Supplementary submission of the National Union of Workers to the Victorian Government Inquiry into the

Labour Hire Industry and Insecure Work.April 2016.

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Introduction and Background

The National Union of Workers (NUW) has been advocating for labour hire licensing and greater security in employment for Australian workers for a number of years.

The NUW welcomes the opportunity to provide this supplementary submission to the Inquiry, and acknowledges the comments and input of the Australian Council of Trade Unions and the Victorian Trades Hall Council.

In our view now is the time for the Victorian Government to act to ensure the labour hire industry in Victoria operates in a regulatory environment that maximises lawfulness and dignity for workers.

Currently, the labour hire industry – which is a multi-billion dollar industry – is not subject to meaningful regulation. The layers of contractual obfuscation arising from many labour hire and sub-contracting arrangements can often, in the NUW’s experience, lead to exploitative practices such as wage theft, extreme working hours and forced job insecurity.

NUW members (many of whom have appeared before this Inquiry) engaged as employees by labour hire agencies in a range of industries, including horticulture, dairy and warehousing, have reported such underpayments and mistreatment across Victorian worksites.

These problems are ongoing. Indeed, many NUW members in Victoria’s horticultural sector continue to be paid less than the minimum wage by labour hire contractors, while labour hire agencies active in many of Melbourne’s large warehouses and food processing facilities continue to fail to pay NUW members appropriate wages and employment conditions.

The well publicised problems labour hire and contract workers have in ensuring access to minimum employment conditions, accessing legal entitlements in cases of underpayment, exercising rights to collectively bargain and achieving security of employment require a system of regulation that ensures transparency, fairness and the rule of law. This system must start with a labour hire licensing scheme.

But this Inquiry must not ignore the wider issue of insecure work. Around 40% of workers in Australia are in insecure work arrangements. In most NUW industries, insecure work is also often indirect employment via a labour hire agency.

The nature of the employer/employee relationship in Australia has changed, with host employers shifting risk onto labour hire agencies. In the words of Job Watch, “workers across all industries, all occupations and at all levels [are] at risk of insecure work.”1

1 Submissions of Job Watch Inc., p. 25.

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Australia’s industrial relations framework does not reflect this workplace reality, with limited rights and entitlements for casual and indirectly employed workers.

The Victorian Government must do all it can to provide more security in employment for Victorian workers, including by advocating for federal reform of existing workplace laws and developing procurement policies that encourage secure employment.

Essential Features of a Licensing Scheme

A successful licensing scheme must contain the following features:

• Payment of a bond and annual licensing fee (acting as a disincentive to small, undercapitalised and unscrupulous operators);

• Threshold capital requirement (excluding from the market companies with insufficient capital to fund the costs of operation and helping to eliminate phoenixing);

• Requirements for license holders and related parties that ensure only ‘fit and proper persons’ operate in the industry, workplace laws are complied with and companies meet on-going capital and mandatory reporting requirements (with applicable penalties for license requirement breaches and other offences);

• A dedicated compliance unit responsible for issuing licenses and monitoring compliance with license requirements; and

• Mandatory workplace rights and entitlements training.

Recently, the Senate Education and Employment References Committee, after inquiring into Australia’s temporary work visa program, recommended that a “licensing regime for labour hire contractors be established with a requirement that a business can only use a licensed labour hire contractor toprocure labour.”2

The recommended scheme adopts some of the NUW proposals and would provide for a public register of labour hire contractors, a requirement that contractors meet relevant workplace and other laws and a requirement for primary contractors (or host employers) to ensure their contracting parties held a license.

Importantly, the Committee has recognised that any solution to the current problem must involve a mechanism that imposes requirements not only on labour hire contractors but also on the companies who engage them. In the NUW’s view, such joint responsibility should not be limited to the licensing scheme but must also extend to responsibility over certain terms and conditions of employment and workplace rights.

2 Senate Education and References Committee, “A National Disgrace: The Exploitation of Temporary Work Visa Holders”, Recommendation 32, p. xiv.

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Many other parties making submissions to this Inquiry support the introduction of a labour hire licensing scheme in Victoria. Many of these submissions recommend a scheme with one or more of the same (and in a number of cases very similar) requirements to those advocated by the NUW.3

The Need for a Holistic Response

The existence of worker exploitation and unlawful behaviour by labour hire operators in Victoria has been recognised by many and should be accepted by this Inquiry.

Many brave workers have shared their experiences with the Inquiry, either directly, by giving evidence in person or by submitting written testimony through online submission portals, or indirectly through the initial submissions provided by a number of unions, including the NUW.

But recognition of the problem does not end with workers and their representatives. Agri Labour Australia has expressed to the Inquiry its concern about “illegal labour” and “the prevalence of labour contractors that fail to meet even the most basic work law compliance obligations”.4 Other organisations have expressly conceded that “many” labour hire companies do not operate legitimately5 or have at the very least implied that this may be the case while arguing that those who are operating within the law should not be “tainted” by those who are not.6

The NUW is of the view that now is the time for action. There is clearly a need for a government response that seeks to eliminate unlawful behaviour and worker exploitation in the labour hire industry.

A piecemeal or qualified approach to labour hire licensing would be ineffective and counterproductive considering the state of disregard for existing laws. A code or registration system of the kind promoted by the Recruitment and Consulting Service Association (RCSA) would be entirely inadequate in preventing the kinds of abuses in the industry that have been presented to the Inquiry.

This approach also fails to recognise the role of market power at the top of supply chains in shifting risk onto workers and leading to the exploitation of workers by labour hire providers. The corporations at the apex of supply chains – the producers and retailers – must be held accountable. According to a recent International Trade Union Confederation report, a staggering 94% of the workforce of the largest fifty multinational corporations is employed indirectly. These are “employment relationships” designed to suppress wages,

3 This includes the Australian Council of Trade Unions, the Victorian Trades Hall Council, Per Capita and Ryan Carlisle Thomas Lawyers.4 Submissions of Agri Labour Australia, p. 3.5Submissions of Independent Contractors Australia, p. 14-15.6Submissions of Victorian Farmers Federation, p. 10.

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deny workers access to secure work and renounce any direct responsibility by employers for the safety, health and welfare of their workforce.7

Thus, any model of regulation for labour hire companies must look holistically at “the workplace” and at supply chains.

In Professor David Whyte’s submissions to the Inquiry, he recognises that much of the responsibility for contractual conditions in Australia is passed down the labour supply line8 and observes that “any system of labour hire regulation will therefore need to ensure accountability is placed not merely at the bottom end of the supply chain” but also consider incorporating a reporting mechanism obliging the principal/host companies to “demonstrate awareness of the origins of produce, and of labour conditions in firms they contract, and to use this mechanism to trigger liability when they knowingly allow regulations to be breached.”9

It is essential that regulation provides an obligation on host companies and even those at the top of the supply chain. Codes of conduct are incapable of this and would simply ensure the continued proliferation of worker exploitation.

While many employer groups concede (and concentrate on) the exploitation of foreign workers (and in particular industries)10, the Inquiry has also received many stories from resident and non-migrant workers in a range of industries who have suffered exploitation as labour hire workers and contractors.

In the NUW’s view it would be a mistake to subject only those industries where migrant or temporary, foreign workers predominate to a licensing system, while allowing the current laissez faire attitude towards labour hire in other industries to continue. The concerns with labour hire and its fundamental undermining of worker protections and job security is systemic, rather than sectoral, and should be tackled accordingly.

In addition, confining a licensing system to migrant-dominated industries would hold other practical problems.

Professor Whyte specifically warns of conflating immigration and industrial relations issues, stating “any system of registration must explicitly be distanced from authorities that deal with immigration. Such a system must also ensure that measures are in place that avoid any ‘creep’ towards the criminalization of workers and, indeed, the implicit blaming of migrant workersfor deteriorating working conditions.”11

7 International Trade Union Confederation, ‘Scandal: Inside the global supply chains of 50 top companies’ (2016).8Submissions of Professor David Whyte, University of Liverpool, p.3.9Submissions of Professor David Whyte, University of Liverpool, p.4. 10Submissions of Independent Contractors Australia, p.14. 11Submissions of Professor David Whyte, University of Liverpool, p.2.

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A system of licensing covering all sectors of the economy and all labour hire workers is essential in effectively tackling illegality in the industry and insecurity in the workplace.

Is Existing Regulation Sufficient?

Throughout the duration of this Inquiry, employer groups have consistently argued that there are already sufficient laws in place12 to deal with unlawful and unscrupulous behaviour in the labour hire industry. In addition, employers have complained of being subjected to a “more onerous compliance burden”while the current “rogue minority”, who act illegally now, will continue to do so under strengthened laws.

These arguments assume that larger companies and labour hire firms “play by the rules” now, but as has become apparent during this Inquiry, many large host companies and large labour hire companies have been involved in underpayments and undermining workers’ job security.

It also incorrectly assumes that concerns around exploitation of labour hire workers can simply be put down to “a few bad apples”, when the evidence presented to the Inquiry presents a far more widespread problem.

Moreover, this superficial employer analysis ignores the fundamental issue of enforcement. Labour hire breaches have been infrequently remedied by regulators, and enforcement has been relatively rarely undertaken.

A licensing scheme as proposed by the NUW would subject operators to a significant range of penalties, including being stripped of their operating license, which would ensure operators are much more likely to abide by workplace laws and other licence requirements.

It must also be recognised that employer arguments against the introduction of the scheme fail to deal with the reality that existing workplace laws are outdated and do not recognise the industrial realities faced by labour hire workers and contractors.

The Inadequacy of the Employer Response

Despite the substantial weight of both academic submissions to this Inquiry13

and the hundreds of work stories presented, many peak employer groups appear to be living in a world divorced from reality regarding work insecurity.

12 For example, ACCI has argued “there are detailed and in many respects complex laws in place to address improper or unlawful practices”.13 Among them Dr Fiona Macdonald, Professor Sara Charlesworth, Tim Lyons, Dr Elsa Underhill and Professor David Whyte.

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Ai Group for one cynically claims there is “no casualisation problem in Australia” and that casualisation is a “union construct.”14

Some employer submissions go well beyond this view and even suggest that insecure work leads to better employment for workers.15

Other groups seek to portray labour hire employees as having the same level of award and legislative protections as other employees16 despite the reality that, in many industries, such workers do not as a matter of fact receive minimum entitlements, enforcement is exceedingly difficult and the practicalreality of the employment relationship means collective bargaining rights are meaningless.

Still other employer groups seek to obfuscate and reframe the issue of insecure work.

The Independent Contractors Australia does this by claiming “the relevant issue is NOT the security or otherwise of work” and “whether income continuity and certainty is achieved via permanent full-time work, casual, seasonal or fixed contract work, independent contracting or a combination of those is not relevant.”17

Independent Contractors Australia even warned the Inquiry to be alert to parties fabricating allegations of worker exploitation.18

The NUW submits that these views are simply inconsistent with the expert evidence presented during this Inquiry and the lived experience of the hundreds of workers who have contributed to it.

These views are also inconsistent with Australia’s industrial relations framework which does not provide for the same level of protection for insecure and indirect workers as for permanent and direct employees.

In its oral evidence to the Inquiry, the Victorian Chamber of Commerce and Industry (VECCI) indicated it saw its role as assisting members to comply with their legal obligations but could not quantify which of its members used labour hire arrangements or to what extent. VECCI conceded it did not collect such information. This shows the inadequacy of existing self-regulation arrangements. Self regulation is inappropriate in the labour hire industry where there is a clear financial incentive for non-compliance.

14Submissions of Ai Group, p.5. 15Submissions of ACCI, p.9. 16Submissions of Ai Group, p. 4.17Submissions of Independent Contractors Australia, p.3.18Submissions of Independent Contractors Australia, p.16.

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“Dependent” Contracting is a real problem

Despite hearing from workers and unions about contracting relationships where so call “independent” contractors are often entirely dependent on the host employer, some employers refuse to acknowledge such a situation can exist.

Ai Group claims the vast majority of independent contractors have “absolutely no desire to be employees.”19

Independent Contractors Australia goes further, claiming that “the very idea of ‘dependent contracting’ is legally impossible and hence irrelevant…”20 thereby denying the fact that many contractors are in fact entirely dependent on one employer or “client” for their income.

ABS data shows that a significant proportion of “independent” contractors have “only one active contract” (323,400 out of 736,200 or about 44%) and do not “have authority over their own work” (464,500 out of 735,800 or 63%).21

The NUW notes that these statistics demonstrate the reality of many independent contracting relationships and are consistent with the many worker submissions the Inquiry received. The so-called independence of independent contractors has been mythologised. It is clear that a significant proportion of contractors are not independent, yet these workers have very limited workplace protections

In the NUW’s view such a situation is best remedied by the introduction of a statutory presumption that contractors are in fact employees, with an ability for the presumption to be overturned in a low-cost jurisdiction such as the Fair Work Commission.

A Voice in the Workplace for Insecure Workers

The NUW believes that the long term security of labour hire workers and other workers in insecure work arrangements can only be improved by workplace law reforms that provide these workers with a greater say over their own working lives.

Current workplace laws encourage the payment of lower wages and conditions to indirectly employed workers when compared to those directly engaged by a host employer, don’t allow for the possibility of conversion to permanent employment, and deny labour hire workers and contractors practical and effective collective bargaining rights.

The NUW does not share the cynicism towards non-standard workers promoted by some employer organisations.

19Submissions of Ai Group, p.5.20Submissions of Independent Contractors Australia, p.6.21 Australian Bureau of Statistics, Characteristics of Employment, Australia (August 2014) Table 37.1.

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In an inquiry designed to look at the very serious problems of worker exploitation and insecurity, the Ai Group has submitted that changes to federal workplace laws are needed to lessen the available protection of workers in insecure arrangements.22ACCI similarly demands that the ability toregulate the engagement of contractors, labour hire and casual workers through enterprise bargaining be stripped from workers, and such enterprise agreement clauses be deemed illegal.23

Such claims are designed to further encourage the use of insecure work arrangements by employers to shift risk onto workers and undermine workplace laws and conditions. The NUW believes the expansion of workplace democracy, rather than its restriction, is required to empower workers in insecure work arrangements and ensure more dignity at work.

The Case for a State System

While some employer groups claim the application of a State-based licensing system is problematic24, the NUW submits that such a system would not in and of itself provide any unusual challenges.

Many laws and regulations that business is currently obliged to comply with are confined to the jurisdiction of one State, among them workers compensation, child protection and long service leave.

Moreover, the issue of labour hire licensing is now actively being considered at various levels across the country. Two other states (Queensland and South Australia) are currently examining the feasibility of State-based licensing schemes through their own labour hire inquiries.

A number of jurisdictions are recognising that decisive action needs to be taken to limit the scourge of insecure work, with labour hire licensing actively considered as a way to begin addressing the problem. While a similar recognition by the Senate Education and Employment References Committee is welcome, neither major party has adopted the Committee’s recommendations. Victoria cannot wait for a federal response that may never come.

The Response in Other Jurisdictions

As has been recognised in submissions to this Inquiry, licensing schemes for or similar constraints on labour providers operate in a number of jurisdictions, including the United Kingdom, Japan and South Korea.

22Submissions of Ai Group, p. 15.

23Submissions of ACCI, p.25.24For example, see p.24 of Ai Group submissions.

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According to Dr Elsa Underhill, “most of our major trading partners” have well- established licensing regimes.25

The scheme proposed by the NUW is designed to deal with the realities faced by Victorian workers in labour hire and contractor arrangements. However, there are similarities between aspects of the proposed scheme and elements of schemes that currently operate in other jurisdictions.

The UK ‘Gangmasters’ licensing scheme imposes a mandatory licensing requirement with on-going compliance and monitoring, and with licenses naming natural persons as well as businesses.26 Licenses can be refused if persons named in the application do not meet certain requirements. Operating without a license and using an unlicensed gangmaster are criminal offences with significant maximum penalties, including imprisonment. A range of other offences also apply.

It should be noted that a significant shortcoming of the UK scheme is its application to certain sectors of the economy only. Such an approach is not favoured by the NUW.

Possible Compliance Avenues

The NUW submits that a dedicated compliance and enforcement unit is essential to a successful Victorian licensing scheme.

The manner in which this unit is established would ultimately be a matter for the Victorian Government, bearing in mind the existing constitutional limitations. However, one option may be to house the labour hire licensing unit in the State Revenue Office.

The State Government could with minor amendments to the Tax Administration Act 1997 provide the Commissioner of State Revenue the power to enforce non-payment of labour hire license fees.

This would provide the Office with the ability to exercise powers where companies fail to seek or obtain a license, provide annual reports or pay the license fees or bond and or are unable to meet capital threshold requirements.

As the Office already contains “authorised officers” with investigative powers the existing inspectorate would be able to collect monies and take enforcement action against parties who failed to meet labour hire licensing requirements.

The NUW submits that in relation to investigating and compliance with workplace laws (for example, underpayments of workers), a simple and sound

25 Submission of Dr Elsa Underhill, p. 11.26 See Gangmasters Licensing Authority, ‘Licensing Standards: May 2012’ (http://www.gla.gov.uk/media/1596/licensing-standards-may-2012.pdf).

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approach may be for the regulator (in this example, the State Revenue Office) to enter into co-operative arrangements that funded trade unions (who hold the necessary standing and permits to investigate and enforce particular matters) and other specialist bodies (such as the Victorian Trades Hall Council) to conduct those activities.

Capital Threshold Requirement, Bond and License Fee

The NUW proposes that the Victorian labour hire licensing scheme require all labour hire providers operating in Victoria to register with the scheme and, in order to register and remain registered, such providers should be required to meet a certain capital threshold requirement and pay a bond and a yearly license fee.

Capital Threshold Requirement

The capital threshold requirement is a risk management tool to ensure operators are able to fund their businesses even if their customers are late in paying them. It is also intended to ensure the risk of operating is appropriately borne by the labour hire operators and not by workers or government. It should be designed so as to reduce the burden of bankrupt operators on the state in the form of claims against the Fair Entitlements Guarantee scheme and/or lost tax revenue.

Setting the amount of the capital threshold involves an actuarial exercise taking into account the above purposes of the requirement. The NUW proposes the following formula for calculating the capital threshold requirement (CTR):

CTR =HC x ALC x FEGM

In the above formula, HC is the labour hire operator's headcount; that is, the number of labour hire workers that the operator is licenced to engage.

ALC is the average labour cost of each worker. This could be calculated in accordance with the ABS' System of National Accounts as follows:

"Average labour costs (ALC) are generally calculated as compensation of employees plus payroll tax minus employment subsidies divided by total hours worked by employees. Training and recruitment costs are excluded due to measurement difficulties."27

For simplicity's sake, the actual compensation of employees and number of hours worked, which may be difficult to estimate prospectively in relation to new operators, could be substituted with the average earnings of employees in the most dominant industry in which the operator operates (or the average of earnings taken across the multiple industries in which it operates). The ABS

27 See ABS, Australian System of National Accounts: Concepts, Sources and Methods, 5216.0, 2015 at para [20.25].

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collects and publishes this information.28 The ALC should also include payroll tax. In principle, the CTR should also include an amount for corporate tax but this may be difficult to estimate for new entities. Instead, as the average employee earnings are likely to be higher than those actually earned by labour hire workers, who tend to be lower paid, the difference provides some buffer to offset the absence of an amount for estimated corporate tax.

The Fair Entitlements Guarantee Multiplier (FEGM) is the average number of weeks in unpaid wages that that claimants are awarded under the Fair Entitlements Guarantee Scheme in any previous year. The Department of Employment advises that they collect this data and whilst it is not publicly available, we understand it could be provided to the Inquiry on request.

Related to the question of the capital threshold is the issue of what types of assets count toward satisfying it. Guidelines available from the Australasian Procurement and Construction Council suggest that, in other contexts, assets should only be counted where it can be demonstrated that they can be relied on for the purpose of supporting the entity in the event of a default or insolvency. Those guidelines also note that some jurisdiction’s procurement systems exclude the counting of particular assets, such as related entity loansand investments.29

Bond and license fee

The NUW proposes that the Victorian labour hire licensing scheme should be self-funded through licence fees and the investment of bonds from labour hire operators. The bond amount should be set at a level to ensure the scheme's capacity to fund itself and also at a level sufficient to exclude high risk operators of a scale too small to be viable. For example, the Inquiry has heard evidence of fly-by-night labour hire operators operating from a van via a mobile number who fail to pay workers and subsequently disappear without a trace. In order to avoid these rogue operators, the quantum of the capital threshold should be sufficient to ensure only operators of a viable scale are able to register.

The NUW has submitted an initial proposal of a minimum mandatory bond payment of $50,000. This value would act as a minimum only and would be payable in the case of a small, new entrant into the market that is identified as low-risk. Higher bond payments would apply for bigger employers.

The minimum value of the mandatory bond payment as proposed by the NUW is significantly lower than, for example, the financial guarantees required under the Italian scheme.30 The amount may however need to be adjusted in accordance with the calculated cost of running the scheme.

28 Eg, see ABS, Employee Earnings Hours, 6306.0 at table 7 for a breakdown of these figures for each industry.29The guidelines are available from the APCC website:http://www.apcc.gov.au/ALLAPCC/APCC_PUB%20NPS%20Guidelines.pdf30 See Submission of the Centre for Employment & Labour Relations Law, The University of Melbourne, p. 32.

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Bonds received from operators should be invested and the interest earned used to fund the costs of operating the scheme. The amount of the bond should be calculated based on this estimated cost, and in future years, based on the actual performance of investment markets. Any greater than anticipated profits should be directed towards lowering license fees. Likewise, if investments underperform, license fees should be raised the following year to compensate.

The NUW has submitted that an annual registration fee of between $5,000 and $10,000 (depending on the size of the operator) be payable, and confirms that this would act as a minimum only.

Bonds should be repayable to operators in the event they cease operating. However, where an operator becomes bankrupt and employee entitlements remain outstanding, the bond should be withheld for the purpose of contributing to outstanding entitlements, for example via an administrative arrangement with Commonwealth to contribute the bonds of insolvent entities toward the costs of funding Fair Entitlements Guarantee advances.

Conclusion

The problem of unregulated labour hire requires urgent solutions, as does the prevalence of insecure work arrangements more generally.

A licensing system as proposed by the NUW would provide (part of) this solution.

The opportunity Victoria has must be grasped in order to protect labour hire workers and treat them as valuable members of our communities.

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Bibliography

Australian Bureau of Statistics, Characteristics of Employment, Australia (August 2014).

Australian Bureau of Statistics, Australian System of National Accounts: Concepts, Sources and Methods (March 2015)

Australian Bureau of Statistics, Employee Earnings Hours (May 2014)

Australian Procurement and Construction Council websitehttp://www.apcc.gov.au/ALLAPCC/APCC_PUB%20NPS%20Guidelines.pdfaccessed 7 April 2016.

Gangmasters Licensing Authority, ‘Licensing Standards: May 2012’.

International Trade Union Confederation, ‘Scandal: Inside the global supplychains of 50 top companies’ (2016).

Senate Education and References Committee, “A National Disgrace: The Exploitation of Temporary Work Visa Holders”.

Submissions of Agri Labour Australia to the Victorian Government Inquiry into the Labour Hire Industry and Insecure Work.

Submissions of Ai Group to the Victorian Government Inquiry into the Labour Hire Industry and Insecure Work.

Submissions of the Australian Chamber of Commerce and Industry to the Victorian Government Inquiry into the Labour Hire Industry and Insecure Work.

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