Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Hansard source

I rise to speak on these two bills, which deal with independent contractors. Before I proceed with my speech in the second reading debate, I want to make the point that, some time after four o’clock today, a significant number of amendments—40-odd pages worth—to supplementary explanatory memoranda were tabled by the government. It is difficult when dealing with legislation in this place for the opposition and the minor parties—in fact, for all senators—to be clear about the actual impact of legislation when we are presented with amendments at such a late stage and so close to the time of the matter being debated.

Some might recall in the context of the Work Choices legislation that, within 40 minutes of the debate commencing, we were provided with some 337 amendments—it was over 300, in any event—which certainly did not leave much time for consideration of the substance of those amendments. I suggest to the government that, apart from treating the chamber in this way and not enabling senators to get across various amendments, this is probably not the best way to legislate. If you are amending at a late stage, subsequent to a Senate committee inquiry, the chances of there not being errors in legislation—in fact, as has been indicated, there has been some further discussion of the amendments to the Work Choices legislation—or issues which need to be remedied are probably not the best. I make that point to start with.

Labor opposes the Independent Contractors Bill 2006 and the associated Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006. The bill and the associated bill flow on from the government’s so-called Work Choices legislation—its extreme industrial relations legislation. In that act, we have seen an attack upon rights, an attack upon entitlements, an attack upon conditions and an overall attack upon the living standards of Australian workers. The bills now before the chamber are yet a further attack upon rights, conditions, entitlements and protections in Australian workplaces and upon living standards generally.

The government has sought to mask this fact by saying that this legislation is good for contractors and for small business, but the Howard government is effectively saying to small business and independent contractors: ‘You’re on your own. In an unequal bargaining position with a contract partner who has more economic power, you will now effectively be on your own, with limited or no access to state based protections, no access to unfair contract provisions, no access to employee deeming provisions.’

The government’s legislation covers five key areas. They are: state laws dealing with employee deeming provisions; state transport owner-driver laws; the state unfair contracts jurisdiction; outworkers in the textile, clothing and footwear industry; and the so-called sham arrangement provisions. Despite the government’s continued assertion that the legislation is intended to protect independent contractors, it does no such thing. As with so many areas of Howard government policy, one has to examine what they do and not what they say, because there is often a vast difference.

The bills place a layer of additional complexity on top of an already complex industrial relations legal system brought to us courtesy of the Howard government. Its provisions are highly prescriptive and technical and introduce a confusing array of concepts. These include 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 in relation to relevant service contractors. In addition, some types of contracts entered into after the commencement of the bills will be subject to relevant state laws while others will not, depending on the satisfaction of certain technical requirements. It reminds us of the transitional provisions in the Work Choices legislation, which were extraordinarily confusing to some of the most experienced legal practitioners in Australia in this area.

There are two basic concepts which the government legislation establishes. First, under the guise of so-called independent contractors, the legislation will allow vulnerable employees to be pushed out of a genuine employer-employee relationship and be established as so-called independent contractors—in other words, as sham contractors. The consequences of this will be that employees’ conditions and entitlements will be reduced or removed but further burdens will be placed on those employees as sham independent contractors—the burdens of workers compensation, taxation arrangements, superannuation arrangements and others which would normally be carried by the employer.

Second, at the state level, there are many very soundly based protections for contractors who are effectively in a dependent contract position—contractors who provide services or a service in the main to one contract partner, such as in the transport industry, particularly in relation to owner-drivers. The legislation removes or reduces many of these protections. It does that by overriding state provisions and state based legislation which has employee deeming provisions or provides access at the state level to unfair contract provisions and unfair contract legislation. These protections are for the benefit of not just consumers but also contractors and small business. As I said, this legislation has one clear message to vulnerable employees and dependent contractors alike: you are on your own now. This should be concerning to all those who are contractors, and there are many millions of independent contractors in Australia: up to 20 per cent of all Australians who are in work are independent contractors.

The central principle which underpins these bills is that independent contractor relationships should be recognised and supported and that the appropriate mechanism for regulation is commercial law. The government’s legislation does not seek to define the term ‘independent contractor’, seeking rather to apply its meaning under common law. The test for distinguishing between employees and independent contractors is the common-law test which has been applied in Australian courts and tribunals and developed over many years. Briefly, that means that persons engaged under a contract of service are employees and those engaged under a contract for services are contractors. 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.

This common-law test is well known to be difficult and complex. Various criteria have been applied by the courts over the years. They include: the degree of control the worker has over the work; the degree to which the worker is integrated into the principal’s enterprise; whether the worker is providing their own tools and equipment; whether it is at the discretion of the worker to work, whether the principal has the right to dictate hours of work and whether the worker can refuse tasks; the provision of leave, superannuation and other entitlements; whether the worker has the right to delegate work; 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 commercial law or 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. So affirming this status and the commercial status of independent contractors in this legislation adds absolutely nothing to the current regulatory framework.

But in picking up the common-law test—in adopting it—the bills bring with them all the same difficulties that have been experienced in common-law jurisdictions. Professor Andrew Stewart has identified the limitations of this approach. 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 typically applicable only to employees, such as industrial awards, agreements, leave, superannuation and unfair dismissal laws. I want to make the point that this is indeed the experience of many of us who previously practised in this jurisdiction. It is a difficult process to go through a court and establish the nature of the relationship. It is certainly an area that is open to legal creativity and legal argument in representing the various parties.

Under this legislation, people who are genuine employees are at risk of being pushed out of an employer-employee relationship and at risk of losing whatever protections they have as employees. There are also at risk of having imposed upon them the additional burden of providing those things which genuine independent contractors would generally provide, with superannuation, taxation arrangements and workers compensation being among them. And the government’s so-called anti-sham provisions to prevent people from being pushed into that position are, frankly, themselves a sham. These provisions require vulnerable employees to effectively apply to a Federal Magistrates Court to seek a determination of that issue.

Labor have previously raised our concerns that these provisions will be completely ineffective in preventing sham contract arrangements from occurring. We have raised in particular the concern about the degree of intention or knowledge required by the contracting party and the extent to which that intention or knowledge would have to be established before a sham arrangement could be proved.

I understand, from our very quick analysis thus far of the amendments moved by the government, that the government may be seeking, through its amendments, to alter or possibly improve some aspects of the sham contract arrangements to deal with these concerns. I do not have advice yet, given the time frame, as to whether these deal with the entirety of Labor’s concerns. But, as I said, our concern is that the anti-sham provisions will be completely ineffective in preventing sham contract arrangements from occurring. These provisions 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 arrangement. This will see them at risk of having their employee conditions and entitlements reduced or removed.

I want to turn now to the state deeming provisions. The bills override all existing state deeming provisions contained in state industrial legislation which deem certain categories of independent contractors to be employees and override provisions granting employee related entitlements to independent contractors. For example, in New South Wales certain categories of workers are declared to be employees and are brought within the scope of the industrial relations framework, even though in common law they may be independent contractors. Those provisions cover a wide range of occupations including milk vendors, cleaners, carpenters, joiners, painters, bread vendors and outworkers in clothing trades—and the list goes on.

These state provisions seek to redress the unequal bargaining power of these categories of workers, which compromises their ability to negotiate working conditions. In fact, in many cases their working arrangements are not different in substance to those of employees. So these state deeming provisions have been introduced to offer protection to workers from effectively disguised employment relationships and the consequent disadvantages which flow from them.

The Commonwealth legislation overriding the state legislation is subject to a three-year transitional period and the preservation of existing deeming provisions for outworkers and owner-drivers. These provisions will not apply to contractor textile-and-footwear outworkers. The bill provides a three-year transitional period from the commencement of the legislation, and only deeming provisions in state industrial 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. 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 bill also provides an exemption in relation to existing New South Wales and Victorian owner-driver legislation. The New South Wales system includes basic regulatory protection for owner-drivers, including the ability to recover costs. It includes enterprise-specific arrangements for owner-drivers and does not apply to genuine independent contract transport companies, 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 Trade Practices Act protections, asking what rate owner-drivers would have obtained 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.

Only New South Wales and Victoria currently have state based legislation dealing with the employment conditions of owner-drivers, although Western Australia is proposing to introduce legislation into its parliament shortly, and there is further discussion of such legislation in the ACT.

The government has said that exemptions under both the New South Wales and Victorian state legislation are to be reviewed in 2007. Can we assume from that that these exemptions will cease to apply should the government win the next federal election? The minister himself effectively said this in his second reading speech:

The purpose of the review will be to seek to rationalise these laws with the aim of achieving national consistency in this regard.

The bill also means that independent contractors will no longer be able to access state unfair contract laws. The bill creates a federal unfair contracts jurisdiction. However, the states’ tests in these jurisdictions are much broader than those contained in the bill, and much more easily able to be accessed. For example, the unfair contract provision that is proposed by the Howard government is significantly more limited than that which exists in New South Wales.

Unfair contract matters will also now be tried in the Federal Magistrates Court, which is a more formal jurisdiction. This is likely to add to the expense, length and complexity of arguments, and exposure to costs. Under these bills before the chamber there is no ability for employer organisations or trade unions to apply for an unfair contract review on behalf of a party, which is the case under state law.

The effect of this part of the bill 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 and fairness in their relationships. This provision treats all contractors on a purely commercial basis, regardless of whether they are outworkers, deemed employees or independent contractors.

Legislation in New South Wales and Queensland provides for state industrial relations tribunals to hear cases of unfair contracts and provide remedies. Concern has been expressed that overriding state unfair contract legislation would water down protection for both consumers and small businesses. In fact, the repeal of the provisions that exist in the states by this legislation effectively reduces opportunities for small businesses 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.

I was going to deal briefly with the outworker provisions in the textile, clothing and footwear industry. I notice that there are amendments to be moved by the government, although it is a little confusing as to what the effect of those will be. I note that the amendments speak of opposing some amendments, so I look forward to discussion of that aspect in the committee stage of this bill.

We are concerned about the regulation of outworkers in the textile, clothing and footwear industry. We are concerned that there is no provision in the government’s legislation to aid in the enforcement of state outworker laws. In our view, these bills will do little to protect outworkers without the proper application of state based outworker legislation. The legislation as drafted will have the effect of significantly weakening outworker entitlements, and anybody who has dealt with outworkers in this industry would believe that there is a compelling public policy case for ensuring that these people obtain far fairer conditions than they would otherwise have if there were no state deeming provisions.

The government have introduced this bill because they would like the community to believe that somehow a so-called independent contractors bill will be beneficial to small business and independent contractors. But it is becoming clearer by the minute that no-one actually wants this bill. There has been dissent on the government’s own back bench. There are senators opposite who found that there are provisions in the bill that serve no useful purpose. By the minister’s own admission last month:

… as a result of independent contracting legislation there won’t be, I believe, any change in the number of independent contractors.

We have also seen Ken Phillips of Independent Contractors of Australia—one of the key supporters of this extreme legislation—now saying that the bills ‘would seriously undermine the status of independent contractors’. This is bad legislation and it ought to be opposed.