I acknowledge the Kaurna people who are the traditional custodians of this land. I pay my respects to the elders past and present and extend that respect to other Aboriginal people present.
I also start by thanking the Australian Labour Law Association for extending to me the honour of being the Keynote speaker at this conference.
As the preeminent organisation in this country dedicated to:
- promoting the study of labour law and social security both in Australia and internationally; and
- providing a forum for discussion and debate for lawyers and others working in these fields,
this conference provides me with a timely opportunity to announce the architecture of the Inquiry and Round-table I intend to conduct into sham contracting arrangements in the building and construction industry.
In doing so I invite you all, the brightest labour law minds in the country, to participate in that process and the essential conversation I think we need to have in this country about this important issue.
The Inquiry and Round-table is a fundamental component of my vision for the Office of the Australian Building and Construction Commissioner (ABCC) as we move to become a full service regulator actively focussed on ensuring fair and productive building and construction work.
Inquiry and Round-table into sham contracting in the B&C industry
In my statement to the Senate Standing Committee on Education, Employment and Workplace Relations on 20 October 2010 I made a point of addressing the issue of sham contracting.
On that occasion I said:
The existence of sham contracting in any industry adversely affects decent employers, employees and government revenue.
Decent employers in the building and construction industry are at a competitive disadvantage to those who seek to engage workers through bogus contracting arrangements. They are then faced with an invidious choice: join in the indecency of sham contracting or go out of business.
For workers, it means a reduced capacity to enjoy basic conditions of employment such as annual leave and sick leave. It means that work security is jeopardised and it is usually attended by the absence of a commitment to formal training.
As a whole, there is reduced workplace health and safety performance and poor workplace relations. For government, sham contracting has implications for taxation revenue and the degree of equity in the tax system.
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However, it is vital that industry stakeholders engage with government agencies in [an] endeavour [to eliminate sham contracting]. Employer associations, with their membership of decent employers under attack from sham operators, and unions, representing the interests of workers who are being ripped off, both have important roles to play.
I then announced my intention to convene a round-table of relevant government agencies and stakeholders to devise an all-of-government action plan aimed at eliminating sham contracting in the building and construction industry.
Today I announce the scheme of that Inquiry and Round-table.
Background to the issue of sham contracting
Working arrangements in the building industry, including sham arrangements and use of labour hire practices have been a subject of debate in the building industry for many years. Competing legal and policy views concerning the distinction between employee and independent contractors at common law has raged since the decision in the Odco litigation.
It is said by some that there are difficulties associated with policing compliance by labour hire companies. The CFMEU has called for statutory regulation of labour hire. On the other hand, employers have expressed the view that some types of labour hire have evolved to meet market demands and provide necessary flexibility.
These issues were examined by the Royal Commission into the Building and Construction Industry.
The Cole Building Royal Commission made one recommendation flowing from its examination:
Recommendation 100: “The Commonwealth initiate, through the Workplace Relations Ministers’ Council, the development of a Code of Conduct and Practice for Labour Hire in the building and construction industry”.
However, the issue that gave rise to the Royal Commissioner Cole‟s recommendation continues to exist.
The National Code of Practice for the Construction Industry does not expressly deal with sham arrangements. However, the August 2009 Guidelines for Implementation of the National Code do state that the Code provides that all parties must comply with “legislative requirements.” Section 6 specifically notes that the Fair Work Act 2009 (Cth) (FW Act) and the Independent Contractors Act 2006 (Cth) (IC Act) protect genuine employees from sham arrangements “which are sometimes used to avoid paying employee entitlements”
The Guidelines go on to note that sham contractor arrangements are, therefore, “inconsistent with the Code and Guidelines”. But no further guidance is provided in relation to what might constitute a sham contracting arrangement or what, other than initiation of proceedings under the FW Act ought to flow when a sham arrangement is identified.
Following a wholesale review of the then Workplace Relations Act 1996 (Cth) (WR Act) and the introduction of the Building and Construction Industry Improvement Act 2005 (Cth) (BCII Act), Sham Arrangements provisions were introduced by the Workplace Relations Legislation Amendment (Independent Contractors) Act 2006.
Those provisions were substantially replicated in Division 6 of Part 3-1 of the FW Act, a division also titled “Sham Arrangements”. The provisions are principally directed at employers who misrepresent to individuals that the contract of employment under which the individual is employed or is proposed to be employed is a contract for services under which the individual would perform work as an independent contractor.
Neither the sham arrangement provisions in the WR Act nor those in the FW Act have been used very often. There are even fewer decisions.
The ABCC has commenced civil penalty litigation in which it alleges that an ACT construction company engaged in sham contracting by misrepresenting an employment relationship as an independent contracting arrangement. Those proceedings have been commenced in the Federal Magistrates Court in Sydney. We presently have a number of other investigations on foot which are tracking towards litigation.
However, it has been argued that the sham arrangement provisions in the FW Act are likely to generate only modest success in civil penalty litigation. This is said for the following reasons.
First, the provisions only apply in circumstances where there exists a person who is in fact an employee at common law, but to whom an employer has represented that the contract under which they will perform work is one for services – or in simple terms, that the worker will be engaged as an independent contractor.
Secondly, the provisions assume the existence of an accepted definition at common law of “contract for services” and “contract of employment”, when in fact the test is complex and is notoriously difficult to apply.
Finally, the provisions prohibiting misrepresentations may be defeated by proof that the employer did not know, or was “reckless” as to whether the contract in question was a contract of employment rather than a contract for services. This provides a low threshold for an employer to defend themselves, and may even embrace wilful blindness in some circumstances.
Even when litigation is successful, they are of necessity restricted to a result in a particular case, and at most give rise to an individual employer being fined. Civil penalty litigation of this nature, while important, is unlikely, on its own, to generate significant change in the industry.
There is, sometimes, also an obstacle to investigating these matters. Many potential complainants may not bring matters to the attention of the ABCC for reasons including fears about their own taxation and business arrangements coming under scrutiny.
The use of sham arrangements and the regulation of labour hire raises many questions, not all of which fit neatly into investigations which might be conducted in relation to suspected contraventions of s357 to 359 of the FW Act.
There is in this area an intersection between employment law, taxation and matters of high social and economic policy. Further, issues which arise are likely to be affected by deeply entrenched attitudes among both employers and workers, and to require cultural change if any real progress is to be made.
This complexity and the inability of isolated civil penalty litigation to tackle the issue demands that we consider ways in which the issue of sham contracting and the use of labour hire generally might be more fruitfully dealt with.
An Inquiry
My functions under the BCII Act make available the option to inquire into sham arrangements and related matters. As such I plan to do so in the hope that it will have the effect of generating debate in the public arena.
In addition to the capacity I would have, at any time, to invite industry participants to a Round-table conference in relation to sham arrangements, my office also possesses each of the following specific functions:
- “monitoring and promoting” appropriate standards of conduct by building industry participants including by monitoring and promoting compliance with the BCII Act, the FW Act and the IC Act;
- “providing assistance and advice to building industry participants regarding their rights and obligations” under each of the BCII Act, FW Act and IC Act;
- “disseminating information about” the BCII Act, FW Act and IC Act and about “other matters” affecting building industry participants.
Each of the above specific functions is capable of supporting steps taken by me to hold a Round-table conference of industry participants. It also supports publication of a Discussion Paper and the calling for submissions and responses to the same. And this is indeed what I intend to do.
However, there is no set model for such a process.
Therefore, I have decided to first prepare a Discussion Paper which sets out basic data and material already in the public arena concerning Sham Arrangements and labour hire. The Paper will pose for discussion a number of the obvious areas in which debate and conflict exist in this area
Then, based on the Discussion paper, I will call for submissions addressing those specific issues. The Round-table conference will then be held (likely in February 2011) to debate and discuss the matters which have emerged from the Discussion Paper and submissions.
It seems to me that the benefit of circulating the Discussion Paper prior to submissions assists by providing a resource which contains some uncontroversial data and research in the area and then which narrows the debate into some key areas. I hope this will assist the preparation of more targeted submissions by members of the public.
Having the Round-table later in the sequence of events will, I hope, tend to make the participants better informed and more targeted in the matters they traverse.
The Discussion Paper
A number of Royal Commissions, including the Cole Building Royal Commission, have published Discussion Papers in order to both generate and provide focus to the public debate on a topic. Indeed, the Building Commission‟s Discussion paper on Working Arrangements provides an invaluable starting point for any examination of the topic.
A Discussion Paper is a good way in which to draw together key data and research in the area and to isolate the specific areas which would benefit from a frank exchange of views by industry participants.
Given the desirability of fleshing out legal, policy, industry and other issues the ABCC will have in-house staff work with an appropriately qualified external provider to produce a paper of high quality. It will pull together and be confined to publicly available material, including census and other data, in relation to trends in the industry. For this reason, it may even be necessary for the ABCC to commission research by academics designed to put together in digestible form the key (hopefully non controversial) data and statistics in the area.
The Paper will attempt to explain each side of the debate in relation to particular issues. It will be comprehensive, without being too lengthy; and provide a useful summary of the known material, without favouring one side or other of the debate.
The Discussion Paper will be well researched, documented and footnoted so that the source of all material and comment is clear.
Care will be taken to establish necessary protocols. The introductory pages to the Discussion Papers of the Cole Building Royal Commission and the Victorian Bushfires Royal Commissions made it clear that the Discussion Papers did not reflect the views of the Royal Commissioners; the same disclaimer will be made by me.
The public and open nature of the process will be established pursuant to a clear protocol. All participants will be advised that submissions will be treated as public documents and posted on the ABCC website unless special arrangements are made in relation to confidentiality. Individuals who seek to make private and confidential complaints ought not use this avenue, but rather contact the ABCC in the usual way.
Round table conference
I will determine the invitees to the Round-table conference which will occur in a number of small sessions in each of Sydney, Melbourne and Perth.
The invitees will include relevant federal ministers and their departments, state ministers, unions and the ACTU, employer organisations, peak bodies, individual employees and independent contractors, experts in accounting and taxation, labour researchers and members of the community.
Outside the obvious key stakeholders, attendees will be determined by calling for “nominations”, pursuant to which interested parties would indicate their interest. If they seek to attend in a representative capacity, they will be required to establish the legitimacy of that capacity.
The ABCC will make arrangements for the filming and transcribing of the Round-table conference. This will enable the discussion to be drawn on for the preparation of any report I wish to publicise. It also enables there to be an objective record of what was said, should there be any contest later. Use of technology could also be adapted to permit those interested in participating who are in regional or remote Australia to do so via web streaming.
Importantly, it is necessary that, as the ABC Commissioner, I remain impartial throughout the Inquiry and Round-table process. This would be impossible to achieve if the Discussion paper expressed my views or if I was to personally be involved in “running” the conference.
One model which has been suggested to me and which might assist is that used during the Victorian Bushfires Royal Commission. The community consultations held around Victoria were attended by the Royal Commissioners. However, other than making an opening statement as to the purpose of the sessions, the Commissioners stood “mute” throughout, and were observers only. The sessions were run by two highly skilled facilitators who successfully steered participants through a number of questions and topics, kept speakers to reasonable time frames, gently steered the group away from irrelevancies and ensured that those speaking were afforded a modicum of courtesy and respect
This seems to me to be a good model to adopt, as it will enable me to remain objective and impartial throughout the process.
Terms of Reference
While there is no formal need for Terms of Reference to be promulgated I consider it useful to do so to set parameters for the process to be adopted.
Developing and publicising Terms of Reference sets the outer limits of relevance and provides an easy means of advertising and explaining the matters that I intend to inquire into it. It lends a certain degree of formality and structure, rather than leaving matters to a formless round of consultation and debate.
Accordingly, I announce the following Terms of Reference:
The ABC Commissioner intends to inquire into Sham Arrangements and the use of Labour Hire in the Building Industry. The matters the ABC Commissioner will consider include the following:
- The Sham Arrangements provisions in the Fair Work Act 2009 (Cth): sections 357 to 359.
- Employees, independent contractors, subcontracting and working arrangements in the building industry.
- The role of labour hire companies in the building industry.
- The current definitions of “employee” and “independent contractor” at common law and in statutes.
- The evasion by employers of responsibilities owed to employees in the building industry by use of devices including subcontracting and labour hire arrangements.
- The evasion by workers in the building industry of taxation and other responsibilities by use of devices including creating businesses and partnerships.
- Competition and “undercutting” in the building industry: the role played by labour hire companies and subcontractors.
- Fairness: inequality of bargaining power as a driver in contractual negotiations between employers and workers.
While I consider these Terms of Reference to be sufficient for the purpose of the Inquiry and Round-table, stakeholders are welcome to address the adequacy of the same in their submissions.
Investigations: status and treatment of material adduced during the process
It is important for all stakeholders to understand that material might come to light at any stage during the submissions, Discussion Paper and Round-table conference which the ABCC wishes to investigate, or even which discloses the commission of a contravention.
Prima facie, any information I obtain can be used either as a trigger to commence an investigation or as evidence in civil penalty litigation. It is important (especially as to the latter) that there is clarity and no unfairness in what occurs.
Thus, from the outset all participants in each phase of the process must appreciate that:
- It is not compulsory to participate in the submissions, Discussion Paper, Round-table process;
- All material supplied in relation to the above processes is, prima facie, to be treated as public information able to be seen, used and relied upon by anyone including the ABCC;
- Persons who seek confidentially for any reason should make an “application” for the same to me, but there is no guarantee it will be granted;
- Persons who wish to make a specific complaint outside these processes should approach the ABCC in the usual way.
Care will be taken to ensure that all participants understand the purpose and use to which any written submissions and comments made during a Round-table conference might be put. Therefore, I make explicit that participation in the process, though voluntary, may expose one to investigation or litigation.
The use of section 52
There have been some suggestions in the past that the ABC Commissioner should use his compulsory examination powers under s52 of the BCII Act to address sham contracting generally.
I do not plan to do so. It is not consistent with the collaborative process that I believe is necessary for the Inquiry and Round-table to be successful and engaging with industry participants and stakeholders.
In any case, my powers to obtain information pursuant to s52 of the BCII Act could not be used to conduct a broad inquiry into sham arrangements in the building industry. Section 52 does not empower me to conduct an inquiry of a general nature into a topic or a particular provision of either the BCII Act or the FW Act.
Section 52 BCII Act provides that if the ABC Commissioner believes on reasonable grounds that a person has information or documents or is capable of giving evidence, “relevant to an investigation” then the Commissioner may require the person to produce those documents or give that information or attend to answer questions relevant to the investigation. It is significant that the term “investigation” is specifically defined as “an investigation by the ABC Commissioner into a contravention by a building industry participant of a designated building law”.
The reference to “a contravention” is to be read as a reference to a “suspected contravention”. When read as a whole, the provision envisages that in order for the powers in s52 to be enlivened, the ABC Commissioner must have knowledge of a suspected contravention, must have commenced an investigation into that suspected contravention and must have formed the view that a person has information or is capable of giving evidence relevant to the investigation which is already on foot.
Read together, the section and the definition make it tolerably clear that the power in s52 BCII Act is confined to circumstances in which there is already on foot an investigation into a possible contravention by a particular building industry participant.
As such I am not empowered to use s52 to compel the attendance of persons to give evidence about sham arrangements generally or in order to seek to uncover information about possible contraventions which might later be specifically investigated.
That is why I make the point that participation in the process of the Inquiry and Round-table is voluntary.
The outcome of the Inquiry and Round-table
Following a Round-table conference and as a result of the information which emerges from it, there are a number of other steps I might pursue. Some such steps which occur to me include the following.
Develop a Code of Conduct
I might decide, as a result of matters flowing from a Round-table conference, to develop a Code of Conduct and Practice for Labour Hire in the building and construction industry”. As is noted above, the Cole Building Royal Commission recommended that such a Code of Conduct be developed by the Workplace Relations Ministers, but it has not occurred.
A Round-table conference would appear to provide a good starting point for bringing the parties together to discuss development of such a Code. If a new Code were developed by the me (in consultation with industry participants), and if the Minister were willing to “issue” a Code of Practice pursuant to s37 BCII Act, the Code would gain the status of a legislative instrument.
If features of a regime designed to reduce sham contracting are embodied in a Code of Practice within the meaning of s27 BCII Act, then I would have power to direct a person to provide a written report containing information about the extent to which the person complied with the Code. This would provide more support to efforts to reduce sham contracting, as it provides a means by which my office can start to obtain (by compulsion) information about compliance with the sham arrangement provisions in the FW Act. The Code would then act as a good support to the legislative provisions.
Recommend legislative change
Following a Round-table conference and airing of the issues, I might be moved to make recommendations to the Minister in relation to amendments to the sham arrangements provisions in Division 6 of Part 3-1 of the FW Act and possibly related amendments to the IC Act.
Investigate contraventions
Of course, I always have power to investigate suspected contraventions by building industry participants. Should any material come to light during the Round-table conference or in responses received to a Discussion Paper then an investigation into possible contraventions of Division 6 of Part 3-1 of the FW Act might occur.
Questions may arise about individuals who seek to provide submissions in response to a Discussion Paper or to provide information in open session to the Round-table conference in circumstances where such information discloses a contravention of the FW Act (by themselves or a third party). This issue is discussed in more detail above.
However, participants should not expect that the ABCC will investigate every allegation of contravention that comes before it.
Having regard to the matters presently under investigation and being litigated by the ABCC it is clear to me that the ABCC continues to operate in, and seeks to regulate, a commercial sector that continues to require cultural reform.
There continues to be a need for:
- a recognition of the rule of law;
- a recognition of freedom of association and a repudiation of coercion;
- control of building sites by head contractors and major subcontractors; and
- an attitudinal change to safety.
While sham contracting is an important matter, I will not be diverting all the resources of the agency to this single area of non-compliance. The ABCC will continue to be actively involved in investigating and litigating its traditional suite of regulatory concerns in accordance with its new Litigation Policy.
Publish details
I am so empowered, if I consider it to be in the public interest, to publicise details in relation to non compliance by a building industry participant with the FW Act or the IC Act.
I note that my predecessor used this power on two occasions as follows:
- On 23 May 2006 the then ABC Commissioner released his findings in relation to an ABCC investigation concerning the deduction of four hours pay for a work stoppage on a Hooker Cockram building site on 7 April 2006 at the Defence Science and Technology Organisation construction project, Fishermans Bend, Victoria; and
- On 2 August 2007 the then ABC Commissioner released his findings in relation to an ABCC investigation concerning the „blue flu‟ incident on 8 July 2005 at the Country Travellers Association (CTA) project, Perth, Western Australia.
Conclusion
The Inquiry (its Terms of Reference) and Round-table I have announced today are an important and, I think, necessary step to addressing the systemic difficulty that is sham contracting.
Rather than a mere talk-fest it is a call to, and commitment to action.
More importantly, it is about ensuring that decent employers, employees and legitimate independent contractors in the building and construction industry can go about their work, essential as it is to the economic prosperity of this country and its infrastructure needs, in a way that is both fair and productive.