Andrew Murray (WA, Australian Democrats) Share this | Hansard source

by leave—I move amendmennts (1) and (2) on sheet 5062 revised:

(1)    Clause 3, page 3 (lines 1 and 2), omit paragraph (2)(a), substitute:

             (a)    the definition of employee in the Workplace Relations Act 1996; and

(2)   Clause 5, page 4 (line 8), at the end of subclause (1), add:

    ; but (d)    is not a contract for the supply of labour as an employee within the meaning of subsections 5(1A) to (1F) of the Workplace Relations Act 1996.

These amendments relate to the definition of employee, which I will be moving later in the Workplace Relations Act amendment. I need to put these in context now, because obviously if they relate to provisions that are going to go into another act you need to put them in their context.

The bill claims that one of its objectives is to recognise independent contracting as a legitimate form of work arrangement that is primarily commercial, but in fact the bill offers no solution and no further enlightenment as to who is a genuine contractor or employee or who is a disguised contractor or employee. As the chamber knows, various state legislatures have grappled with this but at the federal level the common-law provisions continue to prevail. The bill only includes a very minimal definition of an independent contractor; instead it defers to the common-law definition, which in any case is subject to change over time as jurisprudence advances. Many, including the Democrats, believe relying on the common-law definition of employment is fraught with problems.

As noted in my minority report on this bill, the common-law definition of an independent contractor is not a definition as such; it is a set of principles established through jurisprudence and it is not about defining who is an independent contractor but defining who is not an employee. The common-law approach relies on a test which involves the consideration of a number of court established factors or indicia. This means effectively a case-by-case approach, which is an unsatisfactory way to proceed with employee contractor definitional disputes that may affect many hundreds of thousands of Australians. I think it is important to recognise that this issue is at the heart of a genuine policy contest between the government and people of my persuasion.

Both the government and the Democrats agree that there should be a national regime which establishes the nature of independent contracting. The difference between us really comes down, at its heart, to the issue of the definition of an employee. The government has, as a policy matter, adopted the common-law approach. We think—and we agree with the states, because they have tried to address this fundamental issue as well—that you do need a definition of employment. The government, in another field, has attempted to address this issue in a different way in tax law, through the alienation of personal services income test, which does seek to provide specific indicia of what constitutes an employee.

Because we have looked at the matter carefully, we have paid great attention to the work of Professor Stewart. I should point out that he is not only an academic researcher in labour law but also a labour law consultant to a national law firm that advises and acts for business, so he cannot be categorised, if you like, as someone with a particular political or industrial bent. He argues that a common-law test is unreliable, and I quote him:

The approach is necessarily impressionistic, since there is no universally accepted understanding of how many indicia, or what combination of indicia, must point towards a contract of service before the worker can be characterised as an employee. In effect, this “multi-factor” test proceeds on the assumption that the courts will know an employment contract when they see it.

The danger, as everyone knows, is that to get to the courts requires a time and cost factor—and I would rather avoid that. Professor Stewart also argues that it can result in different outcomes depending on the adjudicator’s starting point. He says:

If a judge (whether consciously or subconsciously) starts with the assumption that a relationship is one of employment, and looks for factors that suggest otherwise, they may well reach a different conclusion to one who proceeds from the opposite direction. It is this, more than anything else, which I believe explains how the same facts can be viewed so differently by judges apparently asking the same questions and applying the same basic principles.

There are people in this chamber more familiar than I with the varying views of judges—that is both one of the attractions and one of the drawbacks of common-law determinations. Of concern is Professor Stewart’s assertion that any competent 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 much industrial legislation.

Stewart also refers to another, even surer method of avoiding an employment relationship, which is:

... to interpose some form of legal entity between the worker and the client business, since in the absence of a direct contract between the two there cannot be an employment relationship ... that entity might be a personal company, or a partnership constructed for the purpose between two or more workers, or some kind of family trust. Whether or not the worker is technically an employee of the interposed entity, they cannot and will not be an employee of the ultimate user of their services.

He continues:

In a purely legal sense there is nothing “illegitimate” about either of these arrangements (the carefully drafted contract for services or the use of interposed entity). As the law stands it is quite lawful to set out about creating a relationship that is not one of employment. They are not “shams”, in the very strict sense of that legal term. It is only a sham when parties construct what they would both understand to be an employment relationship and then try and disguise it as something else by adopting an arrangement that does not genuinely reflect their intentions.

Nonetheless, for the reasons advanced at the beginning of this submission, it should not be lawful to contract out of labour regulation by exploiting these possibilities.

For an increasing number of contractors, the notion of independence is a myth and any choice and flexibility in their arrangements have been constructed for the benefit of those who hire them, not their own. That is a legitimate motive on the part of the employer but, in my view, an illegitimate outcome. So this legislation not only does not define what a genuine independent contractor is but also does not prevent business from exploiting loopholes in the common law that allow workers to be classified as contractors when for all practical purposes they are employees. As Stewart notes:

Various approaches can be and have been adopted by legislators to bring “employment-like” arrangements within the scope of particular regulation.

As I said earlier, the states have used deeming provisions which deem workers in various occupations or circumstances as employees. As already noted, one drawback is the broadbrush nature of deeming, where some genuine contractors may get caught up in such provisions. Of course that is a weakness. The flip side to this, as Stewart points out, is that business can avoid the deeming provision by rewriting a contract and an employee can be converted into what a common-law test would regard as a nonemployee.

Stewart also points to some state payroll tax statutes which he considers very effective in identifying employment characteristics, but he notes that the drafting is so convoluted that only the most dedicated lawyers can make sense of it. In 2000 the federal government introduced the alienation of personal services income legislation, which the Democrats supported, which amended the tax laws to ensure that contractors were taxed as if they were employees unless they satisfied certain tests showing that they were genuinely running a business.

I note that the report to the House of Representatives inquiry into independent contracting and labour hire, Making it work, noted the difficulties with the common-law distinction between an employee and an independent contractor. The report also analysed other possible distinctions that could be used to distinguish an employee from an independent contractor. In particular the report looked at the possibility of relying on the test used in the Australian income tax assessment alienation of personal services income legislation. The report in the end recommended that the government maintain the common-law definition and—and I emphasise ‘and’—adopt components of the PSI legislation test to identify independent contractors. This bill does not implement this recommendation, and that is to be regretted. The House of Representatives did a thorough and interesting job in analysing this area.

In his second reading speech the minister explained that the government decided not to include aspects of the PSI legislation as it is ‘easily manipulated’. In their submission to the House of Representatives inquiry into independent contractors, the Civil Contractors Federation identified how tax laws are being manipulated and the need for them to be tightened. They said:

There are some operators who may genuinely believe that, because they have an ABN number, they are an independent contractor for this reason alone. It is acknowledged however that some operators who are not independent contractors claim to be purely to obtain a taxation benefit. Minimising or avoiding taxation is an incentive to claim to be an independent contractor and a comprehensive formula in the Taxation legislation that proof that certain requirements have been met would reduce this incentive.

The Democrats agree with the minister that the PSI is still problematic and is unlikely to fully address the problem. However, it is ironic that, while the government was quick to protect its revenue back in 2000—and we supported that—it made no attempt then and is making no attempt now to ensure that workers who are taxed as employees are also treated as employees for other regulatory purposes such as in this legislation. The Democrats support Stewart’s assertion that a more effective approach is to tackle the problem at source, the common-law definition, and define employees in legislation. The aim would be to draw a more realistic boundary between the two categories of genuine contractors and employees and to reduce the ease with which hirers can presently disguise employment arrangements.

On 11 August 2003 and again on 22 March 2004 I moved an amendment to the Workplace Relations Amendment (Termination of Employment) Bills Nos 1 and 2 respectively to define an employee, in an attempt to bring precarious and atypical employment into the unfair dismissal system. The Democrats drew heavily on Stewart’s work in drafting the definition. Here I want to record my gratitude to him for his continued assistance. I note that he was a significant witness to the House of Representatives inquiry. I noted in my second reading debate speech on the Workplace Relations Amendment (Termination of Employment) Bill No. 1:

One would assume that the federal government would support such an amendment as the federal system has always supported access to genuine employees, so the government should have no objection to provisions that ensure genuine employees—and I stress ‘genuine’ employees—are captured by the unfair dismissal system. To further make the point: you cannot at one level deem an employee for tax purposes and then for workplace relations purposes exclude them. We have made it quite explicit in our suggested amendments that any person who is categorised as an employee for tax purposes will also fall under this act for unfair dismissal purposes.

I regret that this bill before us will still result in this situation—that people who are designated as employees for tax purposes will be designated as independent contractors for other purposes. Neither the government nor the ALP supported that amendment on either occasion. I regret the fact that Labor did not because I think this matter is at the heart of the policy contest. This issue is not about politics; it is about what you think is the best way to categorise a person as an employee.

The definition before the parliament—the one that we are going to be moving later—is a rework of our previous definition and replicates the definition outlined by Stewart in his submission to the House of Representatives inquiry into independent contracting and labour hire. The Democrats recognise, as does Stewart, that the definition does not have to be universal and that there may be particular policy arguments for why a particular type of worker—for example, an owner-driver—should or should not be covered. We have followed the current bill in its exemptions of owner-drivers and outworkers in recognition of their unique circumstances and in the knowledge that the government have indicated they will look further at both these industries with respect to rights and protections.

We believe it is highly desirable in the private and public interests to be able to readily determine when a person or a business is subject to laws of employment or the law of contract. The Democrats recognise it is a complex area but believe that the current situation in the bill before us fails to address the fundamental issues. It is our view that a definition of ‘employee’ is the best solution.

Mr Temporary Chairman, Minister and shadow minister, I have deliberately detained you with a lengthy dissertation on a busy day because we think this is a fundamental area which will need to be resolved. I believe that what the government is proposing will not resolve the issue of who is a genuine contractor and who is a genuine employee. This particular issue is at the heart of our belief that we cannot support the bill because it has chosen a policy direction which we disagree with. We base it on fundamental policy considerations. With that motivation and context, I hope you will support those two amendments.