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

On behalf of the Australian Democrats, I rise to speak to the Independent Contractors Bill 2006 and its associated bill. The objectives of the Independent Contractors Bill are to: (a) protect the freedom of independent contractors to enter into services contracts, (b) recognise independent contracting as a legitimate form of work arrangement that is primarily commercial and (c) prevent interference with the terms of genuine independent contracting arrangements. The Democrats support these stated objectives but argue that the bill fails to achieve them in any meaningful way.

The main thrust of the bills is to exclude state and territory laws which deem as employees many independent contractors entering into commercial agreements with employers. The government’s view is that these state laws interfere with rights, entitlements, obligations and liabilities of parties to genuine independent contracting arrangements. The contrary view is that state laws are trying to resolve the difficult public interest and legal issues surrounding the nature and definition of employment and to ‘cover off’ important social obligations, such as standards of employment, that would otherwise be avoided—more on that later.

The bill appears to do little to further benefit existing contractors. If anything, the evidence is that it will disadvantage many independent contractors whose existing remedies under state laws will be overridden by new and much weaker national laws. It also seems likely—for instance, in New South Wales—that the bill will result in an increase in cost to genuine contractors who seek a review of a contract they consider unfair. Far from achieving its stated objectives, the bill actually fails to tackle the issue of who is a genuine contractor and who is a disguised contractor—in other words, who is a genuine employee. There is no definition of a genuine contractor. Instead, the bill relies on the common-law definition, which is subject to change over time as jurisprudence advances and is fraught with problems. Nor does the bill define who is not a genuine contractor—that is, who is an employee engaged as a disguised contractor.

The issue of what are often referred to as non-standard work arrangements and the use of such arrangements to undermine the employee relationship has been an ongoing concern of the Democrats. We have raised these issues many times before in this chamber and have on several occasions attempted to amend legislation to go some way to addressing our and others’ concerns. Non-standard work practices such as labour hire do play an important role in our modern economy, providing flexibility for employers and workers. For example, labour hire is useful in providing short-term or temporary labour or workers with particular skills or expertise. However, there is increasing evidence that non-standard work practices, including disguised contractors, are being used to avoid or undermine the employment relationship in order to cut costs and minimise tax obligations, superannuation, occupational health and safety and workers compensation obligations and the like.

The ACTU and others noted in their submissions to the inquiry into this bill the increasing number of disguised contractors. The ACTU estimate was that between 25 and 41 per cent of contractors are in fact dependent contractors—that is, they are dependent on one employer for their work. The APESMA submission noted a recent study that found up to 40,000 workers currently classified by the government as independent contractors actually do all their work for one employer.

I want to make it perfectly clear at this point that the Democrats support the democratic right of every person to have the freedom to choose to work for themselves or to operate their own business rather than work for someone else. However, the Democrats also support protecting the freedom of a worker to choose to be an employee rather than a contractor and believe that, if a person does work as an employee, they are entitled to the benefits of laws established for the protection and oversight of employees. It is the Democrats’ view that for a large 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 and not their own. The Democrats saw this bill as an opportunity to finally sort out the issue of who is a genuine contractor and who is a disguised contractor and hoped that statutory definitions that could provide clarity to employers, workers and the courts would be agreed upon. But upon sighting the bill we were bitterly disappointed.

Independent Contractors of Australia, in their submission to the inquiry into this bill, argued that the bill should be drafted in line with the June 2006 ILO recommendation, in particular subclause 8:

8. National policy for protection of workers in an employment relationship should not interfere with true civil and commercial relationships, while at the same time ensuring that individuals in an employment relationship have the protection they are due.

Who could disagree with that? The independent contractors association also noted the importance of ILO clause 4(b):

4. National policy should at least include measures to …

(b) combat disguised employment relationships … noting that a disguised employment relationship occurs when the employer treats an individual as other than an employee in a manner that hides his … true legal status as an employee …

I was referring to clause 8 and clause 4(b) of the June 2006 ILO recommendations. The Democrats support both of these clauses that have been favourably quoted by Independent Contractors of Australia. We do not believe they are at odds. In fact, what the clauses suggest is that there is a need for a statutory definition of employment to distinguish between ‘true civil and commercial relationships’ and ‘employment relationships’.

And this is where our concern lies: there is a lack of an acceptable statutory definition of ‘employee’. Surprisingly, at least to the casual observer, this is a very difficult legal area to resolve. Contractors may be independent or dependent, both contractors and employees, and that can be with respect to a number of different working relationships all in the same tax year. The Democrats themselves have previously tried to have a definition of ‘employment’ accepted into federal law but it was rejected by the government. The Democrats recognise that this is a complex area but believe that the current situation is unsatisfactory and that a definition of ‘employee’ is the best solution. In the committee stage of these bills I will be moving an amendment to include a definition of ‘employee’ as proposed by lawyer and academic Professor Andrew Stewart in his submission to the House of Representatives inquiry into independent contracting and labour hire.

The Democrats recognise, as does Professor Stewart, that the definition does not have to be universal and that there may be particular policy arguments about why a particular type of worker should or should not be covered. Due to the special nature of owner-drivers and outworkers, they have been recognised by the federal government as genuine and desirable exceptions under the legislation before us. Our amendment proposes to also exclude these two groups from the definition of ‘employee’ until further consultation and examination has been done—and on this note the Democrats are pleased that the federal government has undertaken to explore the nature of these two groups further, although it is alarming that the owner-driver exceptions only cover two of our six states.

With respect to outworkers, after concerted and admirable advocacy by outworker representatives, considerable progress was made in resolving concerns arising from the bill. The consequential amendments expected to be moved by the government are welcome. The chair of the Senate committee is to be congratulated for her efforts in this regard, in conjunction with the committee members.

Both the ACTU and the CFMEU noted in their submissions to the Senate inquiry into this bill that the sham contract provisions accompanying the Independent Contractors Bill are weak and will be ineffective in stamping out sham arrangements. The ACTU noted that, although the onus is on the employer to disprove the element, the complexity of the issue means that this will not be difficult. Both the ACTU and the CFMEU argued that the employer could reasonably argue that they could not be expected to know for certain the true nature of the employment arrangements. This is another reason why a definition of ‘employment’ should be devised and legislated to make clearer to employers the true nature of the work arrangements.

Another key area of concern the bill raises for the Democrats is with respect to the public cost of employees being wrongly determined to be contractors. The ACTU in its submission to the inquiry noted the potential risk to society that this bill, and presumably other government labour policy, has. It stated:

The Federal government policy ignores the fact that shifts in the labour market have consequences for broader social and economic policy. The tax base, compulsory retirement savings, skills development and the management of risks involved with illness and injury at work are all linked to traditional employment relationships. The proper governance of these matters is jeopardised by the erosion of employment as the primary means of purchasing an individuals work.

The Democrats strongly support the right of Australians to determine whether they want to be in business for themselves or to work for someone else as an employee. However, we believe that someone who is in business for themselves also has a duty to meet the universal obligations that are imposed on employers in the public interest. These obligations imposed on employers are the requirements not just to withhold income tax or to provide for appropriate occupational health and safety but also to provide for employees’ futures through insurance against injury such as workers compensation and superannuation. An employee wrongly treated or classified as a contractor shifts the cost of injury and retirement onto the public as a whole unless that person makes specific and genuine provision for these matters. Fortunately, the bill may not have the effect of preventing state governments from deeming contractors to be employees for the purposes of workers compensation.

Because cost-shifting of this sort may well involve hundreds of millions of dollars of costs being shifted to the taxpayer, in our view the government has been negligent in failing to close the cost-shifting hole. When asked whether this bill should deal with contractor obligations to provide for superannuation and insurance, Mr Anderson from the Australian Chamber of Commerce and Industry argued that it was more appropriate to deal with this in issue-specific law, which the Democrats are not opposed to. But we note that the government has failed to table cognate bills to address this issue and to achieve this. To this end I move the Democrat second reading amendment, which has been circulated:

At the end of the motion, add

“but the Senate:

             (a)    notes that this bill does not require contractors to provide for their superannuation payments, workers compensation, and for income insurance, normally mandated to be covered by an employer;

             (b)    calls on the Government:

                   (i)    to investigate the issue of cost shifting from private to public as a result of shifts in labour markets away from employment relationships to contractual relationships, where the absence of a mandatory requirement for superannuation payments, for workers compensation, and for income insurance to be covered results in a significant new and long-term burden on taxpayers, and

                  (ii)    to report to the Parliament within the next 12 months outlining what solutions it proposes to this problem”.

                   (i)    to investigate the issue of cost shifting from private to public as a result of shifts in labour markets away from employment relationships to contractual relationships, where the absence of a mandatory requirement for superannuation payments, for workers compensation, and for income insurance to be covered results in a significant new and long-term burden on taxpayers, and

                  (ii)    to report to the Parliament within the next 12 months outlining what solutions it proposes to this problem”.

Concerns were also raised about the unfair contract provisions of the bill. The new provisions override the jurisdiction of industrial relations tribunals in New South Wales and Queensland in relation to unfair contracts. The explanatory memorandum argues that nationally consistent laws are preferable, which the Democrats do not necessarily disagree with; however, we note that the laws under both the Queensland and New South Wales jurisdictions were considered by a number of the submissions to the Senate inquiry into this bill to be fairer and stronger than the bill’s provisions. Like the recent trade practices amendment to third-party representations, this bill prevents a union or any other association making an application on behalf of a contractor to the court. The Democrats remain vehemently opposed to these sorts of provisions that deny freedom of choice for workers and offend basic rights and liberties.

In addition, the bill does not provide express power for the court to order compensation directly. Instead, the process inserts an additional, costly and time-consuming step into the enforcement process. The bill only allows the court to address these issues if the matter is still afoot and not after it is terminated. The bill does not give the court the express power to examine a contract that has become unfair because of the conduct of a party. When unfairness has been found by the court, the bill only allows the court to amend the contract and not make a monetary order, in the first instance. Many of the provisions reduce procedural fairness and add extra cost for the contractor and to the system. I will be moving some amendments to this bill to improve these unfair aspects of the new contractor provisions.

Furthermore, the Democrats are concerned about the hostile nature of this bill with respect to states and states’ relationships. We agree that national legislation is needed in this area to deal with the complex issue of employment and contracting. However, this bill is regarded as hostile by a number of state governments and concerned organisations and is not the consequence of consultation, agreement and negotiation with the key players—those being the states, business, unions and key representative bodies. In a federal system, national legislation that is unilaterally constructed is far less likely to survive than legislation that has the broad support of state governments and affected interest groups. While it is now clear from the recent High Court decision with respect to the Work Choices legislation that the federal government will have no problem with this bill—or, it seems, any other bill—overriding state laws, it seems likely that a change of federal government in the future would result in this bill being repealed or substantially amended. A hostile federal legislative move has therefore little to recommend it in the medium to longer term.

The Democrats are concerned that with this bill it will now seem even easier for many businesses to hire Australians as contractors, not employees—not just for cost savings but because it will save them from having to cope with the complexity and flaws of the new federal industrial relations Work Choices system. That is hardly desirable if the consequence is that wages and conditions are seriously and detrimentally affected; if superannuation, workers compensation and income insurance will no longer be covered by employers and will not be covered by the new contractors; and, when previous employees move into contracting arrangements, the state—namely, taxpayers—will have to pick up those costs.

As I stated in my minority report on the inquiry into this bill, the Democrats believe that the bill is likely to mean further uncertainty. This bill means an increase in disguised contracting, greater reliance on common-law litigation, reduced protection for the increased number of contractors and the shifting of costs from private to public. This bill, like Work Choices, started with a good intent but has ended up a mess. Unless our amendments are agreed to, we regret the Democrats will be unable to support these bills, despite the fact that we do support the idea of national legislation.