Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

Union costs

There are also compliance costs that unions bear, that business do not. Administering and applying for right of entry permits for all officials has increased the compliance costs for unions. This has included the provision of education and testing facilities, to enable union officials to satisfy the requirements of the FW Act to obtain their permits. Compliance costs for unions could be reduced by streamlining this application process and for example, the frequency of which they need to be renewed to remain current. At present, the are periods and instances of delay in having permits renewed which are partly a result of the administrative procedure required by the FW Act and partly a result of a strain on the resources of the relevant branch of the FW Commission. The latter could be avoided by a more generous funding allocation. We otherwise discuss the right of entry framework in chapter 21.

There are also prescriptive requirements around protected action ballots which add to compliance costs. We consider these requirements in chapter 14.

Finally, there are also a number of requirements under the RO Act. These are costs which have increased in recent times due to changes in the regulatory environment, however the core of the RO Act is well understood, appropriately deals with transparency and democracy and has been consensually supported for some 15 years. Further changes, opposed by unions, have been brought before the Parliament recently and have been rejected. We understand the union regulation scheme in the RO Act is out of the scope of the present inquiry however if we are mistaken we are able to provide further information on request.

7	Measuring the Economic Impacts of Industrial Relations Regulation: (C) Gaps and Avoidance Incentives.

We noted in our introductory chapter that the combination of concessions to capital and a failure to keep pace with changes in the labour market have resulted in the interests of labour losing ground under the industrial relations framework. This lost ground takes the form of regulatory gaps and concomitant incentives for capital to exploit them. In this chapter, we provide some of examples of these effects, along with some recommendations for rectifying them.

“Independent” Contractors

The common law legal framework surrounding independent contractors is well rehearsed. Employees are engaged under a contract of service. An independent contractor is engaged under a contract for service. Employees owe common law duties to the employer which derive from the contract of employment, for example the duties of good faith and fidelity. Employees usually cannot work for another employer, particularly a competitor of their employer. Independent contractors and the principal engaging them establish their commercial relationship at arm’s length and any duties or obligations arise from the terms of the contract for service. An independent contractor is not bound to the one principal and can provide services to a range of principles, who can be in the same industry and in competition with one another.

Inherent in this summary of the legal framework is an understanding that independent contractors are free agents in a commercial sense with the same standing as those they provide services for. The framework becomes controversial when the “business” that is the independent contractor is constituted by a single worker, as many are: 8.5% of employed persons as at November 2013 (over 986,000 people) report themselves to be in this category¹⁴³. Where this is the case, the expression “independent contractor” takes on the character of a convenient legal fiction which obscures the immutable bond between a worker and their labour, in order to create a commodity. Without a worker in sight, most law by default recognises no labour, only commerce.

Policy makers and the courts are not entirely blinded by this illusion. A case in point is the collective bargaining authorisation provisions contained in Part VII of the Competition and Consumer Act. The ACCC’s guidance material in relation these provisions states:
The Act encourages vigorous competition between businesses by prohibiting various forms of anti-competitive conduct. Generally, the Act requires businesses to act independently of their competitors when making decisions about pricing, other terms and conditions or who to deal with.
However, it is recognised that small businesses face many challenges when negotiating with larger businesses. At times, small businesses may feel that they have little or no bargaining power in their dealings with big business and little influence on terms and conditions, including prices.
It has been recognised that small businesses are often more likely to be heard on terms and conditions if they join with other small businesses to collectively negotiate with a larger business, rather than one-on-one. However, negotiating collectively may breach the Act.
Businesses are able to use the authorisation process to obtain immunity from legal action under the competition provisions of the Act for collective bargaining arrangements that are in the public interest. Alternatively, small businesses can obtain immunity from legal action under the Act for such arrangements by lodging a collective bargaining notification.¹⁴⁴
Whether the regime overseen by the ACCC goes far enough in protecting the interests of independent contractors is a separate issue (and we say it does not) – the point is that the parallels between those contractors and those of employees have been identified. Further evidence of the tacit recognition of contracting as a form of labour comes from the laws that establish the Superannuation Guarantee system, which provide a deeming provision for those purposes of that scheme that “If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of that other party to the contract”¹⁴⁵. The Australian Tax Office, which supervises the scheme, has also issued a Ruling on the topic¹⁴⁶, which includes the following:
“Subsection 12(3) was intended to extend the scope of the SGAA beyond traditional employment relationships to take into account some independent contractors who principally provide their own labour to meet obligations under a contract. The Second Report of the Senate Select Committee on Superannuation, Superannuation Guarantee Bills , noted (at page 146) that subsection 12(3) was 'designed to include a person who may not be an employee in the normal sense but who is in fact not very distinguishable from an employee.' However, the operation of subsection 12(3) has, in our view, been restricted by the interpretation which the courts placed on the equivalent expression in paragraph (a) of the definition of 'salary or wages' in subsection 221A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) ('paragraph (a)')…”

“The ATO view is that some contracts for services will be wholly or principally for the labour of the individual contracted even though the individual is not a common law employee. Therefore, subsection 12(3) must be considered where there is no common law employment relationship or where there is doubt as to the common law status of the individual.

Where the terms of the contract in light of the subsequent conduct of the parties indicates that:

· the individual is remunerated (either wholly or principally) for their personal labour and skills;

·  the individual must perform the contractual work personally (there is no right of delegation); and

·  the individual is not paid to achieve a result (paragraphs 43 to 47 discuss when a contract is one to achieve a result),

the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under subsection 12(3).”

These sentiments were echoed in the recent draft report of the Harper Competition Policy Review:

Ordinarily, collective bargaining undertaken by competing businesses would be harmful to competition. However, small businesses dealing with large businesses often face an imbalance in bargaining power. That imbalance can result in commercial outcomes that are inefficient or unfair. Permitting small business to bargain collectively in certain circumstances can redress the imbalance in power and result in more efficient market outcomes. It was for this reason that the notification process was introduced.¹⁴⁷
Further, the Independent Contractors Act 2006 clearly recognizes the inherent potential for unfairness in bargaining relationships and provides for a court to review and vary contracts on grounds including that the contract is unfair, harsh, unconscionable, unjust, against the public interests or is designed to avoid the provisions of the FW Act or an Award or Agreement made under the FW Act¹⁴⁸. In reviewing contracts under the Independent Contractors Act, the court may to have regard to numerous factors including the relative strengths of the bargaining positions of the parties to the contract and, if applicable, any persons acting on behalf of the parties; whether any undue influence or pressure was exerted on, or any unfair tactics were used against, a party to the contract; and whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work.¹⁴⁹

With one exception, independent contractors are excluded from most of the aspects of the FW Act which otherwise apply to employees. For example, independent contractors cannot take protected industrial action in order to increase their terms and conditions of employment, they cannot seek relief from unfair termination of their contract for service, they have no rights to leave such as personal/carer’s leave or annual leave and they are not covered by awards. However, once again there is limited recognition that there interests may be compared to those of employees in Division 3 of Part 3-1 of the FW Act.¹⁵⁰ An independent contractor must not suffer adverse action if her or she has a workplace right, has/has not exercised a workplace right, or proposes to/not to exercise a workplace right.¹⁵¹ The limitation is that, unlike employees, independent contractors are not protected from adverse action if they make a complaint or inquiry about the terms of their engagement.¹⁵² This is a key workplace right, the existence of which provides substantial protection for employees who find themselves the subject of adverse action if for example they make a complaint about the non-payment of superannuation, raise issues about safety at work, or inquire about their pay slips.

The exception to the general rule relates to outworkers in the Textile, Clothing and Footwear Industries. These workers have received special protection in the relevant award and State and Federal legislation in recognition of their position of vulnerability, proven exploitation and the thorough and effective advocacy of their union on their behalf.

Workers who are incorrectly engaged as independent contractors when in fact they should be employed face a number of significant disadvantages. These are disadvantages that have a direct adverse impact on the worker themselves, but also negatively impact on the economy and social standards.

Particularly for workers who are doing low paid jobs covered by award classifications (e.g. cleaners, cooks, delivery drivers) the impacts of being incorrectly classified are severe. By virtue of the fact that they are not engaged as an employee they prevented from relying on the security of the basic minima required by the industrial relations system, particularly under the FW Act. For example they are not entitled to NES minimums, minimum wages, or award conditions. People who are ostensibly employees are receiving less than they should. Conversely businesses are able to avoid meeting their minimum obligations to workers and more widely to society.

This creates serious issues for the labour market in terms of not only workers, but other employers and principles, who in an effort to compete with those in breach of the law, feel that they must also undercut the minimum protections, perhaps by also engaging workers as independent contractors. There are losses to society in terms of a fair share of tax being paid by business to contribute to areas such as health and education.

In our view, there should be absolutely no ability for any worker to receive less than the national or award minimum wage. Every worker has a right to be provided with all rights, entitlements and protections, afforded under the FW Act, an award, or other industrial or health and safety legislation. If we can agree (as we have for over 100 years in this country) that labour standards are inviolable and should not be able to be contracted out of simply by labelling something that which it is not, there is no rational basis to make distinctions between forms of labour other than a deliberate policy choice to declare some citizens as second class.