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In 2018, all employers will see greater scrutiny in their engagement of contractors.

Increased union scrutiny on contracting arrangements  

Unions will focus on principals who inappropriately engage workers as contractors when they are, in essence employees. In her maiden speech to the National Press Club in March 2017, ACTU Secretary Sally McManus declared that: “Wage theft is a new business model for too many employers...It is now part of the business models of some Australian companies to underpay workers, or to force them to pretend to be contractors.”

The ACTU believes that employers in the ‘gig-economy’ including Uber, Deliveroo and Airtasker are engaging workers in ‘disguised employment’ or sham contracts. Its policy is to introduce the following changes to protect contractors’ rights:

1. Recognise a new category of ‘dependent contractor’, who would enjoy many of the rights conferred on employees such as entitlements to leave, superannuation and minimum wages.
2. Grant the Fair Work Commission the ability to deem contractors as employees.

Tenderers beware of becoming accessories to a breach

The Fair Work Ombudsman (FWO) is paying attention not only to those employers who are engaging workers on ‘sham contracts’, but also principals who pay inappropriately low rates to those workers who are correctly classified as independent contractors. The FWO has confirmed that it is increasingly using the ‘accessorial liability’ provisions of the Fair Work Act (FWA) to prosecute principals ‘up the supply chain’. If a principal tenders out work to contractors but the principal knows, or ought to have known, that the rates of pay being offered by the contractors to their employees are likely to be non-compliant, the FWO is just as likely to seek to prosecute the principal as it is to prosecute the contractor who is actually engaging the employees.

This is best evidenced by the supermarket giants Coles and Woolworths, who have historically tendered-out trolley collection services to independent contractors. Recent FWO investigations found that many of those collection companies were not paying appropriate wages to their staff. Instead of solely pursuing the trolley collection companies, the FWO also pursued the principals in the supply chain – Coles and Woolworths. Both ultimately entered into settlements with the FWO, committing to improve their oversight of trolley collection services in order to ward off prosecutions. The FWO is continuing to prosecute accessories to FWA breaches, whether they be principals up the supply chain or individual directors or HR managers. In 2016, 92% of the FWO’s prosecutions against an employer also sought orders against accessories. This is a trend that will only continue in 2018.

New laws regulating franchisors and holding companies

Changes to the FWA that took effect in September 2017 are consistent with the FWO’s increased focus on entities up the supply chain. Under the new laws, franchisors and holding companies can be liable for breaches of the FWA by their franchisees or subsidiaries respectively where the franchisors or holding companies “knew or could reasonably have been expected to have known” that the contravention, or a similar contravention, would occur.

Labour-hire arrangements

The push to instil greater discipline in contracting arrangements has also led to increased focus on labour-hire arrangements around Australia. Again, the ACTU leads the charge on this front:

“It’s not right that people can be shuffled between labour hire providers and have their wages cut and conditions snacked away.” (Sally McManus, 27 March 2017)

Queensland introduced the Labour Hire Licensing Act 2017, which will take effect from April 2018. The Act requires, amongst other things, that:

• labour-hire providers be licensed to operate in Queensland; and
• companies only engage licensed labour-hire in Queensland.

The NSW Labor Opposition has also announced its intention to license labour-hire in New South Wales, if elected to government. The Victorian Government introduced legislation to regulate labour-hire in mid-December 2017.

What should employers and HR Managers be doing?

There are a few key actions that any employer should be taking to respond to the changing landscape:

1. Think of your labour sourcing model in both quantitative and qualitative terms:
   • brand impact
   • workplace culture
   • union relations
   • regulatory solutions
   • direct and indirect costs
2. If engaging contractors, make sure you assess the relationship to ascertain it is genuinely a contractor relationship as opposed to one of employment.
3. If your contractors are correctly classified, are you paying them superannuation? In most cases, contractors are entitled to super.
4. Is your business outsourcing work? Do you engage cleaning companies, security companies or other services ancillary to your main business? If so, what level of consideration is being applied to determine that the rates of pay offered are capable of complying with the minimum regulatory safety net?
5. If you engage labour-hire in Queensland or Victoria, you may soon have obligations to ensure your labour-hire provider is licensed. If you are only operating in NSW, there’s time to watch whether a change of government will affect this space.

Contact the Workplace and Employment team if you have any questions raised in this article.