What shall we do about labour hire?

This is an edited version of my presentation to the Australian Labour Law Association National Conference on the Gold Coast, 10 November 2018, updated to reflect some recent developments.

Throughout the Victorian Government Inquiry into Labour Hire (conducted in 2015-16), it became apparent to me that there are two sets of issues – relating to different sectors of the labour hire market – that need to be addressed.

First, there are blatantly exploitative practices by what I regard as ‘rogue’ labour contractors.

• The regulatory response here is predominantly the introduction of licensing schemes to prevent disreputable operators from entering the market.

Second, there are different problems in what I regard as the ‘mainstream’ or reputable part of the labour hire industry. These issues have been created by the shift, since the inception of staffing agencies 20-30 years ago, from their original purpose in helping businesses source supplemental labour – to the increasing reliance on labour hire almost as a replacement of the permanent workforce.

• The regulatory response in this case is evolving in a more piecemeal manner – examples include the recent decision in WorkPac Pty Ltd v Skene [2018] FCAFC 131 giving annual leave entitlements to continuous labour hire casuals, and the federal Labor Opposition’s policy to introduce the principle of ‘equal treatment’ for labour hire workers.

Exploitation by rogue labour contractors or ‘gangmasters’

Let’s look at the exploitative end of labour hire first. In recent years we’ve seen the emergence of disreputable labour hire contractors – especially in industries like horticulture, meat processing and cleaning.

Labour hire is used extensively in the fresh food supply chain. Australia’s Working Holiday Visa scheme is specifically designed to provide this transient labour force.

(See my recent post on changes to this visa program which are likely to increase the scope for exploitation of overseas backpackers: https://labourlawdownunder.wordpress.com/2018/11/06/governments-changes-to-working-holiday-visas-ignore-widespread-evidence-of-exploitation/)

Workplace law contraventions involving these workers, as well as international students and (to a lesser extent) Australian nationals, frequently arise when third party contractors are involved in supplying workers.

• These operators take advantage of technology to shield themselves from identity – e.g. by use of a mobile phone and internet ads, with no physical place of business or way of tracking them down.
• Therefore there’s little prospect they’ll be pursued by the Fair Work Ombudsman (FWO) and other regulatory agencies.
• Exploitative practices include underpayment of award wages; sub-standard accommodation; dangerous conditions, e.g. on farms and in meat processing plants; dangerous transportation to work sites; failure to properly deal with workplace injuries; and ‘cash-in-hand’ arrangements.
• Much evidence in recent years has confirmed all of this: investigations by the FWO, reports by several federal Parliamentary committees, three state labour hire inquiries and a growing body of academic research.

(The term ‘gangmasters’ has also been used to describe the operators who engage in these forms of exploitation in the United Kingdom, see: http://aph.org.au/history-repeats-regulatory-responses-to-industrial-era-gangmasters-and-modern-day-worker-exploitation/)

The main regulatory response has been the introduction of labour hire licensing schemes in Queensland, South Australia and Victoria.

• The rationale behind licensing is that entry to the labour hire sector is far too easy. Therefore, some barriers are needed to prevent unscrupulous operators from acting as providers of labour hire services.
• These new state laws require labour hire providers to meet strict standards before they can obtain a licence to operate.
• They need to show they are operating a legitimate business (including a ‘fit and proper person’ test for key office-holders) – and that the business is compliant with awards, other workplace and safety laws, and accommodation requirements.
• Significant penalties apply to those operating without a licence, and to host users of the services of unlicensed providers.
• At present, only the Queensland scheme has fully commenced. In Victoria, the Labour Hire Licensing Authority has been established but the licensing requirements don’t come into effect until November 2019.
• Regrettably, it looks like the SA scheme will not come into operation at all. The Marshall Liberal Government has introduced a bill to repeal the former Labor Government’s legislation, arguing that it doesn’t sufficiently address worker exploitation. But how would anyone know? Labour hire licensing hasn’t been given an opportunity to operate in SA, much less having a period during which its effects might be monitored and assessed.

In practical terms, a lot of the focus has been on how the state licensing laws define the kinds of ‘labour hire services’ that are covered by the new requirements.

• The breadth of these definitions, especially in Queensland, has meant that many arrangements that on their face involve ‘the supply of an individual to perform work’ to another party are caught – even though they are not conventionally understood as labour hire arrangements.
• Much of this has been addressed through regulations in Queensland and Victoria, which exclude things like secondments and transfers of employees within corporate groups from the operation of their labour hire licensing laws.
• There are still some anomalies. However it’s difficult, when crafting legislation intended to address unscrupulous practices, to specifically target only the illegitimate operators.

These definitional issues might be ironed out if the federal Opposition gets an opportunity to implement its proposal for a national labour hire licensing scheme, after the next election.

Addressing the differential treatment of labour hire workers

Moving now to what I described earlier as the mainstream labour hire sector, many problems have arisen for workers because of the evolution of labour hire from a strategy for businesses to ‘plug gaps’ – to a way of replacing permanent workers.

We can see this in the strategy utilised by Amazon, which is reportedly almost 100% reliant on labour hire agencies to provide staff for its new ‘fulfilment centre’ in Dandenong in Melbourne’s south-east.

(See the Sydney Morning Herald’s coverage at: https://www.smh.com.au/business/workplace/in-amazon-s-hellscape-workers-face-insecurity-and-crushing-targets-20180907-p502ao.html)

In the Victorian Inquiry, I heard evidence from many reputable labour hire companies – the likes of Adecco and Chandler Macleod.

Often these kinds of providers pay above-award rates of pay, sometimes even the site EBA rates – and they have good processes for safety inductions and monitoring at the host site.

But workers for mainstream labour hire companies gave evidence of significant disadvantages they suffer from this form of engagement, including:

• Ending up as a long-term casual employee (often at the same site for several years)
• Being on-call and reluctant to refuse work, even when required at short notice
• No ability to plan care and family responsibilities
• No certainty of income and therefore inability to meet mortgage or rental payments
• Blurred responsibilities between their labour hire employer and the host (which plays out in a range of areas, e.g. unfair dismissal, OHS, managing return to work from injuries)
• Working alongside direct employees but on lower pay rates because they’re not covered by the host’s EBA

I found that ‘many workers accept labour hire engagements as the only choice open to them [but] would prefer permanent positions’. I also observed that labour hire staff are in many ways treated like a ‘second class’ of worker.

Given the constraints on Victorian legislative power, there were limited options open to the Inquiry to address any of this. I recommended the adoption of an industry Code of Practice, to promote best practice arrangements on issues like rostering arrangements and processes leading to dismissal. Clearly there are limits on the effectiveness of a voluntary code to address these problems for labour hire workers.

In considering more robust regulatory responses, we need to understand that the metamorphosis in the nature of labour hire over the last 30 years is the result of a deliberate business model to make work more temporary. This is not only an Australian phenomenon. As a new book by US scholar Louis Hyman illustrates, it originated in the home of free enterprise but has caught on globally.

(See ‘Temp: How American Work, American Business, and the American Dream Became Temporary’, available at: https://www.penguinrandomhouse.com/books/554240/temp-by-louis-hyman/9780735224070/)

We also need to see that labour hire forms part of the broader strategy of businesses to distance themselves from responsibility for minimum employment standards – what Professor David Weil of Brandeis University calls the ‘fissuring’ or work.

However we are now seeing some indications of a backlash against the modern incarnation of labour hire in Australia.

One sign of this is the WorkPac v Skene decision, where the Full Federal Court dealt with the applicability of National Employment Standards (NES) entitlements to a labour hire casual (keep in mind that around 80% of labour hire workers are engaged as casuals).

• The Full Court found that in determining whether a casual employee is entitled to annual leave under the NES, their contractual designation as ‘casual’ and receipt of a casual loading is not definitive.
• Where a casual employee can show they were engaged with a firm advance commitment to continuing work according to an agreed or fixed pattern of work, they are entitled to annual leave (or payment out on termination). (See: http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCAFC/2018/131.html)
• The decision has implications for other NES entitlements currently denied to casuals, e.g. personal/carer’s leave, paid compassionate leave, & redundancy pay.
• That’s as things stand – there’s another WorkPac test case now before the Federal Court. The federal Government is supporting the company’s argument that a casual employee was a true casual at common law, and therefore not covered by NES entitlements; alternatively, that his 25% loading included clear offsets of 11% for annual leave & 5% for personal/compassionate leave.

Then there is the federal Opposition’s policy on labour hire, announced in July:

• If elected in May next year, the ALP will require that labour hire workers receive the same pay and conditions as directly employed workers they work with – and protect directly employed workers from being replaced by labour hire staff.
• No detail has been given about how these major reforms would be implemented.
• For example, would ‘equal treatment’ be achieved through an automatic extension of a site EBA to any labour hire staff engaged at the host business? Or would it be necessary for employees to prove they are doing comparable work to that of the direct employees?
• Would there be an outright prohibition on the dismissal of the host’s direct employees, where this is to be followed by the engagement of agency workers to perform the same work (something like the current prohibition in section 358 of the Fair Work Act on termination of an employee and re-engagement as a contractor)?
• Or could we see some kind of workforce cap imposed on the number of labour hire workers in a particular business or workplace, such as the 20% limit that applies under Italian law?
• Labor has also said that its policy won’t affect small businesses using agencies to source workers on a temporary basis or to provide specialist skills.

What we can see here is an objective of returning the concept of labour hire to its original purposes.

This would clearly present a major disruption to the labour hire business model that has developed in recent years in Australia.

Not surprisingly, business groups have been very active in defending what they see as the legitimate use of labour hire.

But in an interesting twist this week, Coalition members of a House of Representatives Committee examining the mining industry and regional economies have supported recommendations to address the rising use of casual labour hire by resource sector businesses.

They want a review of current arrangements ‘with a view to amending the Fair Work Act, in order to prohibit the move towards replacing directly-employed, full time workers with “permanent casual” employees, and other similar casualised employee types’. This is not far off federal Labor’s policy position!

With the ACTU pushing for the right of unions to bargain with host businesses (rather than just the direct labour hire employer), we’re going to see a lot more focus on this area as we head into next year’s election.

Overall, there is a need not just to address the exploitative end of labour hire through licensing – but also to ‘call time’ on the long-term entrapment of labour hire employees in insecure work and second class treatment in the workplace.