Stephen Smith (Perth, Australian Labor Party, Shadow Minister for Industry, Infrastructure and Industrial Relations) Share this | Hansard source

Labor opposes the Independent Contractors Bill 2006 and the bill associated with it, the Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006. At the conclusion of my remarks, I will formally move a second reading amendment which reflects the substance of the reason for Labor’s position. This bill and the associated bill follow on from the government’s so-called Work Choices legislation, from its extreme industrial relations legislation. In that, we see an attack upon rights, an attack upon entitlements, an attack upon conditions and an overall attack upon living standards. In the so-called independent contractors legislation we see a further attack upon rights, conditions, entitlements and protections in the workplace and on living standards generally. In the government’s so-called Work Choices legislation, in its extreme industrial relations legislation, we see an approach which attacks and reduces wages, removes or reduces conditions, and removes or reduces entitlements. That legislation tilts the lever in favour of the employer as against the employee—a weighting of the lever massively in favour of the employer.

When it comes to the so-called independent contractors legislation, there are two basic prospects which the government’s legislation sets up. On the one hand, under the guise of so-called independent contractors, the legislation will allow genuine employees, vulnerable employees, to be pushed out of a genuine employer-employee relationship and to be established as so-called independent contractors—effectively sham independent contractors. The consequence of that will be that that employee’s conditions and entitlements will be reduced or removed, but further burdens will be placed on that employee as a sham independent contractor: the burden of workers compensation, the burden of taxation arrangements and the burden of superannuation arrangements, which would normally be carried by the employer. On the other hand, we have at the state level many very soundly based protections which are there to protect contractors who are effectively in a dependent contract position—contractors who provide services or a service in the main to one contract partner, not unfamiliar in the transport industry, particularly with owner-drivers. The legislation removes or reduces the protections afforded to dependent contractors to reduce or remove protections currently afforded to contractors or small businesses. It does that by overriding state provisions in state based legislation which have employee deeming provisions or which provide access at the state level to unfair contract provisions and unfair contract legislation. These protections are for the benefit not just of consumers but of contractors and small business.

The effective message from this legislation either to a vulnerable employee or to a dependent contractor is: you are on your own. The government has sought to create a mirage that somehow this legislation is good for small business and good for contractors. Nothing could be further from the truth. For small business and for dependent contractors, it is effectively saying: ‘You are on your own. In an unequal bargaining position with a superior contract partner, you will effectively now be on your own, with no access to state based protections, no access to unfair contract provisions, no access to employee deeming provisions.’

That is summarised in the second reading amendment which I will formally move at the conclusion of my remarks but will now detail to the House:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House notes that:

(a)

this bill follows on from the Government’s extreme industrial relations changes which are a massive attack on living standards and living conditions, by removing rights, entitlements and conditions of Australian employees;

(b)

this bill also removes rights, entitlements, conditions and protections afforded to Australians in the workplace, whether employees or independent contractors;

(c)

this bill does this by allowing employees to be treated as “independent contractors”, thereby removing employee protections and entitlements and placing superannuation, tax, and workers’ compensation burdens on them;

(d)

this bill does this by removing protections from independent contractors who are in a dependent contract position and as a consequence in an unequal bargaining position;

(e)

this bill effects this by:i.      continuing to use the common law definition of independent contractor as the basis of law without the guidance of statutory criteria.ii.     allowing employees to be treated as independent contractors in a sham way by ineffective anti-sham provisions.iii.    overriding State laws with employee deeming provisions.iv.    overriding State unfair contracts provisions which provide protection to employees, contractors and small business.v.     overriding any future State and Territory owner-driver transport laws and putting existing State owner-driver transport laws at risk.vi.    failing to provide any genuine protections for outworkers through ineffective outworker provisions, significantly weakening outworker entitlements.

i.

continuing to use the common law definition of independent contractor as the basis of law without the guidance of statutory criteria.

ii.

allowing employees to be treated as independent contractors in a sham way by ineffective anti-sham provisions.

iii.

overriding State laws with employee deeming provisions.

iv.

overriding State unfair contracts provisions which provide protection to employees, contractors and small business.

v.

overriding any future State and Territory owner-driver transport laws and putting existing State owner-driver transport laws at risk.

vi.

failing to provide any genuine protections for outworkers through ineffective outworker provisions, significantly weakening outworker entitlements.(f)    this bill introduces even more complexity and confusion into Australia’s workplace laws; and

(f)

this bill introduces even more complexity and confusion into Australia’s workplace laws; and

(g)

this bill treats the Senate Employment and Workplace Relations Committee reporting on these matters with contempt by dealing with the legislation prior to consideration of its report’.

The central principle which underpins this bill and the accompanying bill is that independent contracting relationships should be recognised and supported and that the appropriate mechanism for regulation is commercial law, not industrial law. Estimates vary as to the total number of independent contractors operating in Australian workplaces. The Productivity Commission estimates, from the ABS forms of employment survey data, that the total number of independent contractors was 787,600 in 2004—8.2 per cent of all employed persons—down from the 1998 figure of 843,900, which is 10.1 per cent of all employed persons. This is disputed by the Independent Contractors of Australia, which has also cited Productivity Commission and FOES data to claim that the percentage of independent contractors in total employment has grown from 16.4 per cent in 1978 to 19.9 per cent in 2004, almost two million employees. Accordingly, estimates range from approximately 800,000 to two million independent contractors in 2004, somewhere between eight per cent and 20 per cent of all Australian employed people.

The government’s legislation does not seek to define the term ‘independent contractors’ beyond its meaning under common law. At common law, employees are engaged under a contract of services, whereas contractors are engaged under a contract for services. In other words, an independent contractor is generally a person who is engaged on a labour only contract, usually determined as a one-off flat rate. Generally, the independent contractor remains responsible for a number of aspects of the relationship that would usually be the responsibility of an employer—for example, superannuation payments and remitting income tax to the Australian Taxation Office. This is problematic and it means that an independent contractor is seen to be a person who contracts for services to be provided, without having the legal status or protections of an employee, even if they are dependent upon that contract—for example, owner-drivers in the transport industry.

In addition to this definitional issue, the government’s legislation covers five key areas. These are: (1) state laws with employee deeming provisions; (2) state transport owner-driver laws; (3) state unfair contracts jurisdiction; (4) outworkers in the TCF industry; and, (5) the so-called sham arrangement provisions.

The Independent Contractors Bill 2006 has five separate parts. Part 1 contains the principal objects and the relevant definition as referred to. Part 2 seeks to override state and territory deeming provisions. Part 3 seeks to establish a national services contract review scheme to enable applications to be made to a court for the review of services contracts. Part 4 seeks to provide a default minimum rate of pay for contract outworkers in the TCF industry and part 5 seeks to create transitional arrangements under the legislation. As I have indicated, associated with this bill is the Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006. The purpose of that bill is to amend the Workplace Relations Act 1996 to deal with the sham employment arrangements.

On analysis of the bill, despite government assertions that the legislation is intended to protect independent contractors, the legislation does no such thing. The bill introduces a layer of additional complexity on an already complex industrial relations legal system provided to us by the government. The provisions are highly prescriptive, technical and introduce an effusing array of concepts. There are, for example, pre-reform commencement contracts, continuation contracts, related continuation contracts, remedy contracts, test contracts and a contractor test designed to clarify the continued application of state contractor law under the deeming provisions to relevant services contracts. In addition, some types of contracts entered into after the commencement of the bill will be subject to relevant state laws, while others will not, depending upon the satisfaction of technical requirements. That difficulty is referred to in the second reading amendment which notes that the bill introduces even more complexity and confusion into Australia’s workplace laws.

I referred earlier to the application of the common-law test and it is worth while dealing with that in more detail. The test for distinguishing between employees and independent contractors is the common-law test as it has been applied by Australian courts and tribunals for many years. It is acknowledged that that test is difficult and complex but the criteria applied by the courts includes: the degree of control the worker has over the work; the degree to which the worker is treated as part of the principal’s enterprise—for example, if the worker wears the principal’s uniform; whether the worker is using his or her tools and equipment; how the principal pays the worker; whether it is at the discretion of the worker to work, if the principal has the right to dictate hours of work and the worker can refuse tasks; the provision of leave, superannuation and other entitlements by the principal to the worker; the place of work; whether the worker has the right to delegate work to others; whether the worker provides similar services to the general public; and whether the worker is providing skilled labour or labour that requires special qualifications.

Genuine independent contractors have always been considered by our courts and tribunals to be in commercial arrangements and are therefore subject to the provisions of contract law. When called upon to test the validity of a claim to either employee or independent contractor status, the courts have applied the relevant common-law test. Affirming this status and the commercial status of independent contractors therefore adds nothing new to the current regulatory framework. The bills, by adopting the common-law test, bring with them all the same difficulties. In practical terms, Professor Andrew Stewart has identified the limitations of the common-law approach. He said:

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.

That goes to the first primary point that under this legislation people who are genuine employees, particularly those in vulnerable positions such as outworkers, will be pushed out of the employer-employee relationship, lose whatever protections they have as employees under the employer-employee relationship and then have the additional burden of those things which genuine independent contractors would normally make provision for—namely, superannuation, taxation arrangements and workers compensation. That is the first, central focus of the government’s legislation. The government’s so-called anti-sham provisions to prevent people from being pushed into that position are in themselves a sham. So the government’s sham provisions are in themselves a sham and require vulnerable employees to effectively apply to a Federal Magistrates Court to seek a determination of that issue. Issues also remain of workers hired as independent contractors under tax law.

Concern has been expressed that, while a worker may be hired on a commercial contract basis, they may meet the definition of ‘employee’ for tax purposes. Alienation of personal services income, PSI, tax rules which came into effect on 1 July 2000 removed most tax advantages for personal services contractors—while independent contractors must cover expenses for salary continuance, superannuation and the like. This then denies legitimate business deductions for dependent contractors. Similarly, professionals working as legitimate independent contractors who undertake major projects over one year are also penalised under the PSI tax rule—for example, the 80:20 rule. That goes to the second aspect of this legislation: the government is seeking to trumpet this legislation as being of benefit to small business and as being of benefit to contractors. Nothing could be further from the truth. Not only does it introduce that tax complexity to which I have referred but, in the case of genuine independent contractors who essentially provide services to one other contracting partner who is in a dependent position, very many of the state based protections—whether it be unfair contract or employee deeming provisions—are removed, with no subsequent protections provided in the government’s legislation.

I will now move to an analysis of some of the areas of concern about the bill. I will start with state laws with employee deeming provisions. The bills override all existing deeming provisions contained in state industrial legislation which deem certain categories of independent contractors to be employees and provisions granting employee related entitlements to independent contractors. In New South Wales, for example, certain categories of workers are declared to be employees and brought within the scope of industrial relations even though they may be independent contractors at common law. These deeming provisions cover a wide range of occupations, including milk vendors, cleaners, carpenters, joiners, bricklayers, painters, bread vendors, outworkers in clothing trades, timber cutters and suppliers, plumbers, drainers, plasterers, blinds fitters, council swimming centre managers, ready-mix concrete truck drivers, Roads and Traffic Authority lorry drivers and others prescribed by regulations. These provisions seek to redress the unequal bargaining power of these categories of workers which compromises their ability to negotiate working conditions. These are workers in demand categories. In many cases their working arrangements are not different in substance from those of employees.

State deeming provisions have been introduced to offer protection to workers from effectively disguised employment relationships. The Commonwealth legislation overriding state legislation is subject to a three-year transitional period and the preservation of existing deeming provisions for outworkers and owner-drivers. As a consequence, they will not apply to contracted textile, clothing and footwear outworkers. The bill provides a three-year transitional period for the commencement of the legislation and only deeming provisions in state industrial relations laws will be overridden. Deeming provisions will continue to apply to existing contracts for three years after the commencement of the act and parties may leave this arrangement early if they wish under section 33 of the principal bill, which provides the parties with an ability to enter into a reform opt-in agreement. The direct result of overriding state deeming provisions will be to leave many vulnerable workers in an unfair bargaining situation and without access to basic entitlements.

The second area that I wish to go into some analysis of is state transport owner-driver laws. The bill provides for an exemption of existing New South Wales and Victorian owner-driver legislation. The New South Wales system includes basic regulatory protection for owner-drivers, including that owner-drivers are able to recover their costs. The New South Wales system includes enterprise specific arrangements for owner-drivers. The New South Wales system does not apply to genuine independent contract transport companies, instead applying only to single vehicle owner-drivers who are dependent contractors with one company. The New South Wales legislation allows for minimum standards to be created. The Victorian system uses small business models and uses TPA protections—asking what rate owner-drivers would have gotten if they had performed that work as an employee. All contracts must list minimum hours and rates, if any, and dispute resolution is provided by the Small Business Commissioner. The legislation allows for the collective negotiation of rates. Currently only New South Wales and Victoria have state based legislation covering the employment conditions of owner-drivers. Western Australia is proposing to introduce legislation into its parliament shortly and the ACT is also suggesting similar legislation for the Australian Capital Territory.

Exemptions of both the New South Wales and Victorian state legislation are to be reviewed in 2007. This review opens up the prospect that such exemptions will cease either before or after the next federal election if the government is re-elected. There has been some coalition disquiet about these provisions, and I note that in the Financial Review the member for O’Connor, Mr Tuckey, urged the minister and the Prime Minister to remove these protections entirely. As a consequence we saw the government committing itself to a review. Most of us in this place know what a review is likely to lead to. If the government is re-elected, the results of that review, on the urging of people like Mr Tuckey, would no doubt see the existing New South Wales and Victorian protection provisions removed, just as the legislation has the effect of preventing other states—for example, my own state of Western Australia—from introducing comparable legislation to protect so-called dependent contractors.

The third area is the exclusion of the state unfair contracts jurisdiction. Independent contractors can no longer access state unfair contract laws. The bill creates a federal unfair contracts jurisdiction. Arguably, in some ways the bill extends the rights of independent contractors by introducing a national unfair contract regime. However, the states’ tests are much broader, and much more easily able to be accessed. The new unfair contract provisions are significantly more limited, for example, than those in New South Wales. In New South Wales, the state Industrial Relations Commission can review a contract which has become unfair subsequent to the parties entering into it.

Under this bill there is no ability for employer organisations or unions to apply for unfair contract review on behalf of a party, which is the case under state law. The effect of this part will be greatest in states where existing regulation is most prevalent—New South Wales, Victoria and Queensland in particular. The parties to independent contract arrangements in these jurisdictions will see a sharp decline in the level of the regulation of their relationships. This provision treats all contractors on a purely commercial basis, regardless of whether they are an outworker, a deemed employee or an independent contractor. This will result in a loss of entitlements and protections and will encourage employers to hire workers as independent contractors rather than employees. In addition to removing the state unfair contracts legislation, unfair contract matters will now be tried in the Federal Magistrates Court, a more formalistic jurisdiction. This will add to the expense, the length and complexity of arguments and the exposure to costs.

Concern has also been expressed that overriding state unfair contract legislation would water down protection for consumers and small business. Current legislation in New South Wales and Queensland provides for state industrial relations tribunals to hear cases of unfair contracts and provide remedies. This is because of the broad way in which the employer relationship is construed under these jurisdictions’ legislations. The repeal of these provisions reduces opportunities of small business to claim that a contract is unfair. There is no effective federal unfair contracts legislation, and unconscionable contract principles under common law do not provide an effective remedy in most cases. These two areas are referred to in the second reading amendment and draw together the strands of overriding state laws to remove or reduce protections which are afforded not just to individual employees but also to small business and to contractors, particularly the access of small business and contractors to the unfair contracts provisions in New South Wales.

Let me move to outworkers in the textile, clothing and footwear industry. Part 4 of the bill provides for a default minimum rate of pay for contractor textile, clothing and footwear outworkers which would operate where an outworker is not guaranteed a minimum rate of pay under state and territory law. The wage is based on the minimum rate applicable to the TCF contracted worker under the minimum wage guarantee contained in the Australian Fair Pay and Conditions Standard. Contract outworkers along the chain of contract, as well as head contractors, may be liable for the payment of the default minimum rate. Records must be kept for TCF outworkers. Contracted outworkers will not have access to relevant state unfair contract jurisdictions. Currently outworkers are deemed to be employees under state industrial legislation in New South Wales, Queensland, South Australia and Tasmania. This means they are entitled to all benefits which attach to being an employee, even though they are employed under a contract for services. Clause 7(2)(a) of the bill will permit a state and territory law to continue to the extent that the law applies to a services contract in which an outworker is a party.

The bills introduce the notion of an outworker being a contract worker. This dual characterisation will lead to greater confusion among clothing suppliers and outworkers as well as providing an additional incentive to those suppliers to circumvent the current system. It will encourage forum shopping by enabling state outworker entitlements to be enforced under state law, whereas any proceedings for review of unfair contracts must be instituted under the federal jurisdiction. The dual operation of state and federal jurisdictions will result in state authorised inspectors having the added burden of determining the extent to which clothing suppliers have genuine defences under this bill. As well, there is no provision in the government’s legislation to aid in the enforcement of state outworker laws such as issuing compliance declarations by companies when engaging outworkers. Nor does the bill require contractors to inform outworkers of their entitlements under the relevant state law.

These bills will do little to protect outworkers without the proper application of state based outworker legislation. Given the generally accepted vulnerable and exploited position of outworkers in the contract process, there is a compelling argument that all relevant matters dealing with the engagement and regulation of outworkers should be removed from the jurisdiction established by the bills and remain a matter for state regulation. The legislation as drafted will have the effect of significantly weakening outworker entitlements.

The Senate Employment, Workplace Relations and Education Legislation Committee, effectively as we speak, is conducting a private hearing with the textile, clothing and footwear industry to consider these regulations. It would have been preferable if the government had allowed the committee to conclude its deliberations and make recommendations in respect of outworkers prior to the commencement of debate in this House. But I hope that the Senate committee will recommend amendments to the government’s legislation to ensure much more effective protection of outworkers. It is clearly the case that this is an area of great weakness in the legislative arrangements. One area of great weakness in regard to outworkers leads me to a major area of weakness in the legislation—the so-called sham arrangements provisions. The explanatory material accompanying the bill states that a sham arrangement is ‘an arrangement through which an employer seeks to cloak a work relationship to falsely appear as an independent contracting arrangement in order to avoid responsibility for legal entitlements due to employees’—the very point that Professor Stewart drew attention to. I referred to him earlier. Page 9 of the explanatory memorandum states:

Employees in disguised employment relationships should have appropriate remedies available to them as they are not in reality independent contractors.

The difficulty with the so-called sham provisions is that they are themselves a sham and will be completely ineffective in preventing precisely that from occurring. This is in very many respects the major deficiency of this bill. It is not done by error; it is done deliberately. This will enable employees who are genuinely in an employer-employee relationship and who are in a vulnerable position, with unequal bargaining power, to be pushed artificially into a so-called independent contractor’s provision that will see them at risk of having their employee conditions and entitlements reduced or removed and also place on them the normal burdens of a genuine independent contractor in terms of provision for workers compensation, taxation arrangements and the like. Those points are picked up in the second reading amendment—that is, ‘allowing employees to be treated as independent contractors in a sham way by ineffective anti-sham provisions’. The so-called sham provisions are of themselves a sham.

Let me draw the strands of Labor’s analysis of this legislation together. The government would like the community to believe that somehow a so-called independent contractors bill will be beneficial to small business and to independent contractors. Nothing could be further from the truth. For small business and independent contractors, this reduces or removes current protections, particularly those protections made available under state laws providing access to the unfair contract jurisdiction and access to deeming provisions. At the same time, the ineffective operation, no doubt deliberately designed, of the so-called sham provisions will see vulnerable employees pushed into an artificial independent contractor provision, seeing their rights and entitlements reduced and an additional burden placed on them. They are the great two messages of this piece of legislation: you are on your own. I move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House notes that:

(a)

bill follows on from the Government’s extreme industrial relations changes which are a massive attack on living standards and living conditions, by removing rights, entitlements and conditions of Australian employees;

(b)

this bill also removes rights, entitlements, conditions and protections afforded to Australians in the workplace, whether employees or independent contractors;

(c)

this bill does this by allowing employees to be treated as “independent contractors”, thereby removing employee protections and entitlements and placing superannuation, tax, and workers’ compensation burdens on them;

(d)

this bill does this by removing protections from independent contractors who are in a dependent contract position and as a consequence in an unequal bargaining position;

(e)

this bill effects this by:i.      continuing to use the common law definition of independent contractor as the basis of law without the guidance of statutory criteria.ii.     allowing employees to be treated as independent contractors in a sham way by ineffective anti-sham provisions.iii.    overriding State laws with employee deeming provisions.iv.    overriding State unfair contracts provisions which provide protection to employees, contractors and small business.v.     overriding any future State and Territory owner-driver transport laws and putting existing State owner-driver transport laws at risk.vi.    failing to provide any genuine protections for outworkers through ineffective outworker provisions, significantly weakening outworker entitlements.

i.

continuing to use the common law definition of independent contractor as the basis of law without the guidance of statutory criteria.

ii.

allowing employees to be treated as independent contractors in a sham way by ineffective anti-sham provisions.

iii.

overriding State laws with employee deeming provisions.

iv.

overriding State unfair contracts provisions which provide protection to employees, contractors and small business.

v.

overriding any future State and Territory owner-driver transport laws and putting existing State owner-driver transport laws at risk.

vi.

failing to provide any genuine protections for outworkers through ineffective outworker provisions, significantly weakening outworker entitlements.(f)    this bill introduces

See this speech in context