid in
cash. On the employers side, the employer says the employee will not work
unless they are paid cash. The status of the worker issue, while it is involved
in those types of cases, is usually a separate issue as well.[191]
99.60
Given the high levels of concern by the tax office of
non-compliance it is clear to the committee that the economic benefits of the
legislation cited by the Government are illusory, with no data available on the
real wage costs of both the housing and construction sectors if all taxation
was paid by employers and employees. The committee believes the problem
warrants a review by the ATO on measures to support increased compliance with taxation
laws by employers in the construction industry.
99.61
The extent of the problem is very considerable. For
instance, the committee was told in the Northern
Territory that the proportion of workers who are
described as contractors is as high as 98 per cent but that in the vast
majority of cases these workers are clearly employees:
Payment is usually by way of an all-in hourly rate i.e. a flat
hourly amount paid for hours worked. In these cases the employer exercises
direction and control over the performance of work and is responsible for
rectification of defects. Most workers are not incorporated as companies,
although some are instructed to register as Pty Ltd companies to receive work.
No written contract is in place. The employer simply informs the worker of the
hourly rate on which they will be working and no negotiation is entered into.
The average rate is around $23 per hour for a tradesperson. I believe the use of these false sub-contract
arrangements is for the purpose of relieving employers from the
responsibilities of paying workers under correct award conditions.[192]The
relevant worker's compensation legislation requires that workers be defined as
employees in order to be covered. This means that the majority of NT construction
workers have no workers compensation coverage. Unless they self-insure, they
have no income protection at all.[193]
99.62
The committee heard evidence from South
Australia of the intimidation faced by employees
whose company demanded that they become contractors:
A recent example of this type of practice has emerged with a
national company which manufactures and installs insulated sandwich panels for
cold stores, and roof/wall cladding panels for warehouses, public buildings and
factories. The union has an EBA with the company (which has passed its nominal
expiry date) for the six on site workers who have worked for the company for
between 5 - 11 years. The company now wants these workers to become contractors
rather than employees. Although the workers do not want to change they are
fearful for their jobs.[194]
99.63
Again, the saving to the company in this instance is in
not having to pay payroll tax, long service leave, superannuation and workers
compensation premiums. The majority of these costs are then passed on to the
individual worker who also can become liable for rectification work. If the
worker is found at the end of the day to be more like an employee (under the
80/20 rule), then it will be the individual worker who may be penalised by a
higher tax bill. As for the employer, there appears to be little disincentive
for using this practice.[195]
99.64
The committee notes that amendments contained in the New Business Taxation System (Alienation of
Personal Services Income) Act 2000 implemented some recommendations of the Ralph
Report on the reform of business tax. The
Senate Standing Committee on Finance and Public Administration, in its 1999 inquiry
into business tax reform, noted that strong opposition to Ralph's
recommendation came from the Master Builders Association (MBA) and the Housing
Industry Association. This committee regrets that the Government did not accept
the Senate's recommendations in 1999 for tighter legislation, but notes that it
also rejected, at the same time, advice from the Treasurer. The MBA refuted charges
made then by the CFMEU that it wanted to preserve a tax avoidance scheme. One
beneficial consequence of this for employee-contractors is that employers have
to pay the superannuation entitlements for contractors who are deemed to be
employees.
99.65
However, these laws do not extend to employers'
obligations to pay WorkCover premiums or fulfil any other requirements under state
laws. The committee believes that there remains much more work to be done in tightening
measures for compliance with state legislation. While it accepts in principle
the primacy of state powers in relation to the regulation of worksites and
employee welfare, these powers must be used, and compliance with the
regulations must be vigorously enforced. If not, it becomes difficult to oppose
pressure for Commonwealth intervention.
Phoenix companies
99.66
The issue of phoenix companies is of interest to the
committee because they represent a pestilence in the construction industry and
they have so far defied measures to get rid of them. They represent an
entrenched illegality of significant proportions. Phoenix
companies adversely affect employees who lose their legal entitlements when a
company collapses. Directors are, in
effect, stealing the wages of their staff to restart a new company under a
different name. The cost of this behaviour is borne by the Australian public,
who have to support workers who have lost their jobs and their means of
support. The Australian public loses out twice because such companies usually
avoid paying their taxes which are used to support workers who have lost their
jobs.
99.67
The Cole royal
commission reported that there has been a significant incidence of fraudulent
phoenix company activity in the building and construction industry. It reported
that since 1998 the ATO has raised at least $110 million in taxes and penalties
from the detection of these companies. The committee received evidence from the
ATO about its strong compliance focus, but acknowledges that a great deal of
inter-agency and inter-governmental agreement will need to take place before a
high success rate in suppressing this illegality can be achieved.
99.68
This would involve, as well as the ATO, ASIC and state
and territory revenue agencies. The committee notes that apart from secrecy
provisions in tax law, one of the main obstacles to tracking down the persons
behind various entities is that there is no state system of registration of
partnerships and trusts. Therefore, people engaged in running phoenix companies
would not be traced if they used the partnership or trust as a vehicle to
engage in business with the assets and management of a previously failed
company. The registration of partnerships and trusts will require the
cooperation of the states and territories, following the precedent of company registration
by ASIC. The trust lobby will oppose this, as they have previously opposed
other measures to eliminate tax evasion.
99.69
The committee notes with interest the experiences of
the Queensland Government in reducing the incidence of phoenix companies by banning
individuals who have become insolvent, whether or not they are directors of the
company, from holding a building licence for a period of five years, and
placing life bans on individuals who enter into a second insolvency.[196] The
committee has heard no other comment on this.
99.70
The committee heard telling evidence from the CFMEU of
the efforts that are required to track down lost workers entitlements from
'sham' companies:
What usually happens is the company will have one company in
which they have a certified agreement with the union. The employee will think they work for this
company and as such send a wage claim to the union when they dont get paid in
accordance with the certified agreement. The union will make a claim on the
company and sometimes even take a wages application to the QIRC. After a lot of time and effort has gone into
attempting to recover the money, the company will reveal that they actually
have another company which they employ the workers under. This other company
will not have a certified agreement attached to it and therefore the employee
is not entitled to the conditions of the certified agreement. This is an
extremely deceitful practice as the union believes it has secured a certified
agreement with the company and the employee believes it works for the company
with the certified agreement. As the
employer has records to show that the employee is in fact employed under the
company without the certified agreement there is nothing the union can do to
recover any money for the member.[197]
99.71
The committee majority acknowledge that the legislative
path to reducing the costs caused by phoenix companies will be considerable. It
is another case where the maintenance of strong working relationships with
state governments is highly important. There is a role for Commonwealth
leadership is taking on the task of negotiating uniform laws in this area.
Recommendation 5
The committee
majority recommends that corporations law be amended to enable more effective
prosecution of perpetrators of phoenix companies; and that in association with
this, the Government work with state governments to negotiate their legislating
for stringent registration laws applying to partnerships and trusts.
Effects of underpaying workers compensation
99.72
Evidence presented to the
Royal Commission showed there was substantial non-compliance with workers
compensation obligations in the building and construction industry. This relates particularly to underestimation of workers'
remuneration and nomination of incorrect tariffs.[198] The committee acknowledges that this is a matter for state and
territory authorities, which should be introducing measures to reduce
non-compliance with workers compensation obligations.[199]
99.73
Non-payment of workers compensation premiums imposes excessive
costs on all players in the industry and the general community. There is a cost
to uninsured employees, and their families, who find themselves without injury
compensation. There is the cost to the compliant employers who are forced to
pay higher premiums, in some cases making them uncompetitive with non-paying
companies when tendering for work. There is the cost to the client who must
compensate the contractors for the higher premiums that they pay. The wider
community bears the cost not only through the higher price of buildings, but
also through the burden imposed on the social security and health systems in
caring for uninsured workers. A consequence of the non-payment of premiums is
that many accidents and injuries are not reported. In such cases workers are told
by their supervisors or employers to claim the injury as non-work related. The
reliability of statistics on workplace injuries, being based on workers
compensation statistics, is therefore in doubt. The role of the National
Occupational Health and Safety Commission (NOHSC) has been to lead and
co-ordinate national efforts to prevent workplace death, injury and disease.
This is assisted by the collection and analysis of safety data.
99.74
The committee understands that
the practice of non-payment of workers compensation premiums or non-compliance
is very widespread. The New
South Wales branch of
the CFMEU estimates 30 per cent of contractors fail to pay workers'
compensation premiums. WorkCover aims at securing an extra $30 million in
billable premiums. The issue of non-compliance however, is not limited
to the building and construction industry, although it is probably more
widespread in the building industry. The CFMEU claims that the much higher
recoveries is in very large measure due to the constant campaigning of the
CFMEU to draw attention to this issue. Yet the committee is sure that these
achievements are still only minor compared to the scale of the problem. The
CFMEU points out that company liquidations also cause mounting pressure on the
workers compensation system. In 1995-6 the NSW WorkCover Authority conducted an
audit on the workers compensation policies of 97 companies in the building
industry. This audit disclosed a serious problem with companies underestimating
their annual wages bill in order to pay a lower premium. The audit raised $2
339 847 in extra premiums of which $2 007 712 was unable to be collected by the
insurer because the companies concerned had gone into liquidation and there
were insufficient funds to cover this unsecured debt.[200]
99.75
The committee notes with concern advice from state
governments on evidence that contractors, who make up a high proportion of the
workforce in the industry, do not contribute sufficient funds into
superannuation schemes to enable them to support themselves in the future. The
consequences can be predicted.[201]
An employee might not find out for months that superannuation
contributions have not been made on his or her behalf or in the case of younger
employees not even be aware until many years later there is a problem. At that point it may be too late to recover
them. While Commonwealth provides a legal mechanism to recover superannuation
contributions, the funds themselves often have no enforcement mechanisms
available other than pursuing breaches of deeds of adherence which require a
contract law remedy. Where unions seek to recover superannuation or redundancy
contributions, in the absence of Government support we have had to resort to
industrial pressure to recover our members money and we have been criticised
for doing so.[202]
99.76
Indeed, as ACCI has stated, it is ultimately the
broader community which is carrying the burden of higher costs resulting from
unlawful or inappropriate industrial conduct:[203]
In the absence of an effective government mechanism to ensure
that workers in the industry are able to access long service leave, redundancy
(or severance) payments and income protection, the unions (including the CEPU)
have devoted a lot of resources to establish appropriate funds to ensure that
employees are able to enjoy such entitlements.[204]
99.77
There appears to be general agreement for the need of a
simpler and more streamlined process in which worker entitlements can either be
protected up front through the industry WorkCover levy, or recovered through a tribunal
or special body. The Master Builders Association of Queensland concedes the
point that unions sometimes have to resort to unlawful industrial behaviour to
achieve these ends. The MBAQ states that industry reviews have pointed to the
need for the Queensland Government, as regulator, to improve its enforcement
record to ensure far greater compliance with the laws it makes.[205] This is
also the committee's view about state legislation across the country. The
committee will be looking for a stronger commitment by states and territories
to compliance enforcement, as evidenced by their increased appropriations for
regulatory agencies.
Conclusion
99.78
The committee majority acknowledges the usefulness of
inquiries that unearth masses of information about the way organisations conduct
themselves. It is the interpretation of such information that becomes crucial.
The Cole royal commission knew what it was looking for, and by
stretching public credulity was able to claim that it had found it. Among a
possible 700 000 stories it was likely to find at least 100 which had unhappy
endings. As the record shows, however, most of these could be dismissed as
insignificant.
99.79
The committee gives very little credence to the
intelligence collected by the royal commission into alleged wrong-doing by
employees. It does not deny that across a diverse industry employing over 700
000 people there will be irregular and sometimes illegal activities going on.
In this respect the construction industry is no different to other industries
or to the general community. More significant, in the view of the committee
majority, is the widespread lack of compliance with current state and
Commonwealth laws relating to WorkCover contributions, occupational health and
safety, taxation avoidance, and the operations of phoenix companies. The committee
notes that the evidence suggests that state government regulatory compliance
measures leave something to be desired. These matters are being subject to
energetic attention in some states. There is merit in states collaborating to
draft model legislation based on successful application of laws in some states.
The committee cannot come to terms with the current reality that builders and
contractors are able to flout state regulations and obligations and not be
deprived of their operating licenses.
99.80
In regard to Commonwealth laws relating to taxation and
corporations, the committee majority recommends that amendments to some laws be
considered to close loopholes exploited by unscrupulous builders, should be
considered.
99.81
In the view of the committee majority, the evidence
unearthed by the Cole royal commission points to
the urgent need for concerted action by the states to improve compliance with
their regulations. There needs also to be a review of current laws and a study
of model legislation around the country. For instance, the committee heard
evidence in Melbourne
of the highly effective New South Wales
legislation to ensure security of payments. There was a lament that Victoria
had not introduced similar legislation. Similar legislation nationwide would
bring considerable relief to many contractors. The committee laments the loss
of NOHSC but believes that it is not beyond the ability of states to continue a
national federalist approach to developing enforceable codes. A federal
approach to reform of national legislation does not necessarily require
Commonwealth oversight, but it would be very encouraging to some states.