Opposition Senators' report
It is one of the peculiarities of legislative scrutiny in
the Parliament that the merits of legislative policy are very often considered by
a Senate committee before debate takes place in either House. The reasons for
this have to do with legislative programming, and the convenience to Senate
committees of having more time to deal with business. A benefit of this is that
the committee's work should, in practice, lead to better informed debate during
the formal stages of consideration in both Houses, including policy debate.
This report makes judgements on the policy underpinnings of the Independent
Contractors Bill, and demonstrates that whether these are agreed to or not, there
are serious concerns that the bill, as drafted, will frustrate the Government's
intentions, as set out in Minister Andrew's
second reading speech.
A procedural 'aside' is relevant at the beginning. The
Minister's office attempted, at the time of the bills referral, to restrict the
scope of the inquiry by, among other things, preventing consideration of the
matter of how 'contractors' and 'employees' would be defined in the bill. This
was considered by Opposition and Democrat senators to be such a fundamental
issue that it could not be excluded from consideration. The Minister was
apparently advised to follow the precedent set in the committee's consideration
of the Work Choices legislation in November 2005. However, on this occasion the
Senate's adoption of the Selection of Bill's Committee report referring the
Independent Contractors Bill set no limitations on its brief. In this respect
it differed from the motion of referral on the previous occasion when the
Senate agreed to 'terms of reference' which limited the scope of the Work
Choice Bill inquiry. So this inquiry proceeded unfettered, contrary to the
Government's wishes.
House of Representatives committee inquiry
The Minister, for reasons not disclosed, was anxious to
avoid the reopening of issues relevant to independent contracting which were
the subject of an inquiry by the House of Representatives Standing Committee on
Employment, Workplace Relations and Workforce Participation Committee into
independent contracting and labour hire arrangements which was tabled in the
House in August 2005. The terms of reference for that inquiry were:
- the status and range of independent contracting
and labour hire arrangements;
- ways independent contracting can be pursued
consistently across state and federal jurisdictions;
- the role of labour hire arrangements in the modern
Australian economy; and
- strategies to ensure independent contract
arrangements are legitimate.
The main recommendations in the Government party members'
majority report were accepted. They were that:
- the common law definition of employee and
contractor be adopted in any legislation to ensure consistency across states
and territories, and that the definition of 'independent contractor' within the
Workplace Relations Act extend beyond a 'natural person'.
- matters pertaining to the legal status of
independent contractors in respect of their dealings with government, the
courts, and the industrial relations system be codified to preserve the legal
status of independent contractors as small businesses.
These recommendations drew strong criticism from Opposition
members on the committee. The basis of the criticism related to the definition
and identification of independent contractors. Opposition members proposed a
new definition of 'employee' designed to 'cover the field'. Those seeking to be
classified as independent contractors would need to demonstrate that they fell
outside the definition of 'employee'. Making a definition of 'employee' would
make it unnecessary to make a new definition of 'contractor'.
Opposition members also urged the removal of a ban on unions
representing independent contractors during collective bargaining proceedings; curbing
the rights of labour hire firms to supply contractors at rates which would
undercut wages and conditions won through by enterprise negotiations, and to
legislate to ensure that both labour hire firms and their contracting
enterprises share responsibility for enforcement of the relevant OHS regime.[5]
Swelling the ranks of contractors
The basic policy aim of the Independent Contractors Bill is
to turn as many employees as possible into contractors. In the Government's
view, and more particularly in the view of employer organisations close to the
Government, industrial relations are greatly simplified by arrangements which
put employees onto either Australian Workplace Agreements, or turn them into
contractors. Work Choices is intended to encourage the first of these trends,
and the Independent Contractors Bill is intended to encourage the latter
development.
The committee grappled with the problems of turning
employees into contractors in questions to a number of witnesses at its
hearings. Both Labor and ACTU policy recognise the importance of contract
employment as a necessary component of the workforce and enterprise
arrangements. Contractors work across all sectors of the economy. They are a
diverse category of workers. The concern of Opposition senators on the
committee has been for that segment of the contractor workforce which is made
up of de facto employees, and designated
as contractors for the convenience and financial advantage of employers.
Do sub-contractors benefit?
The committee was told by Master
Builders Australia
of the advantages to sub-contractors of negotiating with lead contractors for
good rates, taking advantage of the market forces which operate in the building
industry. Under questioning, MBA was not able to say how sub-contractors, in
what is essentially an employment relationship, were able to maximise their
rates through negotiation. The realities of the building industry are that the
rate is set by the principle contractor and the sub-contractor can take it or
leave it. 'Taking it' means accepting personal responsibility for a workers'
compensation premium, superannuation contributions and other expenses which are
normal employee entitlements. The majority of building industry employers, no
less than employers in other industries, would support this legislation because
it gives them more scope to turn their current employee workforce into a
contractor workforce and remove their responsibility to make provision for
employee entitlements.
Common law protection of
sub-contractors
A high proportion of sub-contractors are employees for all
intents and purposes. They work exclusively for a single firm in continuous
engagement. Opposition senators reject the notion that this bill creates more
certainty for sub-contractors who continue to work as de facto employees, without the entitlements of employees. The
committee received strong evidence of the inadequacy – some would argue the irrelevancy
– of provisions in the bill which purport to protect contractors from sham
arrangements; that is, disguised employment relationships.
The Government bases its support for a common law
underpinning of this legislation, in regard to distinguishing between employees
and contractors, on the grounds that the courts have over time developed a
multi-factor test to make this determination. As the Explanatory Memorandum to
the bill states; 'no single issue concerning control, economic independence or
the description of the relationship in a contract will be determinative,
however, courts will place greater weight on some matters, in particular, on
the right to control the manner in which the work is performed.'[6]
The submission from the New South
Wales government quotes opinion from Professor
Andrew Stewart
to the effect that:
The fact is that any competent employment lawyer can take almost
any form of employment relationship and reconstruct it as something that the
common law would treat as a relationship between principal and contractor ...
thereby avoiding the effect of a wide range of regulation which is typically
applicable only to employees, such as industrial awards, registered agreements,
leave and superannuation legislation and unfair dismissal laws.[7]
Professor Stewart
states that this could be done by preparing a contract which indicates as many
obvious contracting conditions as possible, such as payment by results,
notional freedom to work with other clients, powers to sub-contract,
self-supply of tools and equipment etcetera. Alternatively, an employer could
interpose some form of legal entity between the worker and the client business,
such as a labour hire agency. There would be nothing illegitimate in either of
these arrangements. Nonetheless, contractors working in such arrangements are
'dependent contractors' and this, in the view of Opposition senators, makes
them de facto employees, and more
than likely to be disadvantaged by their contract arrangements.
The Victorian Government submission made the point that in addition
to any civil penalty provisions there should be a simple and inexpensive
mechanism for individual workers or employers to seek a declaration from a
Court as to their employment status. It recommended that the Federal
Magistrates Court be given special jurisdiction to make a declaratory judgement
as to whether a worker is an employee or an independent contractor as defined
in the Act.[8]
As a NSW Government official appearing before the committee
pointed out, the bill as it stands does not allow regulators to tell people
with any certainty whether they are a contractor or an employee. That can only
be determined by a court, perhaps many years after a worker has started that
contracting arrangement. So it is retrospective. That is the difficulty with
the bill bringing an end to deeming provisions where workers can be given
certainty about their employment status without the need for recourse to the
courts. When asked if there would be a likelihood of increased
litigation in this area, the NSW official stated:
I am not sure many people have the time or the capacity to take
this sort of litigation through the court system, or as many people as perhaps
would need to if we went to this common law definition. Can I just give a very
practical explanation? Obviously, the case of Vabu, which was referred to in
our submission here, went to the High Court. Through the court system on the
way up to the High Court, of course, there were varying positions going one way
and the other. So at any stage if the applicant had decided not to press a
claim, the outcome would be different from what we now have in Australia
in terms of a High Court precedent for Vabu.
But the Vabu precedent only goes so far, so if a contract
cleaner or a security guard turns up to one of our office’s counters next week
and says, ‘Am I an employee or a subcontractor?’ I can give them the best
advice as to what we think, using the Vabu test, but really to find out, they
have to press the matter themselves. Whether they will do that or not is a different
matter. Whether they will seek to enforce their rights is a matter for the
individual.[9]
Opposition senators have no doubts at all about the
likelihood of increased litigation. As this report argues in a later section,
the chances of an aggrieved contractor taking a business to any court, let
alone the High Court, are negligible. Speculation about legal outcomes can, for
all practical purposes, be seen as theoretical, and the legal protections in
the bill are virtually irrelevant.
Penalties for engaging in 'sham'
contracting
The Government has emphasised its determination to protect
contractors through the provision of substantial penalties for employers
operating sham contracts. Evidence was given that the protection of contractors
through penalties against sham contracts would be largely ineffective. Not only
are they a doubtful deterrent, but even if a firm or a principal contractor is
found to be in breach of the law, it would be of small comfort to an aggrieved
contractor. As the ACTU representative told the committee:
Just because penalties are provided for in legislation does not
stop people misrepresenting what the legislation may be about. If it did, life
would be a lot easier, I expect. While we welcome the formulation of the
provisions with respect to the sham arrangements and the penalties that are
imposed on those who would misrepresent the arrangements, one of the concerns
in those provisions is the lack of protection of the employee. For example, the
provisions that prohibit termination of employment solely for the purposes of
turning someone into a contractor actually do not provide any protection for
the employee who has their employment terminated in the middle of the process.[10]
Anyone with knowledge and experience in industrial relations
knows that individuals attempting to bargain with employers over contracts are
placed in a vulnerable position. There are no accessible avenues for grievance
assistance set out in the legislation. There is only the remote and very
expensive option of taking an employer before the Federal Magistrates Court or
the Federal Court. This would be beyond the comprehension of the most
vulnerable contractors and outworkers whose interests may previously have been
safeguarded by collective agreements or awards. It would also be beyond their
means. Advice from Slater and Gordon, a leading industrial law firm, indicates
that the cost, at current rates, of taking a matter to the Federal Court would
be in excess of $30 000.
Even if the legal case of an individual contractor forced to
work for minimal remuneration is taken up, through legal aid being available,
the consequences for the individual amount to a pyrrhic victory. A case can be
won, and a contracting principal penalised, but there is no guarantee for the
aggrieved contractor of the same job at a decent contract price. The contract
can be terminated. Nor will a judgement of a court in a particular circumstance
necessarily have a deterrent effect on sham contracts generally. As Professor
Stewart has implied, the odds are heavily
stacked in favour of the principal who drafts the contract and sets the rates
of pay, for which there is no minimum rate in the case of contractors. If a
worker needs the job, he or she must take what is offered. Thus, the penalty
clauses in the bill are meaningless.
Dependent and independent contractors
During the course of the committee's hearings there was some
discussion of the distinction between dependent and independent contractors.
The bill does not recognise this distinction, and according to DEWR officials
the term 'dependent contractor' has no meaning in law.[11] Yet, when asked whether dependent
contractors were covered by the legislation, the same official replied was that
there is no simple answer. It is, the committee assumes, a matter for the
courts, as it was assured by DEWR of the advantages of leaving this
definitional issue in the hands of the court. The common law test allows for
the weighing of variable factors in an employment relationship.
Opposition and Democrat senators are most concerned with the
plight of contractors who work exclusively or most of the time for a single
contracting firm or contractee. Such dependent contractors are vulnerable in
their economic dependency and their relatively weak bargaining position. They are
without the protection of employment relationships. The vulnerability of such
workers has been subject to studies by the International Labour Organisation.
These studies indicate that dependent contractors experience many problems
arising from disguised employment relationships which either go unnoticed or
are subject to ineffective regulation and enforcement of protections.[12] The Opposition notes that the
Government has claimed compliance with ILO guidelines in this legislation,
presumably on the grounds that there are penal provisions in the bill which
purport to warn off peddlers of sham contracts for dependent contractors.
There is little recent reliable data on the numbers of
workers who fall into the category of dependent contractors. The Productivity
Commission estimated that in 1998, just over 10 per cent of the workforce, or
844 000 workers fell into this category. In 2001 this number was estimated to
have dropped to 8.2 per cent, or 740 000 workers. Other researchers put a much
lower figure on the estimated number, as low as 200 000.[13] Most independent authorities regard
the figure of 1.9 million independent contractors in total, as claimed by Minister
Andrews, to be without foundation.
Dependent contractors may not exist at law, but they exist
in fact. The committee received evidence of widespread use of labour hired from
labour contractors and the use of non-standard work arrangements which are made
solely for the purposes of reducing labour costs to businesses. As the evidence
given by Master Builders'
Australia
shows, and as the CEPU submission pointed out, the issue of contracting is
often discussed as though the choice of this type of work is entirely voluntary
and the small contractor was truly independent. In the case of the
telecommunications industry this is certainly not the case. As the CEPU
submission pointed out:
The concentrated nature of the industry, especially at the
infrastructure level, means that work opportunities are controlled by a
relatively small number of companies who are themselves dependent largely on
Telstra for ongoing work. In this environment, the sub-contractor is a
price-taker. In practice, such workers have found themselves facing increasing
pressure on their working conditions and incomes as head contractors bid against
one another for Telstra work.[14]
Opposition senators note that the disadvantage suffered by
the contracted workforce by this 'race to the bottom' has far wider
implications for efficiency in the telecommunications industry, notably in the
adverse effects on training, maintenance, customer service, and ultimately, the
profitability of telecom companies.
The case of owner-drivers in road transport
Much of the controversy surrounding this bill has to do with
measures in the legislation which recognise the peculiar circumstances and
vulnerabilities of owner-drivers. The 'exempted' protections for owner-drivers
recognise the highly dependent relationship owner drivers often have with their
principal contractor and that this dependence leads to inequality of bargaining
power and the associated potential for exploitation.
Exploitation of owner-drivers in the transport industry
results in industry instability, higher than average rates of bankruptcy and
road transport accidents. Principal contractors oppose the exemptions because
they limit the potential for exploitation. These basic protections minimise
exploitation and ensure that the owner-driver small business model is
economically viable and safe.
Submissions made by business organisations oppose the 'concessions'
made to owner drivers, presumably because of the government's recognition of
special circumstances in the industry. One of these relates to the high
proportion of drivers are who are paying off expensive rigs and cannot afford
to stay on the road in circumstances of rampant labour cost-cutting. The
ultimate victims of such a trend would be consumers en masse. This is a rare instance of government pragmatism
overriding ideology. After ten years of reassuring market force rhetoric, some
government supporters appear to be alarmed at this novel approach to an industrial
issue.
Opposition senators make the point that the bill still falls
significantly short of delivering assurance for owner-drivers. While the
vulnerabilities of owner-drivers have been recognised nationally, the bill as
presently drafted ignores this fact. It will have the effect of overriding the
operation of the pending WA and ACT laws and preventing any state from enacting
future legislative protections. The government thus ignores the same needs and
vulnerabilities of owner drivers in these states which it has continued to
recognise in Victoria and New
South Wales.
There is a likely explanation for this anomaly. The Minister
has announced a review, to be held in 2007, of the provisions regarding
owner-drivers, no doubt in response to well-publicised pressures coming from
within the government party room. To say the least, the future of concessions
made to owner-drivers is not assured, with opposition senators and owner
drivers not being at all surprised if these concessions are removed after the
next election.
Outworker protection
Opposition senators note that owner drivers are more evidently
protected in the bill than are outworkers in the textile and clothing
industries. There are particular concerns in relation to section 7, dealing
with exclusion of certain state and territory laws, and in particular, clause 7(2),
in subclause (a) (ii). The effect of this clause is to remove the jurisdiction
of states and territories in regard to their making laws to vary or amend or
set aside certain provisions in contracts on the grounds of unfairness, as
defined in clause 9 of the bill.
Currently, state laws commonly include anti-avoidance provisions
which protect contractor's rights in the event that a principal will use a
legal subterfuge to claw back an award entitlement. Under the provisions of
section 7(2)(a)(ii) the protection afforded to contractors by state
jurisdictions is lost. This provision is contrary to the intention of Part 2 of
the bill which is to preserve state jurisdiction so far as it safeguards the
interests of outworkers, who are considered to be especially vulnerable in the
textile and clothing industries.
Opposition senators are aware that the enforcement of laws
against sweatshops in the clothing industry is nearly always taken by way of
anti-avoidance clauses in contracts, rather than through more formal and costly
court processes. If unscrupulous employers in the clothing industry find the
loop-hole in the bill as it is currently drafted, and which the government
denies is a real loophole, then the effects of this bill will be to strip away
the state laws which make this low-level compliance regime effective. It is to
be hoped that the unanimous recommendation of the committee to tighten
protection against the overturning of state anti-avoidance legislation powers
will be implemented.
Conclusion
While Opposition members of the committee are pleased that
the whole committee has agreed to recommend amendments to ensure the full force
of state powers in regard to unconscionable contracts, there can be no doubt of
the fundamental objects which the Opposition has to this bill. It is intended
to turn natural employees into unnatural contractors. This will put
considerable stress as well as hardship on tens of thousands of workers.
Entrepreneurialism is to be made compulsory for non-entrepreneurs. There is
more than sufficient evidence in the small business sector of failures in
business acumen as things currently stand. The exercise smacks of a readiness
to misuse and misdirect labour skills across the workforce, at a time of skills
shortage. Apart from the philosophical objections which Opposition senators
have to this bill, there is the objection to the inefficiencies that will be created,
and the disincentives it creates for the rebuilding of the skilled trades base.
Opposition senators on the committee urge the bill be
defeated.
Senator
Gavin Marshall
Deputy Chair
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