No ABN/No Start: Changes in Work Organisation and Their Impact on Labour Standards in the NSW Construction Industry 1980 – 2011

No ABN/No Start: Changes in work organisation and their impact on labour standards in the NSW construction industry 1980 – 2011

John Sutton B. Econ. (Hons)

A thesis submitted to the University of New South Wales for the degree of Master of Philosophy

April 2018

Abstract

This research explores changing forms of work organisation in the NSW construction industry 1980- 2011 and examines how labour standards for construction workers were affected by them. Three main non-Standard Employment Relations (SER) arrangements are considered: self-employed sub- contracting, labour hire/agency work and guestworkers. These precarious employment practices are examined using quantitative and qualitative research methods. Statistical data are used to track their increased use; then evidence and findings from thirteen public inquiries held between 1979 and 2011 are interrogated using a ‘critical theory’ methodology. Conclusions are drawn about how and why precarious arrangements became entrenched in the NSW construction industry.

The evidence demonstrates that major employer interests worked pro-actively with their political allies to protect and extend the reach of these ‘flexible’ forms of work organisation. The spread of self-employed sub-contracting from the housing sector to the whole construction industry is a particular focus. The growth of ‘sham contracting’ was something employer interests consistently denied but strategically fostered. The widespread use of tax avoidance is identified as the central element allowing employers and their political supporters to deregulate the labour market in a strongly-unionised industry. Advocates of neo-liberal policy prescriptions such as the Productivity Commission, and Royal Commissioners selected by LNP Coalition governments, played a significant role in spreading these work arrangements. For employers these poorly regulated forms of work organisation meant lower labour costs and traditional business obligations passed to others less able to bear those risks. For construction workers the consequences were: reduced labour standards through irregular income; work intensification; exposure to unsafe workplaces; and an absence of short and long term social protections.

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Originality Statement

‘I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis. I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project's design and conception or in style, presentation and linguistic expression is acknowledged.’

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‘I hereby grant the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or in part in the University libraries in all forms of media, now or hereafter known, subject to the provisions of the Copyright Act 1968. I retain all proprietary rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation.

I also authorise University Microfilms to use the 350 word abstract of my thesis in Dissertation Abstract International (this is applicable to doctoral theses only).

I have either used no substantial portions of copyright material in my thesis or I have obtained permission to use copyright material; where permission has not been granted I have applied/will apply for a partial restriction of the digital copy of my thesis or dissertation.’

Authenticity Statement

‘I certify that the Library deposit digital copy is a direct equivalent of the final officially approved version of my thesis. No emendation of content has occurred and if there are any minor variations in formatting, they are the result of the conversion to digital format.’

iii iv Contents

Abstract………………………………………………………………………………………………………………………………………... i

Statements and Thesis Sheet……………..……………………………………………………………………………………..… ii

Table of Contents………………………………………………………………………………………………………………………..… v

Acknowledgements…………………………………………………………………………………………………………………….. vii

List of Abbreviations……………………………………………………………………………………………………………….… viii

Chapter 1: Introduction ...... 1 1.1 Aims of the Thesis ...... 1 1.2 Theory and Methodology ...... 4 1.2.1 Labour Process Theory ...... 5 1.2.2 The Critical Method ...... 7 1.2.3 Ex-Actor becomes Researcher ...... 8 1.2.4 The data source: Documentary evidence ...... 9 1.3 Structure of the thesis ...... 11 Chapter 2 Labour market regulation in the NSW construction industry 1980 -2011: a literature review...... 13 2.1 Introduction ...... 13 2.2 The theory of labour standards regulation ...... 13 2.2.1 Defining ‘labour standards’ and ‘regulation’ ...... 13 2.2.2 Enforcement – theoretical approaches and practical issues ...... 17 2.3 Neo-liberalism and the Australian labour market ...... 20 2.3.1 What is precarious employment and contingent work? ...... 20 2.4 Precarious labour market strategies and the construction sector ...... 23 2.4.1 Self-employed sub-contracting ...... 23 2.4.2 Labour-hire/Agency workers ...... 26 2.4.3 Guestworkers/Temporary migrant workers ...... 29 2.5 Conclusion ...... 33 Chapter 3 Industry Structures, Workforce Characteristics and Industrial Relations in the NSW Construction Industry 1980- 2011 ...... 35 3.1 Introduction ...... 35 3.2 Features of the Production System...... 36 3.2.1 Production Process ...... 36

3.2.2 Market Segmentation ...... 37 3.3 Industry Structures...... 38 3.3.1 Employers and their Organisations ...... 38 3.3.2 Workers and their Organisations ...... 42 3.4 Conclusion ...... 52 Chapter 4: Use and Abuse of Self-employed Sub-Contracting in the NSW Construction industry 1980- 2011 ...... 54 4.1 Introduction ...... 54 4.2 Growth trends in self-employed sub-contracting 1980-2011 ...... 54 4.3 The Body of Evidence – Public Inquiries ...... 61 4.3.1 From Burns to Gyles (1979-1992) – the spread of self-employed sub-contracting ...... 61 4.3.2 From the Productivity Commission to Cole (1999-2003) – restricting union responses ..... 67 4.3.3 From Beyond Cole to the Sham Contracting Inquiry (2004-2011) – employer conduct under the spotlight ...... 76 4.4 Conclusion ...... 94 Chapter 5: Other non-SER arrangements in the construction industry 1980-2011 – Labour Hire and Guestworkers ...... 97 5.1 Introduction ...... 97 5.2 Labour Hire ...... 97 5.2.1 Growth ...... 97 5.2.2 The Body of Evidence – Public Inquiries ...... 99 5.3 Guestworkers ...... 109 5.3.1 Growth ...... 109 5.3.2 The Body of Evidence – Public Inquiries ...... 113 5.4 Conclusion ...... 118 Chapter 6: Discussion and Conclusions...... 120 6.1 Introduction ...... 120 6.2 Response to Research Question ...... 120 6.3 Response to Subsidiary Research Issues ...... 124 6.4 Conclusions ...... 130 6.5 Limitations and further research ...... 131 Appendix 1: Key Industrial Relations Events in the NSW Construction Industry 1980 to 2011 ...... 134 Bibliography…………………………………………………………………………………………………………………………………146

Acknowledgements

My thanks go to a number of people without whom this thesis would not have been possible. Firstly I would like to express my appreciation to my supervisors Michael Quinlan and Sarah Gregson for their invaluable advice and support over an extended period. Next, Bob Kinnaird’s constructive suggestions and knowledge of ABS statistics was of considerable assistance. Long-time CFMEU legal officer Tom Roberts was always generous with his time – both to discuss issues and locate sometimes obscure research materials. In my judgement these two comrades are among the finest research and policy thinkers in the union movement. Thank you to former CFMEU federal office librarian Jazz Murgic for the old files and reports she was able to recover from union archives. I appreciated the efforts of my children Robert, Libby and Phillip who all read some draft chapters along the way and contributed suggestions. Lastly my enduring gratitude is extended to my wife Felicity. Her patience and calmness when I was ‘pulling my hair out’ was more than useful. Her written skills were invaluable in editing drafts from an author whose prolixity was on display in the early stages. I hope this research report might be of some use to the labour movement in fighting future battles. All errors and omissions are my responsibility alone.

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vii

LIST OF ABBREVIATIONS

ABLF Australian Builders’ Labourers Federation ABCC Australia Building and Construction Commission ABN Australian Business Number ABS Australian Bureau of Statistics ACA Australian Constructors Association ACCC Australian Competition and Consumer Commission ACAC Australian Conciliation and Arbitration Commission ACIRT Australian Construction Industry Redundancy Trust ACTU Australian Council of Trade Unions AFCC Australian Federation of Construction Contractors AIG Australian Industry Group AIRC Australian Industrial Relations Commission ALP Australian Labor Party AMMA Australian Mines and Metals Association AMWSU Amalgamated Metal Workers and Shipwrights Union AMWU Amalgamated Manufacturing Workers Union AMWU Amalgamated Metal Workers Union ANTA Australian National Training Authority APSI Alienation of Personal Services Income ASC&J Amalgamated Society of Carpenters and Joiners ASE Australasian Society of Engineers ASIC Australian Securities and Investments Commission ATAIU Australian Timber and Allied Industries Union ATO Australian Taxation Office AWA Australian Workplace Agreement AWU Australian Workers Union BCA Business Council of Australia BITF Building Industry Task Force BLF Builders Labourers’ Federation BTG Building Trades Group BUS Building Unions Superannuation BWIU Building Workers Industrial Union CBUS Construction and Building Unions Superannuation CCF Civil Contractors Federation CEPU Communications, Electrical and Plumbing Union CFMEU Construction Forestry Mining and Energy Union CIDA Construction Industry Development Agency CIS Centre for Independent Studies CPA Communist Party of Australia DEWR Department of Employment and Workplace Relations DIAC Department of Immigration and Citizenship DIMA Department of Immigration and Multicultural Affairs EBA Enterprise Bargaining Agreement viii

ERG External Reference Group ESS Employment Services Survey ETU Electrical Trades Union FBTPIU Federated Brick, Tile and Pottery Industry Union FEDFA Federated Engine Drivers and Fireman’s Association FFTS Federated Furnishing Trades Society FIA Federated Ironworkers Association FIME Federation of Industrial Manufacturing and Engineering Employees FOES Forms of Employment Survey GDP Gross Domestic Product GFC Global Financial Crisis HIA Housing Industry Association HILDA Household, Income and Labour Dynamics in Australia Survey. HRM Human Resource Management ICA Independent Contractors Australia IWWN Illegal Worker Warning Notice LFS Labour Force Statistics LMT Labour Market Testing LNP Liberal/National Party LPT Labour Process Theory LSL Long Service Leave MBA Master Builders Association MSL Minimum Salary Level MTIA Metal Trades Industry Association NFF National Farmers Federation NIE National Industrial Executive of the Building and Construction Industry OAW Own Account Workers OEA Office of the Employment Advocate OHS Occupational Health and Safety OPDU Operative Painters and Decorators Union OPPWF Operative Plasterers and Plaster Workers Federation OSSA Operative Stonemasons Society of Australia PAYE Pay As You Earn PAYG Pay As You Go PPS Prescribed Payments System PGEU Plumbers and Gasfitters Employees Union PWD Public Works Department RCSA Recruitment and Consulting Services Association SER Standard Employment Relations SPA Socialist Party of Australia TOR Terms of Reference TSA Troubleshooters Available TWU Transport Workers Union UMFA United Miners Federation of Australia VET Vocational Education and Training ix

VOBS Victorian Operative Bricklayers Society VSBTU Victorian State Building Trades Union WHM Working Holiday Makers WTO World Trade Organisation

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Chapter 1: Introduction

1.1 Aims of the Thesis

This thesis examines changes in work organisation in the NSW construction industry between 1980 and 2011 and their impact on labour standards. It explores the role played by employers, governments and unions in fostering or resisting change. It seeks to go behind representations made by industry stakeholders before public inquiries to identify the motives and strategies of powerful interests shaping the industry.

The primary (qualitative) data source is the evidence and findings of thirteen public inquiries held between 1979 and 2011. The secondary (quantitative) data source is official statistics of growth trends in non-standard employment relations (non-SER) arrangements in the industry. This large volume of material on the public record has generally been overlooked by researchers who with few exceptions (notably Frenkel and Coolican 1980, Underhill 1991, 2002, McGrath-Champ 1995, Buchanan 2000, Toner and Coates 2006) have paid minimal attention to the labour market in the construction industry.

The research question is:

What were the changing forms of work organisation deployed in the NSW construction industry in the period 1980-2011 and how did they impact labour standards?

The three main forms of non-SER arrangements were: self-employed sub-contracting; labour hire/agency work; and temporary migrant workers (‘guestworkers’). Self-employed sub-contracting involves the performance of work by persons not under a contract of employment. These workers are usually described as ‘independent contractors’, but can be termed ‘dependent contractors’ if their actual work arrangements indicate the existence of an employment relationship. This is also known as ‘sham contracting’. Labour hire/agency work involves the supply of workers to other businesses who direct the workers in the performance of their duties. The client or host pays a fee to the labour hire agency for each worker and is free from employer obligations1 since workers generally remain employees of the agency. Guestworkers/temporary migrant workers do not have

1 For Occupational Health and Safety (OHS) duties the law is more complex. See Chapter Two, p.26. 1 permanent residency rights in Australia and perform work under temporary visas or sometimes without lawful permission.

In the course of the research a number of subsidiary research issues arose:

1) Is Freiberg’s (2010) proposition that laws will not be obeyed if the benefits of non-compliance exceed the costs of compliance, supported by the experience of the NSW construction industry between 1980 and 2011? 2) Where does the weight of evidence lie concerning unlawful activities in the NSW construction sector? Were militant unions or non-compliant employers primarily responsible? 3) Does the view of Goodwin and Maconachie (2010) that evasion of worker’s entitlements has often been a calculated business decision, apply in the NSW construction industry from 1980 – 2011? 4) If non-SER arrangements emerged and spread across the NSW construction industry between 1980 and 2011, what was the primary driver? 5) Underhill (2002) argued that the construction workforce ‘has always been subject to a high level of employment instability, and deregulation does not appear to have influenced the magnitude of this instability’. Does the evidence support Underhill’s contention?

Why are the research question and subsidiary issues worthy of further research? First non-SER work arrangements (also known as ‘precarious employment/contingent work’) are increasing across industrialised economies including Australia (Kalleberg et al. 1997, Quinlan 2006, Vosko 2010, Appay 2010, Campbell 2010) and are particularly prevalent in industries historically prone to casualised or itinerant work arrangements (Burgess and Campbell 1998, Toner and Coates 2006, Quinlan 2012). Non-SER arrangements, a long-term and possibly increasing phenomenon in the construction industry in recent decades, have not been investigated in detail. Have there been changes in work organisation in the NSW construction industry and, if so, have these simply mirrored an economy- wide trend in the period of neo-liberal ascendancy or are there special factors at work retarding or accelerating the trend?

A second research gap (assuming that non-SER work arrangements did increase2) relates to their impact on labour standards for construction workers. The thesis adopts a broad interpretation of the term ‘labour standards’, meaning substantive rights (like wages, hours, working conditions and

2 ABS data outlined in Chapters 4 and 5 while problematic, verifies this assumption. 2 occupational health and safety [OHS]) and procedural rights (like union and collective bargaining rights and unfair/unlawful dismissal rights). Did labour standards increase or diminish during the research period and did the spread of non-SER arrangements play a role in the outcome? These are far from straight-forward questions because of changing methods of determining collective standards over the review period and the spread of non-SER arrangements which took increasing numbers of workers outside the reach of collective bargaining systems of standard setting. Hence, it may be that this research will find it difficult to quantify movements in ‘labour standards’ in a robust statistical fashion. A possible outcome may be that construction workers in strong union enclaves on major projects were able to secure high standards but industry-wide union membership kept falling and the numbers of workers under precarious forms of employment kept rising during the review period.3

These are economic and social policy issues that merit attention. Construction is one of Australia’s largest industries with a workforce comprising approximately one million people. The large number of public inquiries between 1980 and 2011 which either wholly or in part considered work organisation in the construction industry is testament to the public interest around the nature and spread of these arrangements. Other industries have been similarly affected by non-SER arrangements, but few have been subject to more government scrutiny. The research has an international dimension in that every country has a construction industry and the special characteristics of the production system are reflected (depending upon national economic, legal, technological and cultural differences) on a global basis. Previous research on non-SER work arrangements in the Australian construction industry has generally taken snapshots at points in time. However, the conduct of the key institutional actors has not been tracked longitudinally. By addressing this lacuna, this thesis illuminates the actions of key actors over time and draws conclusions about their role in the spread of precarious work arrangements.

In summary this study considers whether major construction employers were able to exert political influence on state and federal Liberal/National Party (LNP) governments and able between 1980 and 2011 to spread and entrench non-SER work arrangements, particularly self-employed sub- contracting, from the housing sector to the whole industry. Were powerful employer interests aware

3 For instance, ABS data (Cat. no. 6306.0) shows that between 2000 and 2010, the proportion of Australian construction workers whose pay was set by ‘award only’ and ‘collective agreement’ methods combined fell from 39% to 33%. The proportion set by ‘individual arrangement’ rose from 61% to 67% over the same period.

3 that large numbers of ‘self-employed sub-contractors’ were in fact sham contractors and did they collude to maintain the practice? If so, what were the consequences for labour standards? What were the benefits for construction industry employers? And what were the consequences for governments, federal and state, regarding revenue collections and outlays?

1.2 Theory and Methodology

The meta-theoretical approach adopted in this study is Marxism, broadly understood to capture the essential elements of classical Marxism, neo-Marxism and critical theory. Marxism is an economic theory, a sociological explanation, a philosophical method and a political commitment to the defeat of capitalism. Its central elements include: the existence of classes and class struggle; historical materialism; dialectical materialism; alienation; the labour theory of value and the practice of revolutionary change (Kamenka 1983). The Marxist approach developed by Marx and Engels in 19th century Europe has abiding relevance to 21st century capitalism in its current neo-liberal phase. Marxism has been developed, revised, distorted and debated by legions of political actors and theorists. The intention is to adopt a broad Marxist framework in conducting this research. How can this approach be consistent with objectivity? Putting aside the extensive literature about the limits of ‘objective’ or ‘scientific’ research practised by traditional positivist social science (Esterberg 2002:11-22), the Marxist/critical theory paradigm openly declares its partisanship:

Inquiry that aspires to the name ‘critical’ must be connected to an attempt to confront the injustice of a particular society or public sphere within the society. Research thus becomes a transformative endeavour unembarrassed by the label ‘political’ and unafraid to consummate a relationship with emancipatory consciousness. Whereas traditional researchers cling to the guardrail of neutrality, critical researchers frequently announce their partisanship in the struggle for a better world’ (Kincheloe and Mclaren 2005:305).

In contemporary industrial relations, British academic Richard Hyman has been influential in popularising and applying Marxist principles to the study of the workplace (Hyman 1972, 1975, 1987, 1994, 2006). Hyman rejects the dominant theoretical frames (unitarism and pluralism) because these concentrate on the avoidance of industrial conflict and rule-making processes:

To define industrial relations in terms of rules is to emphasise the relatively defined, stable and regular aspects of employer - worker and management - union relationships; by the same token it is to play down the significance of conflicts in the labour market and over the labour process as manifestations of fundamental and continuous antagonism of interest (Hyman 1975:34).

1.2.1 Labour Process Theory

Marx developed labour process theory (LPT) in Capital (Vol.1 Part 3), explaining that systematic exploitation of the worker occurs at the point of production. Bray et al. (2014:63) elaborated:

The structure of the employment relationship under capitalism means that there are two forms of class struggle: not only must capitalists bargain with workers in the labour market to buy labour power as cheaply as possible, but they must also struggle with workers within the labour process to extract as much labour as possible from the purchased labour power. This latter struggle is one of control; because the labour contract is an open-ended arrangement, the translation of this labour power into labour can only be resolved through the establishment of structures of managerial control.

Braverman (1974) gave new life to LPT prompting many critical theorists to shift attention from macro-economic issues to the processes of production and workplace struggle. Braverman’s analysis that ‘Fordism’ and ‘scientific management’ had ‘crushed the soul’ of the American industrial worker through the 20th century by denying any semblance of dignity and control spurred debate amongst industrial sociologists, notably Friedman (1977), Burawoy (1979), Edwards (1979) and Littler (1982). A contentious issue was the extent of worker control - most took issue with Braverman, finding his analysis overly pessimistic and one-dimensional. Thompson and Ackroyd (1995) helped to re-define parameters by suggesting LPT ‘concerns the dynamics of control, consent and resistance at the point of production’. Winch (1986) examined LPT in relation to the construction industry in Britain, concluding that the ‘alienation of the process of production’ that Braverman identified in his assembly-line study had not progressed significantly in construction, which retained a strong craft component. Braverman, like Littler (1982), saw craft work as antiquated, long displaced by specialisation and scientific management. Winch rejected the notion that production processes in construction were ‘backward’, arguing that management achieves effective control without the need for bureaucratic processes, ‘the way control is effected is through the labour market, rather than within the labour process itself. The quality of labour power is assessed upon recruitment, and the output of the labour process monitored, but the actual organisation of the labour process is left more or less to the worker‘ (1986:108).4

Winch (1986) considered the contributions of Friedman (1977) and Edwards (1979) but found their theoretical propositions, because based on worker resistance, not applicable to the British construction industry. Unlike most of British industry (until the onset of neoliberalism) and the

4 Greig (1997:327) also examined arguments that production techniques in the Australian housing industry were ‘backward’. He rejected this unilinear view of progress. 5 construction industry in Australia, union militancy was not a factor in British construction. According to Winch it was not organised conflict that drove management responses but rather the ‘uncertainties inherent in the production process’ (1986:108). Winch related the three forms of control developed by Edwards (1979) - simple, technical and bureaucratic - to what he termed the secondary; subordinate primary; and independent primary segments of the labour market. Edwards categorised craft workers as subject to bureaucratic control. Winch disagreed, arguing that the British experience supported a fourth descriptor of ‘market control’, whose central element was the purchase of labour power through an alternative contractual form known in Britain as labour-only subcontracting (LOSC) or working ‘on the lump’. According to Winch (1986:113) ‘market control’ suited employers faced with product market and production task uncertainties: ‘in construction, where flexibility is a major imperative managements have been content to increasingly abdicate responsibility for the labour process through the development of labour only subcontracting’. A decade later, Winch (1998:533) noted official data showing an increase in self-employment by the mid-90s to 45% of the British construction workforce. Winch argued that the construction industry’s reliance on self-employed workers, particularly LOSC, was an indication that ‘employers have chosen a very limited way of increasing productivity – work intensification’ instead of capital-intensive technological innovation. The ‘paradox of flexibility and productivity’ had been determined in favour of flexibility (1998:540).

Appay (1998) considered labour process changes in the British and French construction industries. She questioned the prevailing orthodoxy of corporations pursuing ‘flexibility’ and ‘lean production’ and challenged Freidman’s ‘responsible autonomy/direct control’ binary with a new concept of ‘controlled autonomy’. Appay argued that ‘cascading subcontracting’ was being used to simultaneously achieve atomisation (of production) and concentration (of economic control). She pointed to large British firms downsizing while increasing their turnover and market reach by externalising labour costs and management risks (1998:169). Appay considered that the emergence of ‘core firms’ with strong market power yet a minimal direct workforce represented a ‘radical change in the history of capitalism’ (1998:162).

Management theories such as ‘business process re-engineering’ (BPR), ‘leanness’ and ‘partnering’ all proved popular in business circles in the British construction industry in the 1990s and 2000s. Green and May (2003, 2005) and Winch (2003, 2006) critiqued these theories as ‘ideological discourse’ rather than a serious attempt to lift outcomes for all stakeholders - the theories had provided justification for downsizing, outsourcing and the consequent ascendancy of LOSC in the British construction industry. Unitarist management theories were also adopted by construction

6 employers in Australia in the early 1990s. Allegedly ‘win-win’, they were supported by the federal government’s Construction Industry Development Agency (CIDA) and the Gyles Building Industry Royal Commission.

Noting an absence of critical literature in Australia to support analysis equivalent to that undertaken by Winch, Green and May and others, McGrath-Champ and Rosewarne (2009) used evidence gathered in the mid-2000s, primarily through interviews with employer and union representatives, to argue that major Australian construction companies did not pursue the ‘leanness’ strategy as per the unitarist, ‘unilinear’ British example. Australian corporations instead adopted a ‘reflexive’ approach that understood the shortcomings of cost cutting and risk shifting associated with extensive sub-contracting chains. McGrath-Champ and Rosewarne accepted arguments from managers to describe a nurturing approach by major employers towards their sub-contractors, characterised by regular intervention and assistance (2009:1120-1122). While this ‘hands-on’ approach did not fit neatly with the ‘leanness’ discourse, it conformed with Appay’s ‘controlled autonomy’ concept where legal responsibilities and risks are transferred but economic control tightened. The proposition that major Australian construction companies adopted a benevolent approach to managing sub-contractors is contestable and will be critically examined in the course of this research.

1.2.2 The Critical Method

There has been extensive debate concerning interpretation and application of Marxism/critical theory. Responding to concerns about over-simplification, Kincheloe and McLaren (2005:304) stated critical theory ‘should not be treated as a universal grammar of revolutionary thought objectified and reduced to discrete formulaic pronouncements’. They preferred a nuanced, dynamic approach of ‘evolving criticality’, which has much to recommend it. The methodology in this thesis seeks to implement key elements of the ontology/ideology of Marxism/critical theory, as outlined in Neuman (2014):

 the purpose is to reveal what is hidden to liberate and empower people;  people have unrealized potential and are misled by reification; social life is relational;  a bounded autonomy stance is taken towards human agency;  abduction is used to create explanatory critiques;  praxis (the dialectical interaction of theory and practice) as an explanatory tool;  a reflexive-dialectical orientation; and

 social reality and the study of it contain a moral-political dimension (2014:118).

Kincheloe and McLaren (2005:307) consider that critical theory analyses ‘competing power interests’ to identify actual winners and losers. They suggest that privileged groups have a direct interest in supporting ‘the status quo to protect their advantages’. Struggles over privilege can involve issues of ‘race, class, gender and sexuality’. McLaren (2001) juxtaposes the struggles of bricklayers (the working class) with the methodologies of the bricoleurs (scholars employing eclectic frames) and counsels critical researchers to remain attentive to ‘the law of motion of capital and the social relations of production’ at the same time as being open to diverse discourses. The critical bricoleur must ask: ‘How are social agents—real people—historically located in systematic structures of economic relations?’

This research aims to analyse the structure of economic relations in the NSW construction industry. Considerations of class and power are central to an understanding of changing labour market practices. Construction employers contend that productivity improvements from non-SER work arrangements benefit all. This unitarist approach suggests that criticisms expressed by union or academic ‘malcontents’ are misguided. A range of public inquiries, often established by conservative politicians, have reinforced the view that non-SER arrangements in the construction industry are beneficial and that union interference has posed the greatest threat. The critical theory approach demands the empirical material be tested using a reflexive-dialectical frame. What is the appearance and what the reality? Has a privileged class used non-SER (so-called ‘flexible’) arrangements to benefit their own economic interests? Who are the real winners and losers?

1.2.3 Ex-Actor becomes Researcher

For most of the thirty-one year period under review I held senior elected positions in the major construction union in NSW. 5 I was daily engaged in practical tasks and policy issues, advocating for the interests of construction workers. I had final responsibility for CFMEU submissions to public inquiries, appeared as a witness and was occasionally a target of ideological allegations.6 Is my past

5 In 1980 I was employed by the Building Workers Industrial Union (BWIU) NSW Branch as a ‘Research Officer/Organiser’, becoming an elected State Organiser in 1987. In 1991 I was elected National Assistant Secretary of the BWIU and in 1993 to the position of National Secretary of the Construction Division of the Construction Forestry Mining and Energy Union (CFMEU). In 2006 I was elected National Secretary of the CFMEU and served until my resignation on 31 December 2010. I was awarded Life Membership in 2011. 6 A notable allegation - ‘Are you a Marxist?’- was put to me by Counsel Assisting in the 1991 Gyles Royal Commission. After an adjournment Gyles disallowed the question. 8 personal involvement a weakness in this research? Textbooks on social research (Denzin and Lincoln 2005, May 2011, Babbie 2013, Neuman 2014) do not provide specific guidance in my situation. However authors on ethnographic research point to both strengths and weaknesses (Golden-Biddle and Locke 1993, Baxter and Chua 1998). The skill lies in achieving a methodological balance, ‘to inform research in the name of better explanations’, but not to contaminate the data and ‘saturate its insights’ (May 2011:59). In this spirit I seek to utilise and combine my ‘lived experience’ as an activist in the field with a ‘cultural understanding’ of the construction industry.

Ethnography is a research technique where the researcher spends time inside or at close quarters with the subject community. This ‘participant-observation’ approach is valued for the ‘thick description’ the researcher can provide of the community’s inner workings (Geertz 1973). Punch (2005) argues that the meaning of thick description varies across research projects but two principles must apply: the data must record everything necessary to an understanding of the findings; and must contain ‘sufficient information about the context’ for an assessment of the general applicability of the findings. Explanations of the participant-observation approach situate the level of involvement with the subject community on a continuum from ‘observer only’ to ‘full participant’ (Gold 1958, Adler and Adler 1994, Wolcott 1988). Strengths and weaknesses are associated with whatever position the researcher takes. The main pitfall associated with the full participant approach is ‘going native’ – becoming too close to community concerns to effectively interrogate the data (see Neuman 2014:446, 450). This concern conflicts with the critical theory approach; the commitment of the researcher to expose injustice and empower the oppressed, and is resolved by applying a reflexive-dialectical approach – interrogating the veracity of apparent data, questioning the interests being served and seeking to expose the underlying reality.

Do my circumstances equate with those of an ethnographic researcher who is a ‘full participant’ in the ‘naturalistic tradition’ described by Esterberg (2002:13)? My participation as a unionist in the construction industry was not motivated by the aim of gathering data. I decided to undertake research after resigning from my union roles. Whilst some elements of ethnographic research may apply, my circumstances are therefore qualitatively different from those of an ethnographic researcher.

1.2.4 The data source: Documentary evidence

Silverman (2001) identified four main methods used by qualitative researchers: observation; text and document analysis; interviews; recording and transcribing. Text and document analysis is the primary data source in this research project. A number of scholars have observed that while 9 documents offer a rich source for qualitative research, they have latterly become a somewhat neglected source of data. Interviews by contrast have increased in popularity (Punch 2005:184, Silverman 2001:135). Qualitative research texts list a range of documents suitable as source materials, including ‘statistical records’ and ‘records of official proceedings’ (Punch 2005:129). Jupp (2006:276) regards ‘other official documents at an institutional or micro level’ as equally important - organisational documents can provide explanations for group behaviour. This thesis utilises: statistical data (from government agencies); official proceedings and findings of government inquiries (such as Royal Commissions); and inquiry submissions/policy documents from industry stakeholders.

Social researchers classify data in a number of ways, e.g. as primary/secondary sources and as witting/unwitting data. Witting/unwitting refers to the distance of the researcher ‘from the interactions or events being studied’ (Denzin 1978:256). ‘Unwitting’ is also known as an ‘unobtrusive measure’ because the evidence is unaffected by the researcher’s involvement (Jupp 2006, Webb et al. 1966). Scott (1990) based his classification of documents on ‘authorship’ and ‘access’. Authorship refers to the origin of documents (personal, official-state, official-non-state) and access refers to their availability (closed, restricted, open-archival and open-published). Perhaps the most powerful aspect of Scott’s system is that it prompts four important questions about each document, related to its authenticity (whether the document is original and genuine); credibility (whether it is accurate); representativeness (whether it is representative of the totality of documents of its class); and meaning (whether the author/s motivations and messages can be gleaned) (Scott 1990, Jupp 2006). These criteria guide consideration of documents in this research.

Interpretive and critical theory methodologies do not accept documents at face value but explore the underlying social processes involved in their creation. Ethnographers especially are interested in textual analysis, focusing on ‘the processes through which texts depict ‘reality’ rather than whether such texts contain true or false statements’ (Silverman 2001:128). Other scholars in the ethnographic tradition such as Hammersley and Atkinson (1983) and Finnegan (1996) developed checklists to interrogate assumptions behind text creation. Jupp explained that critical theory methodology aims to uncover assumed knowledge by exposing what is not treated as knowledge, and evaluating the consequences of officially-sanctioned knowledge. Official documents such as Royal Commission reports are seen as examples of ‘prevailing knowledge’, structured by existing sets of social relations. In his polemic about the Cole Royal Commission into the building industry, Marr (2003:15) argues: ‘The seductive beauty of royal commissions for politicians lies in their flexibility. Depending upon the terms of reference, and how they are addressed, almost any proposition can be

10 advanced or diminished without being genuinely tested’. A central consideration for critical researchers in exposing unjust social structures is to ‘emancipate’ the oppressed from these structures. The concepts of ‘deconstruction’ and ‘reconstruction’ are seen as tools for revealing ‘an exploitative relationship within a social structure with patterned inequalities and oppressions’ (2006:277-278). Prasser (2006:87) observes that governments sometimes have ‘covert agendas’ when establishing public inquiries and points to widespread criticism of the Howard Government’s Cole Royal Commission as being ‘politically motivated’.

The present research seeks to apply critical theory to the analysis of primary data sources. When presiding Commissioners ignore or endorse the spread of non-SER arrangements, what ‘patterned inequalities and oppressions’ are perpetuated? What ‘hidden truths’ are revealed when submissions/policy documents/transcript evidence of key industry powerbrokers are critically de- and re-constructed? The critical theory approach overlaps with other sociological methods including discourse analysis (DA) and critical discourse analysis (CDA). All share the view that sites of power under capitalism such as major employers and the state seek to legitimise ‘discourses which exhibit and produce moral norms, theoretical explanations and techniques of social control’ (Jupp 2006:283).7 While it might be ambitious to suggest these sociological methods will be rigorously adopted, essential elements of a critical discourse will guide this research.

1.3 Structure of the thesis

Chapter One outlines the research aim of examining changes in work organisation in the NSW construction industry from 1980-2011 and how these changes affected labour standards. The chapter introduces the three main types of non-SER arrangements and explains the primary data sources used. This chapter incorporates an explanation of the theory and methodology employed in this thesis and the advantages/limitations of my prior industry involvement.

Chapter Two is the literature review consisting of three parts. The first deals with theories of regulation, issues around labour regulation, and the meaning of ‘labour standards’. The importance of enforcement in the application of labour standards is examined. Section two deals with the rise of neo-liberalism and its impact in Australia. The concepts of ‘precarious employment’ and ‘contingent work’ are introduced and their application to the construction sector analysed. Section three

7 For more on DA, see Smart (1989), Jupp and Norris (1993), Potter (1996). For CDA see Foucault (1977), Fairclough (1989), Fairclough (1995). 11 examines the three main forms of non-SER arrangements in the construction sector. Limitations in the literature are outlined and further research issues identified.

Chapter Three outlines the industrial and political background to the research period. It deals with the structural features of the NSW construction industry between 1980-2011 including: production process; employer and union organisations; and workforce characteristics.

Chapter Four is the data chapter. It examines self-employed sub-contracting in detail: first analysing official statistics to chart its growth; and second analysing evidence from eleven public inquiries to demonstrate its impact on the construction labour market. Independent and dependent (or sham) contracting forms are discussed. The evidence shows that self-employed sub-contracting was the pivotal labour market structure promoted by major employers to advance their strategic agenda.

Chapter Five examines two lesser non-SER arrangements in the industry - labour hire and temporary migrant workers. It follows the same structure as Chapter Four. Official statistics are examined to identify growth trends and public inquiries are mined for data revealing the impact of these phenomena. Like Chapter Four the approach is to ‘hear the voices’ of the institutional actors allowing meanings to be drawn from their words and actions.

Chapter Six combines the theoretical understandings from Chapters One and Two with empirical data from Chapters Three, Four and Five to discuss and draw conclusions. The empirical material is critically evaluated and answers posited to the research questions. The chapter concludes by acknowledging research limitations and providing suggestions for future academic inquiry.

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Chapter 2 Labour market regulation in the NSW construction industry 1980 - 2011: a literature review

2.1 Introduction

This chapter provides theoretical underpinnings for the thesis by reviewing literature about labour regulation in the construction industry in the three decades to 2011 and highlighting research gaps. Section 2.1 examines literature in relation to regulatory theory and enforcement issues in the context of the Australian labour market. There are diverse approaches to these concepts. Competing interpretations of the terms ‘regulation’ and ‘enforcement’ are explored. This section considers the dynamics of enforcement in practice, reviewing the impact of major legislative shifts in the 2000s, including the ability of regulatory agents (especially unions) to respond in the changing labour market. The interface between practical enforcement issues and the characteristics of the construction industry raises specific research issues to be addressed.

Section 2.2 reviews the literature concerning the rise of neo-liberalism and its impact on the Australian labour market and construction industry. Key concepts such as ‘deregulation’ and ‘individualisation’ of labour relations are considered. Manifestations such as the spread of precarious employment/contingent work at the expense of secure, full-time jobs are examined. A central issue is the connection between neo-liberal ideology and precarious work in construction. Section 2.3 reviews construction industry-specific labour market policies deployed from 1980 – 2011, namely: ‘self-employed sub-contracting’; ‘labour hire/agency labour’; and ‘guest-workers’. Some have a long history while others like foreign guestworkers represent relatively new labour market responses, at least in Australia.

2.2 The theory of labour standards regulation

2.2.1 Defining ‘labour standards’ and ‘regulation’

In the Australian context Quinlan (2006:22) suggested that ‘labour standards’ have three constituent elements: wages and working conditions; OHS standards; and workers’ compensation and rehabilitation. These areas of labour law have their genesis in direct statutory law or in subordinate instruments such as industrial awards. Some have highlighted a trend towards legislated universal safety-net standards (McCallum 2011:6). However prevailing standards do not always have a legal basis. Gahan and Brosnan (2006:128) pointed to a diminution in formal standards as a feature of the

13 recent industrial relations environment. Murray (2008:45) argued that labour standards in Australia are more like a ‘complex tapestry of rules’ including formal and informal elements.

A related issue is the distinction between ‘substantive’ and ‘procedural’ rights (Quinlan and Sheldon 2012:6). The Australian legal system typically views the rights and obligations of legal actors through the prism of its British heritage, and nowhere is this more so than in the field of labour law (Bray et al. 2011:16). This distinction in rule making processes is important in determining legal rights, whether the parties are individual or collective (Bray et al 2011:295). For the purposes of this thesis ‘labour standards’ are defined as meaning substantive and procedural workplace rights. Substantive rights include: wages and working conditions (like annual leave, sick leave, public holidays, rostered days off [RDOs], industry allowances and casual loadings); income security provisions (superannuation, portable long service leave and redundancy); OHS protections; and workers’ compensation/rehabilitation rights. Procedural rights include: freedom of association; the right to collectively bargain; protection against unfair/unlawful dismissal; and the right to legal remedies against adverse action in the workplace.

Over the period being reviewed several mechanisms were used by governments and other institutional actors to set labour standards. With regard to wages, work entitlements and income security these included awards, enterprise bargaining agreements (EBAs), registered and unregistered collective agreements, individual statutory contracts (Australian Workplace Agreements – AWAs) and statutory minima (Stewart 2011:3). These instruments originated in both federal and state jurisdictions with a decided turn to federally-regulated provisions as a consequence of the Workplace Relations Amendment (Work Choices) Act 2005 and the Fair Work Act 2009 (McCallum 2011:6, Stewart 2011:7, Bray et al 2011:114). By contrast OHS and workers’ compensation and rehabilitation legislation was based largely in state/territory law, though several large construction firms (like John Holland) opted to transfer to the federal jurisdiction (Quinlan and Johnston 2009, Walters at al. 2011). 1

Regulation as a concept has been the subject of substantial debate over the last 25 years. Traditionally seen as the imposition of rules by government, it is now understood as consisting of two discrete elements. The first involves the creation of standards or ‘standard setting’ and the

1 The Howard government allowed private corporations operating in more than one state to self-insure under federal Comcare legislation. Comcare previously covered the OHS, workers’ compensation and rehabilitation of federal public servants (Quinlan and Johnstone 2009:427, Windholz 2013:180).

14 second is the administration of compliance processes to enforce standards. Freiberg (2010:258) described regulation as ‘an intentional activity to bring about desired behaviour’. Collins (1999:7) argued that regulation was not the sole province of government and could be exercised by a range of institutions. A useful starting point in debates about regulation of labour markets and labour standards is Otto Kahn-Freund’s (1972) observation that ‘the main object of labour law (is) to be a countervailing force to counteract the inequality of bargaining power which is inherent and must be inherent in the employment relationship’. Davidov (2011:188) argued workers experience two main vulnerabilities, ‘democratic deficits and dependency’. This explains the need for the ‘protective’ function of labour regulation (Creighton & Stewart 2010:5).Traditionally this function has gone hand- in-hand with ‘command and control’ or ‘state-centred’ regulation. Critics of the ‘command and control’ approach fell into two main camps: the first argued that regulatory approaches become more robust if ‘de-centred’ and made more responsive to changing environments and non- government actors (Collins 2000, Black 2002, Ayres and Braithwaite 1992); the second maintained economic welfare is maximised by rejecting state-centred regulation in favour of deregulation and self-regulation by industry (Hayek 1960, Epstein 1983).

Consistent with the first approach is the work of the regulatory theorists who have sought to ‘map the regulatory terrain’ (Gahan and Brosnan 2006:130). A definitional question is whether prescriptive rules made and enforced by the state or the combination of both prescriptive and more informal rules (conventions, customs) represents the term ‘regulation’ more accurately. Black (2002 in Howe 2006:151) advanced the concept of ‘de-centred regulation’, where the role of the state was not the only consideration. Regulation was rather ’a two-way, or three or four-way process, between all those involved in the regulatory process’. Baldwin, Scott and Hood (1998) have suggested that three broad definitions exist in the literature:

‘Direct Regulation: targeted rules promulgated by the state;

Indirect regulation: more general state-based regulation of the economy which influences a range of economic and social spheres subject to targeted regulation;

Non-state regulation: all mechanisms of social control, formal and informal, state directed or otherwise’ (quoted in Gahan & Brosnan 2006:132).

An early critic of the state-centred or direct regulation approach was Teubner (1983:239) who argued there was ‘increasing disenchantment with the goals, structures and performance of the regulatory state’. Tuebner (1997) later developed the notion of the ‘regulatory trilemma’, highlighting difficulties inherent in reconciling all three goals of effectiveness, responsiveness and coherence. Tuebner (1993) and Baldwin et al. (1998) argued a ‘regulatory crisis’ had developed

15 where traditional labour market regulation faced declining relevance due to: spread of self- regulation and voluntary codes; increasing numbers of workers falling outside the traditional employment relationship; and internalising through company policies of labour issues once addressed by the regulatory machinery of the state.2

Neo-liberal critics of ‘command and control’ regulation derided it as the blunt instrument of an over- zealous state. Early proponents of this school of thought included Hayek (1960), Friedman (1980), Epstein (1983) and local scholars Blandy and Sloan (1986) and Moore (1998). Often labelled economic rationalists or libertarians, they argued for the deregulation of labour markets, contending economic growth was best secured through market forces and that state intervention stifled entrepreneurship. Under this approach the state should withdraw from standard setting, leaving participants in the labour market to contract on terms they ‘choose’. This ideology had strong adherents in politics and commerce and had a profound effect on labour markets/standards over the last 25 years – in Australia and elsewhere.

Bray & Underhill (2009:373) and Cooper & Ellem (2008:542) observed that legislative changes aimed at deregulation paradoxically generally resulted in growth in volume and complexity of labour laws in Australia. Buchanan and Callus (1993:515) argued ‘those advocating radical reform are not seeking to deregulate the labour market but rather change how the labour market is regulated’. It seems that ‘command and control’ regulation was not so much the issue but rather whose interests were served. Nowhere has recourse to state-centred regulation been stronger than in legislation introduced by successive LNP governments since 2003, designed to tightly regulate the activities of Australia’s construction workers and their unions (Howe 2006:148, Stewart 2011:345).3

In summary, the definition of regulation used in this thesis is broad; encompassing substantive and procedural rules, formal and informal processes and outcomes (i.e. normative standards), together with a recognition of the importance of state and non-state actors in determining labour market outcomes.

2 For more see Gahan & Brosnan (2006:128). 3 Dabscheck (2005) argued that regulatory measures targeting the construction unions amounted to Orwellian ‘doublethink’.

2.2.2 Enforcement – theoretical approaches and practical issues

The advocates of ‘responsive regulation’, including Black (2002), argued that approaches which engaged with all relevant actors had a greater chance of success. The work of Ayres and Braithwaite (1992) was synonymous with responsive regulation as ‘a response to a more rigid, relatively authoritarian paradigm that focused on rule-enforcement and deterrence based compliance models’ (Freiberg 2010:97). Ayres and Braithwaite did not reject the role of the state nor the notion that effective regulation should involve ‘command and control’ features. Howe (2006) described ‘responsive regulation’ as ‘a tripartite model’ which involved interaction between government, employers and unions from the conception of standards to their enforcement (2006:152).4 A prominent feature of Ayres and Braithwaite’s work was their ‘enforcement pyramid’ - with soft approaches (education and advisory tools) at the base and stringent legal sanctions (prosecution) at the top. This graduated approach is a hallmark of responsive regulation and widely accepted. Cooney et al. (2006:224) argued that it emphasised ‘the dynamic nature of standards and the need for participative, transparent and democratically sound processes for their identification, implementation, monitoring and enforcement’.

There is recognition in the literature that regulation in both its standard setting and enforcement modes does not operate in isolation from the political and economic context (Quinlan 2006:21). Burgess and Campbell (1998:17) highlighted that the state in its combined role as regulator, employer, and manager of the economy had a powerful effect on the application of protective labour regulations. They argued that since the mid-1980s Australian governments pursuing neo- liberal labour market policies often undermined enforcement and compliance - directly by limiting the resources available and indirectly by diminishing their social legitimacy. Quinlan (2006:36) argued in relation to the Howard Government’s WorkChoices legislation that ‘ the effectiveness of protection afforded by the existing regime has been further weakened by legislative modifications (weakening union and tribunal input) and changes to enforcement practices such as a withdrawal to reactive enforcement by industrial relations inspectorates (except when targeting errant unions)’. While written at the time of the WorkChoices’ legislation (later modified) the thrust of these remarks remain relevant.

4 For a comprehensive definition of ‘responsive regulation’ see Braithwaite, Healy and Dwan (2005:36).

Softer approaches to regulation (‘light touch regulation’5 and ‘risk-based’ regulation6) became fashionable with governments and employers alike. ‘Light touch’ regulation became commonplace in the construction sector in the late 1990s with codes of practice and government procurement policies introduced by state and federal governments to influence the behaviour of employers and unions.7 Howe (2007:394) argued light-touch regulation ‘will rarely work as a stand-alone strategy’ because it involves primarily ‘educational’ and ‘informational’ approaches that are ineffective in the absence of sanctions (2007:398-399). Freiberg (2010:212) contended that compliance with regulations will generally not occur when the risk of sanctions is judged by those subject to regulation to be less than the benefits of non-compliance. This proposition warrants particular consideration in the construction industry given recurring allegations of non-compliance. Academics and unions have pointed to widespread employer non-compliance with workers’ legal rights8, while employers, conservative governments and public inquiries have frequently complained of union non-compliance with the legal obligations of registered organisations.9 Later chapters will examine non-compliance and its implications for construction workers’ labour standards.

It is arguable that the role of unions in standard-setting and enforcement has not been sufficiently recognised in academic debate.10 In the Australian context, Bennett (1994) was one of the first to highlight the critical role in enforcement of regulators and unions. Goodwin’s doctoral thesis (2003) on the federal labour inspectorate represented another milestone although it excluded substantial consideration of the role of non-state agents, such as unions. Subsequently Goodwin and Maconachie (2007, 2008 and 2011) increasingly highlighted union enforcement activity, contrasting it to the more passive approach of state regulators. Goodwin and Maconachie (2011:63) argued that in ‘the Australian context the role historically ascribed to unions approximates that of the official regulatory agency’. Gahan (2006:262) also identified the dual role of unions as both agents and subjects of regulation in the Australian labour market.

Goodwin’s research was largely confined to the federal jurisdiction. For most of the 20th century, extensive state government systems of labour market regulation operated independently, though

5 See Dickens (2004:608). 6 See Hutter (2005) and Freiberg (2010:206-208) 7 These instruments became ‘heavy-handed’ over time. For an explanation of these regulatory tools see Howe (2006). 8 See Buchanan and Allan (2000), Underhill (2002), CFMEU (2011). 9 See Cole Royal Commission: Final Report (2003: Vol 1, p.3-6)), Minister Andrews’ Second Reading Speech (2003), Calver (2005). 10 The area of OHS is an exception.

18 sometimes overlapping at the margins with the federal jurisdiction. In construction, state jurisdictions were often more important (Underhill 2002:115). In NSW, construction workers’ wages and conditions were set through state awards and statutes; industrial disputes were heard before state tribunals and the principal regulators (of wages and OHS) were NSW Government agencies. There was a gradual shift to the federal jurisdiction following the creation of national awards for tradesmen and labourers in 1975.

In the context of political changes in Washington, Weil (2007) explored a ‘progressive’ approach to the enforcement of labour standards in the United States. He emphasised techniques to enforce existing regulations, rather than political battles to win a new legislative agenda. Weil (2007:12) explained the critical importance of supply-chains in contemporary industry and the strategic value of disruption. He argued the innovative approaches required for enforcement in new manufacturing resembled the challenges faced on construction worksites with their myriad contractors. Australian literature on enforcement progressed with Hardy and Howe (2009) who traced changes in approach, commencing with the Workplace Relations Act 1996 and progressing through developments under WorkChoices and the Fair Work Act 2009. Hardy and Howe explored the proposition (first raised by Goodwin (2003)) that unions might be ‘partners in enforcement’. Goodwin noted that federal architecture provided for a dual system of enforcement – by state agencies and registered industrial organisations. Howe and Hardy’s focus was on the post-WorkChoices situation when the Fair Work Act 2009 provided an enhanced enforcement role for the federal regulator – an approach initiated by the Howard Government following public hostility to WorkChoices. The government had sought to dampen concerns about worker exploitation at the same time as denying the unions one of their basic functions. Hardy and Howe did not deal with OHS and continued a trend of overlooking the state systems.

Landau et al. (2014) interviewed officials from five Australian unions who were directly involved with enforcement activities. These representatives revealed a diversity of approaches towards enforcement and were sceptical about the ability of government agencies to address myriad non- compliance problems – lack of resources was seen as the key limitation. One official stated the unions could, ‘only touch the tip of the iceberg … there’s so much exploitation that occurs’ (2014:39). Landau et al. lent weight to Goodwin and Maconachie’s view (2010:419) that ‘evasion of workers’ entitlements is arguably a calculated business decision, prompted or facilitated by intense competition, precarious employment (particularly female and youth), non-unionised workplaces and under-resourced enforcement agencies’. Quinlan (2014:214) argued that the growing incidence of

19 precarious work and declining collective worker organisation were ‘incompatible’ with the achievement of high OHS standards.

In examining approaches to enforcement by regulatory theorists (Ayres and Braithwaite 1992, Black 2002, Freiberg 2010) against actual performance by state and non-state enforcement agents in the NSW construction industry, a number of subsidiary research issues arise:

Is Freiberg’s (2010) proposition that laws will not be complied with if the benefits of non- compliance exceed the costs of compliance supported by the experience of the NSW construction industry between 1980 and 2011?

Where does the weight of evidence lie concerning unlawful activities in the NSW construction industry? Were militant unions or non-compliant employers primarily responsible?

Does the view of Goodwin and Maconachie (2010) that evasion of workers’ entitlements has often been a calculated business decision, apply in the NSW construction industry from 1980 – 2011?

2.3 Neo-liberalism and the Australian labour market

It has been suggested neo-liberalism represents ‘an interconnected set of beliefs in small government, in super-ordination of the individual over the collective, in minimal, contractualist regulation (of, for example, finance and labour), that private markets were the best and most efficient means of achieving individual and social wellbeing (Johnstone et. al. 2012:26)’. The same authors suggest that a key element of neo-liberal policy suite is the promotion of ‘flexible’ and de- collectivised work arrangements. ‘Precarious employment’ and ‘contingent work’ are descriptors commonly used in the literature to explain the outcome of the neo-liberal vision of work.

2.3.1 What is precarious employment and contingent work?

These terms have been used interchangeably to describe paid work that is insecure, poorly remunerated and has minimal social protections (Vosko 2010:2). Burgess and Campbell (1998), Quinlan and Bohle (2004), Appay (2010) and Campbell 2010 examined the origins of the terms. Rodgers’ definition of precarious jobs is useful:

 short time horizons, of limited duration or high risk of termination;  lack of control over working conditions, the pace of work and wages;  lack of protection in employment (legislative, collective agreement, custom or practice, social security); and

 characterised by low incomes at or near defined poverty lines (Rodgers 1989:3 in Burgess and Campbell 1998)

Another term used is ‘flexibility’. Appay (2010) attributed the modern use of this term to Thatcher government neo-liberal policies. It was also used extensively by labour market segmentation theorists Piore and Sabel (1984) and Atkinson (1985). Atkinson developed the ‘core/periphery’ description for a ‘flexible’ firm that retains a small number of employees with secure jobs while a larger number of jobs are performed on the firm’s periphery by casuals, part-timers or contractors. This early model of a two-tier labour force morphed over time into more complex arrangements (Johnstone et al. 2012:30). According to Appay (2010:27), an economic imperative was at work whereby corporations were ‘searching for a way to transform fixed costs into variable costs’. Yet ‘flexibility’ was a contested concept with some arguing it led to economic prosperity, while others considered it disempowered workers and increased corporate power (Appay 2010:36). For Johnstone et al. (2012:31) ‘flexibility’ was a vague term that had ‘an array of meanings and its application to work arrangements requires other questions to be addressed, such as ‘flexibility’ for whom and to what degree?’

In the Australian context, Campbell (2010) identified three elements that constitute precarious work: marginal self-employment; fixed-term waged work; and casual waged work. During the period under review the marginal self-employed, although a small part of the overall workforce, grew in industries such as construction and transport. While characterised as ‘independent’, the major issue for workers in this group was their actual dependence on, or subordination to, one employer. The second group, fixed-term employees, comprised wage workers whose employment tenure expired on a set date or at the completion of a particular task. This group was numerically small (5.3% of the workforce in 2007) and concentrated in education and public service jobs. The third group, casual employees, was a large and growing component of the Australian workforce. In 2008, a little over 2 million casual workers made up 20% of the workforce, an increase from 16.9% in 1992. Casual workers often experienced short engagements, a high degree of insecurity, minimal rights and few protections (Campbell 2010:115). Casuals in Australia were typically paid a loading of 20% - 25% to compensate for lack of entitlements but this rarely matched the total remuneration received by full- time permanent employees (Buchler et al 2009).

Campbell (2010) argued that workers engaged by ‘labour hire agencies’ were usually casuals and often performed precarious work at variance with the ‘standard employment relations’ (SER) model, the dominant form of regulated employment prevailing in the developed economies during the

‘Glorious Thirty Years’ (Appay 2010:23) of the post-WWII boom. SER has been defined as ‘a full-time continuous employment relationship, where the worker has one employer, works on the employer’s premises under direct supervision, and has access to comprehensive benefits and entitlements’ (Vosko 2010:2). Burgess and Campbell (1998) observed that precariousness encompasses jobs performed in the non-standard employment market and the substantial changes wrought (by the neo-liberal paradigm) on the conventional SER sector.

The extent of SER in the workforce and whether it was unique to the post-WWII era or part of a cyclical pattern recurring under capitalism is contested. Vosko (2010) and Fudge and Owens (2006) critiqued the traditional view of SER on the basis that women and immigrants were largely excluded from a paradigm built around the male breadwinner model of workforce participation. While periods of relative economic stability marked capitalist development in the 19th and 20th centuries, many argued that the long post-WWII boom was exceptional, underpinned by the construction of the welfare state, the pursuit of full-employment and the supremacy of Keynesian economics. Kalleberg et al. (1997), Standing (1997), Bennett (1999), Quinlan (2006) and Johnstone et al. (2012) all made the case that the high point of SER was past and its fragmentation ongoing. Whether ‘precarious employment’ and ‘contingent work’ were new phenomena was considered by Kalleberg (2009), who described modern precarity as a ‘re-emergence’. Quinlan’s research (2012) showed that these terms were in regular usage in the 19th and early 20th centuries in Britain and Australia. Quinlan argued that the neo-liberal ascendancy over the last 25 years ‘reinvented’ an old problem, with governments ‘unlearning’ past lessons. Quinlan noted that references to precarious employment largely disappeared from public discourse during the post-war boom even though the phenomenon ‘remained common in construction and seasonal activities like agriculture’ (2012:16). This raises the question of whether precarious labour market practices in the construction industry are attributable to, or independent of, neo-liberal policy ascendancy over the last 25 years. Thus a further subsidiary research issue is:

If non-SER arrangements emerged and spread across the NSW construction industry between 1980 and 2011, what was the primary driver?

To explain the spread of precarity in the Australian labour market, Burgess and Campbell (1998) highlighted three factors potentially relevant in construction: ‘employer labour-use strategies’; ‘the role of the state as regulator, employer and economic manager’; and ‘the condition of the labour market’. These will be considered as possible causal factors driving labour market outcomes.

2.4 Precarious labour market strategies and the construction sector

The three main forms of work organisation that increased precarity for workers in the NSW construction industry between 1980 –2011 were:

 Self-employed subcontracting;  Labour- hire/agency workers; and  ’Guest-workers’/ temporary migrant labour

2.4.1 Self-employed sub-contracting

Sub-contracting has an extensive history in the construction industry (Postgate 1923, Austrin 1980). The term encompasses both self-employed individuals working for one client and companies with many employees working for multiple clients. It is identified as the performance of a discrete task/s utilising skills and equipment in a non-employment commercial relationship. Labour law distinguishes between work performed by an employee under a ‘contract of service’ and an independent contractor performing work under a ‘contract for services’ (Creighton and Stewart 2010:163). In Australia smaller sub-contractors, especially the self-employed, were traditionally confined to the residential sector, whereas larger sub-contractors employing workers operated in the commercial, industrial and engineering sectors.11 Bennett (1994) argued these boundaries, in the building industry and elsewhere, were crumbling in the face of neo-liberal ascendancy due to employer ‘manipulation of contractual forms’.

Ten years earlier Frenkel and Coolican (1984) conducted research in NSW examining different industrial strategies of the leading building (BWIU) and metalworkers’ (Amalgamated Metal Workers Union – AMWU) unions. With regard to the building industry they suggested ‘the growth of self- employment will have to be tackled’ and the ‘drift to illicit employment practices’ addressed (1984:333-334). Underhill (1991) compared approaches by the NSW BWIU and the Victorian Operative Bricklayers Society (VOBS) to contract labour, noting union concerns that it ‘can be utilised at a lower cost to the builder than award employees’ (1991:115). As a craft union influenced by small bricklayer employers, the VOBS opted to negotiate bricklaying contract prices, while the BWIU with its greater industrial strength and left wing ideology attempted to end the practice. ‘Whenever a contract worker, or a cash-in-hand employee (who may have been a contract worker) was

11 See Chapter 3.

23 detected on a building site, the subcontractor was forced by industrial action to ‘convert’ the worker to employee status, and abide by award standards and conditions’ (1991:128). Underhill documented the BWIU’s pursuit of a negotiated industry-wide ban on ‘pyramid contracting’ – whereby sub-contracts were repeatedly sub-let and ‘middlemen took a cut at each stage’.

Ambiguities in Underhill (1991) around the meaning of ‘contract labour’ and ‘contract worker’12 were clarified by Vandenheuvel and Wooden (1994) in research for the Australian Taxation Office (ATO) into the impact of self-employment on tax revenue. They distinguished between the terms ‘independent contractor’ and ‘dependent contractor’:13

‘independent contractor’ as it is used in the literature may be a misnomer in many instances. Contractors with ‘an umbilical cord to the mother company’ are not independent … there is at least anecdotal evidence to suggest that in recent years, a considerable number of workers have been reclassified by the firm as independent contractors with little or no change to their work duties …Also described variously as ‘fake self-employed’, ‘surrogate employees’ or ‘de facto employees’, we choose to refer to them as ‘dependent contractors’ (1994:10-11).

This conceptual approach advanced the debate in Australia and the vague terms ‘contract worker’ and ‘contract labour’ ceased to be widely used. In 1996 the same authors investigated growth in the self-employed workforce and concluded most was amongst ‘dependent contractors’ (Vandenheuvel and Wooden 1996).

Mayhew and Quinlan (1997) researched sub-contracting in the residential building industry in Australia and the UK and identified a number of factors leading to poorer OHS outcomes: payment- by-results; worksite disorganisation; inadequate regulatory oversight; and inability by unions or trade associations to organise transient subcontractors. The payment-by-results system was identified as the predominant cause of short-cuts and sacrifice of safety standards (Mayhew, Quinlan and Bennett 1996 in Underhill 2002:123). Foley (1997) also researched OHS by examining workers’ compensation data and found ‘the self-employed are approximately twice as likely as wage and salary earners to experience a work related injury during a year’. He attributed this primarily to

12 Underhill did not clarify where these ‘hybrid’ workers stood in legal terms (1991:115). Labour law formally divides persons performing work into those under a ‘contract of service’ (employee) and those under a ‘contract for services’ (independent contractor). The common law has developed a series of tests to determine this issue.

13 The term ‘dependent contractor’ has been used in Canada for a long period, see Arthurs (1965) quoted in Stewart (2002:2). The terminology has subsequently been adopted in Australia. See the Productivity Commission research papers (2001, 2006).

24 work intensification arising from competitive tendering by subcontractors (1997:8). Mayhew and Gibson (1996) and Mayhew (1997) in Australia and Rainbird (1991) in Britain identified a link between economic pressures faced by self-employed construction workers and deficiencies in OHS.

Quinlan (1998:24) pointed to the effects on tax revenue, finding alongside detrimental effects on social security, health care, workers compensation and OHS regimes ‘the growth in contingent employment is undercutting the tax base’. In research funded by the CFMEU, Buchanan and Allen (1998) examined how the growing number of self-employed contractors in Australia’s construction industry affected taxation revenue. Weeks (1995:27) showed the CFMEU’s primary concern was about the impact on labour standards, ‘sub-contracting … especially the emergence of labour-only sub-contractors […] affects the employment opportunities for employee members and may undermine award conditions’. The union made a strategic decision to support research on tax revenue, believing the issue more likely to stimulate action by politicians.14 The research demonstrated the difference in tax paid by an employee construction worker compared to an ‘own account worker’.15 Using earlier modelling (Apps 1998) the authors conservatively estimated $2.19 billion lost to Commonwealth revenue in the financial year 1996/97 through misclassification of construction workers. Buchanan and Allen (2000:46) found ‘tax liabilities for individuals can be halved where they are deemed to be contractors’. They urged action by policy makers, arguing that even if their figures were out by 50% the losses attributable to ‘sham contracting’ in the industry exceeded $1 billion.

Underhill (2002) attributed the growth of self-employed workers in construction to demand and supply. Demand-side factors included cost savings (for those higher up the contracting chain) and flexibility in acquiring and dispensing with workers:

Firms hiring self-employed workers are able to avoid labor (sic) on-costs such as payroll tax, workers’ compensation, and superannuation payments. They are not obliged to pay a minimum hourly rate, nor are they subject to unfair dismissal legislation or redundancy payments ….. employers can turn the tap on and off as demand for labor (sic) fluctuates (2002:123).

Supply-side factors included tax advantages identified by Buchanan and Allen, lack of secure jobs for direct employees and attitudes often accompanying self-employment. Underhill, Worland and Fitzpatrick (1997, 1998:409) showed that ‘to be [one’s] own boss’, ‘choose own work’, ‘choose own

14 As National Secretary, CFMEU Construction Division, I commissioned Buchanan and Allen to conduct the research. 15 ABS terminology. For a definition see Chapter 4, p.57.

25 hours’, ‘control over work’ motivated self-employed construction workers. Just as advantages of subcontracting at the individual level were balanced by adverse consequences, Toner and Coates (2006) identified competitive advantages and disadvantages at the industry-wide level. Echoing Underhill (2002), they suggested that reduction in employee on-costs amounted to 25 – 30% of direct wage costs. In addition, larger firms could transfer risk and make balance sheets stronger by shifting apparent costs and achieving work intensification. However, increased worker effort from payment-by-results and market discipline generated by non-SER arrangements also led to competitive disadvantages. Toner and Coates (2006:110-111) described short term focus on labour costs as a ‘low road’ approach inconsistent with innovation and productivity. Growth in subcontracting and other non-SER arrangements depressed employer investment in apprenticeships and training. They found a link between declining firm size and reduced expenditure on training – which ironically may lead to skill shortages and increased labour costs (2006:112).

The issue arises about the nature of the link between growth in self-employed sub-contracting in construction and the economy-wide policy of labour market deregulation pursued by employers and governments since the late 1980s. Underhill (2002:134) considered the trend predated neo-liberal policies - it ‘reflects long-standing gaps in regulation rather than deregulation’. A further subsidiary research issue is therefore:

Underhill (2002) argued that the construction workforce ‘has always been subject to a high level of employment instability, and deregulation does not appear to have influenced the magnitude of this instability’. Does the evidence support Underhill’s contention?

2.4.2 Labour-hire/Agency workers

One of the most precarious non-SER arrangements involves labour supplied by labour-hire companies. In Australia workers so engaged are typically casual employees (Toner and Coates 2006:104) however some are treated as self-employed and not in an employment relationship with the agency (Underhill and Kelly 1993, Fenwick 1992). An Australian Industry Group (AIG) (2000:4) survey revealed that 96.9% of persons on the books of labour hire companies were casuals.16 ‘In 2008/09, the largest labour hire agency company in Australia17 employed 92% of its 25,000 workers as casuals (Hargrave and Janes 2009)’ (quoted in Underhill 2010). In Australia, the labour agency

16 ANTA’s (1998:16) estimate was 96.7%. 17 Skilled Engineering.

26 provides workers to a client or host employer. With the exception of OHS where the host has joint or total responsibility,18 the workers’ rights and obligations rest with the supplier:

The essential quality of a labour hire arrangement is the splitting of contractual and control relationships: the worker works at the site and under the practical day-to-day direction of the host or client organisation; the worker is paid by the labour hire firm and has a direct (contractual or employment) relationship with them; the client firm pays a contract fee to the labour hire firm for the provision of that labour’ (Hall 2002:4).

Private labour hire agencies emerged in Australia in the 1980s (Underhill 2006, Hall 2002), increasing their market share in the 1990s (Hall 2002, Laplagne et al 2005). Market penetration peaked in the mid-2000s at 5% of the workforce but fell back to 2.5% after the global financial crisis (GFC), during which on-hire workers felt the brunt of widespread retrenchments (Underhill and Quinlan 2011). Hall (2002, 2006) traced the genesis of labour hire from ‘temping agencies’ providing white-collar support staff in the 1950s to ‘recruitment firms’ sourcing candidates for specialist roles in the 1970s and 1980s. In his view, the pure labour hire industry accelerated in the late 1980s when ‘a number of small specialist firms began to offer contract labour as a replacement for or supplement to existing employees for companies in a number of highly unionised and dispute-prone industries such as building and construction and shearing’ (Hall 2002:3).

Hall (2002), Underhill and Rimmer (2009) and Campbell (2010) examined problems faced by labour hire workers: minimal employment rights/protections; short term, irregular job placements; high labour turnover; and minimal job security. The agencies, Underhill (2006:291) stated:

hire workers under conditions that least constrain managerial prerogative (of the hosts) and enhance their competitive advantage in an industry where price is sovereign. Hence, the majority of labour hire employees are hired on a casual basis, and paid only for the hours placed with a host. Placements vary from as little as a few hours duration through to many years with the one host.

Underhill (2002, 2005) and Underhill and Quinlan (2011) documented inferior OHS outcomes for labour hire workers. Underhill (2008) described their ‘double jeopardy’: greater risk of injury linked to inferior prospects of returning to work thereafter. Mitlacher and Burgess (2007:425) demonstrated the limited nature of regulatory protections for labour hire workers in Australia. The regulatory void led Underhill (2010) to recommend legislation establishing shared responsibility between supplier agencies and hosts, offering ‘potential for greater compliance than existing

18 See Underhill (2010:343).

27 arrangements, particularly if it discourages hosts from partnering with agencies that they believe are breaching their own obligations’ (2010:350).

Underhill and Rimmer (2009) advocated two-pronged collective bargaining: inside labour hire agencies; and between unions and host employers to ensure similar standards with the host’s direct employees. The main manufacturing union in Victoria adopted this approach with some success in the 1980s. According to Underhill (2011:351) the:

practice spread to other unionised industries, such as construction, and was revised in the 1990s to require agency workers be covered by a collective agreement or be paid the same rate as the host employees’ collective agreement. In one such agreement, agency employees’ rates of pay increased by 20% - 30% ‘ (2009:185).

Licensing was another remedy consistently proposed at public inquiries19 to lock out ‘fringe operators’. Underhill (2006) noted that despite repeated recommendations, there had been minimal regulatory change – the trend was in the opposite direction.

Underhill (2011:3) observed that little had been written about labour hire in Australia’s construction industry with the notable exception of the Victorian-based agency, Odco Pty Ltd, trading as ‘Troubleshooters Available’ (TSA). In the early 1990s TSA obtained a Federal Court ruling that its workers were genuine subcontractors. The state jurisdiction however found TSA liable for workers’ compensation premiums (Fenwick 1992, Underhill and Kelly 1993). In an approach radical for the time, TSA developed a business model supplying contract labour to the building and meat industries. An industrial and legal battle ensued with the BWIU. TSA attracted support from prominent ‘New Right’ advocates including the National Farmers Federation (NFF) which was championing labour market deregulation. The Federal Court judgement by Justice Woodward relied on the ‘expressed intention’ in pre-employment contract documents signed by the workers, acknowledging their subcontractor status. Fenwick (1992) outlined the legal controversy including the view (see Collins 1990) that TSA’s approach was a contrivance to negate the protective function of employment law. TSA’s fortunes waned shortly thereafter, in part because of an industrial alliance they formed with remnants of the deregistered Builder’s Labourers Federation (BLF) (Underhill and Kelly 1993:405).

Limited examination of labour hire has been largely focussed on manufacturing and building in Victoria. Underhill (1999) documented a prolonged and ultimately successful industrial dispute in

19 See the NSW Labour Hire Task Force (2001), union submissions to Victorian Inquiry into Labour Hire Employment (2003), the AMWU (2005) submission to the Making it Work Inquiry (2005) and the Underhill (2010) submission to the Sham Contracting Inquiry (2011).

Victoria’s metal manufacturing sector in 1997 involving workers from around 40 labour hire companies. Working for an agency that supplied labour to 21 Melbourne building sites, Iacuone (2006) undertook ethnographic research on power relationships in the workplace. He concluded that labour hire workers experienced lower financial benefits, greater job insecurity and increased managerial prerogative than mainstream construction work (Iacuone 2006:71). Leveson et al. (2010) surveyed three agencies in the Victorian commercial building sector to examine human resource management (HRM) techniques. The reliability of the conclusions was limited by: the small sample size; the surveys were distributed and collected by managers; and only permanent employees (who comprised a minority of labour hire workers) were surveyed. The results were unexceptional with permanent workers displaying ‘affective commitment’ to their agencies.

Toner (2000) cited two Queensland reports (Marshman 1996 and ANTA 1998) that attributed skill shortages to public and private sector corporations ‘increasingly outsourcing their demand for skilled trades labour to labour hire companies’ (2000:301).The reports showed that while labour hire companies were significant employers of tradespersons they generally did not train apprentices. Underhill (2006:313) argued that as ‘long as the industry remains characterised by a large number of small employers, low barriers to entry and intense price competition, coupled with low levels of unionisation and ineffective employment protection, the lowest common denominator in employment practices will drive industry standards’. Despite limited research, it seems clear this category of worker faced a level of precarity beyond that of directly employed construction workers.

2.4.3 Guestworkers/Temporary migrant workers

A major change in federal government policy in 199720 saw a steady increase in use of guestworker labour in Australia; it comprised around 10% of the workforce by 2010 (CFMEU 2011). The CFMEU defined ‘guestworkers’ broadly as persons not holding permanent residence rights who work either lawfully (in accordance with temporary visa conditions) or unlawfully (in breach of conditions). This broad definition of ‘guestworker’ is used in this research. The growth in this non-SER approach, while relatively new in Australia, was not a new phenomenon globally. It has been documented in the international context by Castles (1986), Castles and Kosack (1973), Lever-Tracey (1981, 1983, 1984 cited in Velayutham 2013:341). Reports by the World Bank (2006, 2006), the Asian Development Bank (2004) and the World Trade Organisation (WTO) consistently characterised

20 The Roach report (1995) recommended the removal of temporary migrant worker controls. The proposals were implemented by the Howard Government in 1997.

29 guestworkers as positive for both sender and host countries. In Australia there has been ongoing debate about the consequences for employment and labour standards. One school of thought views guestworkers as a flexible form of labour that offers advantages to employers and the economy, while also positive for the guestworkers themselves in terms of opportunities for employment and permanent residency (PR) (Hugo 2006, Khoo et al. 2007). An alternative view is that guestworkers, particularly those below professional level, are vulnerable to labour exploitation and ‘subject to double or triple jeopardy in the workplace’ (Toh and Quinlan 2009).

Whether guestworker labour is qualitatively different from other non-SER arrangements is also subject to debate. Oke (2012:9) considered there were features making guestworkers particularly vulnerable: temporary visas were a disincentive to leave an exploitative employer; and employer sponsorship often a pre-condition of attaining PR. Applying Karl Polanyi’s theory that human labour is a ‘fictitious commodity’, Rosewarne (2010) likened the restriction of guestworkers’ movements to ‘indentured labour’ (2010:109). Bowden (2011) highlighted a number of industry sectors, including parts of the construction industry where ‘employers were able to avoid industrial regulation by recruiting workers who lacked the most basic protection enjoyed by Australian workers – citizenship’. He argued that in the late 2000s substantial numbers had entered under false passports or had overstayed tourist visas (2011:72). Guthrie and Quinlan (2005) pointed to serious OHS consequences for illegal migrants on constructions sites in NSW and Victoria, while highlighting the CFMEU’s active role in addressing abuses (2005:45-47).

The dominant voices in the literature following the Howard Government’s policy change were those supporting the liberalising approach. Demographers Professor Peter McDonald, Professor Graham Hugo and Dr Siew-Ean Khoo were in the vanguard,21 emphasising the valuable ‘human capital’ resource for employers and the economy if skilled workers transferred from developed countries in response to Australian skills shortages. This policy stance is consistent with arguments that increasing ‘global economic activity, integrated markets, international regulatory institutions and regional trading zones have diminished state autonomy over immigration policy making’ (Wright 2012:112). By 2002 the federal government’s emphasis on skilled and employer-sponsored migration (as opposed to family re-union and humanitarian categories) was evident in the permanent and temporary migration programs. Kinnaird (1996) and Birrell and Healy (1997) had

21 Khoo, McDonald and Hugo (2006, 2008) have published together, and sometimes with others (Khoo, Voigt- Graf and Hugo 2003, Khoo, Voigt-Graf and McDonald 2007). They have produced glowing reports on this topic for the government (2004, 2005, 2006). They have also published papers explaining the employer’s perspective on temporary migrant workers (2004, 2007).

30 warned that the shift towards temporary migration might have ‘a harmful impact on the opportunities for Australian workers in certain labour markets’ (1997:43).

By 2005 Australia’s temporary migration intake had overtaken the permanent program. Howard Government policy changes in April 2005, intended to address skill shortages and wage inflation, further eased temporary entry requirements (Wright 2014). These liberalising changes led to increases in subclass 457 visa workers during the latter half of the decade and a change in source countries – numbers from developed countries declined while those from countries such as China, India and the Philippines increased (Velayutham 2013:342-343). These developments prompted criticism: Sutton (2008) highlighted abuses of 457 visa workers in several industries including construction and warned of a two-tier labour market; Toh and Quinlan (2009) examined OHS and workers’ compensation outcomes and pointed to serious safety issues for 457 visa workers ‘who tend to be concentrated in insecure, seasonal and contingent jobs’ (Toh and Quinlan 2009:5); and Birrell and Perry (2009) warned that the sharp increase in international student numbers between 2005 -2008 (particularly in vocational education and training (VET) courses) increased the likelihood of exploitation:

they may be prepared to work on terms and conditions unacceptable to local workers … there appears to be tacit bargain. They accept sub-standard conditions under the expectation that they will be rewarded when their employer subsequently sponsors them for a permanent entry visa (2009:75).

The suggestion of a tacit arrangement offered an alternative perspective from that of the growing body of literature on guestworker exploitation. Coinciding with the growth of the 457 visa program and its expansion to include lower skill levels in 2006, media reports of abuse and exploitation had increased. As Velayutham (2013) noted, exposure of these abuses was primarily due to the efforts of unions and investigative journalists. However, media reporting and academic commentary (Orr 2006, Toh & Quinlan 2009, Connell & Burgess 2009, Rosewarne 2010, Velayutham 2013, Oke 2012) focused almost exclusively on adverse consequences for temporary workers and minimally on those for Australians citizens and permanent residents, including undermining of labour standards and loss of job opportunities.

Orr (2006), Anderson (2010) and Oke (2012) advocated more relaxed entry requirements and greater state support for guestworkers, believing that an insensitive state apparatus and poorly- conceived regulation fostered abuse and illegality. They viewed the push by unions for restrictions on temporary migration as part of the problem. Anderson argued that sanctions against ‘unauthorised work’ in Britain discouraged migrant workers from coming forward and strengthened

31 the employers’ hand. These writers advocated for a ‘lighter touch’ by authorities. British commentator McGovern (cited in Connell and Burgess 2009:416) argued alternatively that unions had an obligation to ‘protect the position of the locally employed and job seekers’. Anderson (2010) maintained that UK immigration rules in the 1990s exacerbated the prevalence of ‘false self- employment’. He pointed to researchers such as Massey (1990) who ‘demonstrated that networks of employment and immigration have their own dynamic over time and once networks have become entrenched in particular sectors, they may continue to function even if the legislative framework shifts’ (2010:309). This observation aligns with the issue of ‘co-ethnic exploitation’. Shin (2009) and Velayutham (2013) focused on Korean tile-layers in the Sydney building industry in the 2000s and Indian guestworkers in the IT, construction and hospitality sectors respectively. They found evidence of co-ethnic abuses: pyramid sub-contracting; middlemen; debt-bondage; and labour exploitation. ‘Co-ethnic employers measure what constitutes appropriate pay, treatment and conditions, not by Australian standards, but by the standards of the homeland, or sometimes a third country where their co-ethnic workers have often spent time, such as Singapore or the Middle East’ (Velayutham 2013:357).

Consideration of how the specific features of guestworker precarity played out in the NSW construction industry raises two further research issues. Shin (2009) demonstrated deterioration in the labour standards of guestworker Korean tile-layers in comparison with earlier generations of permanent Italian and Lebanese migrant tile-layers. The degree of work intensification consequent on payment-by-results systems such as piecework or contract rates combined with guestworker status has yet to be measured across the industry as a whole or in particular trades or sub-markets. Thus the question arises:

Did the use of guestworker labour recalibrate the ‘wage/effort bargain’ in the industry or in particular industry sub-markets?

A further lacuna that emerges from the existing body of knowledge is the impact on local workers of the sharp increase in use of guestworkers. Research to date in the construction industry has focused primarily on exploitation of temporary workers. This research project will aim to investigate if there is evidence of a ‘substitution effect’ where construction employers employed guestworker labour in preference to that of local construction workers and jobseekers.

What effect did the use of guestworkers have on job opportunities in the construction industry for Australian citizen and permanent resident construction workers?

2.5 Conclusion

This chapter outlined debates around the terms ‘labour standards’ and ‘regulation’ and established definitions to be used in this thesis. The traditional function of labour market regulation was the provision of worker protections through state-centred command and control methods. This tradition came under attack in recent decades – from those arguing for responsive regulation and from neo- liberal advocates of state withdrawal of labour market intervention. Enforcement was discussed as a critical factor in the efficacy of labour standards and the sensitivity of its theory and practice to political and economic currents was demonstrated – in this case a commitment by governments since the late 1980s to labour market deregulation. New forms of regulation (light touch, risk based) gained currency in this environment, as enforcement of basic labour standards faltered amid widespread allegations of employer non-compliance.

Literature regarding the significant role played by unions in the enforcement of labour standards in Australia, particularly in the construction industry, was reviewed. Divergent views of unions as legitimate non-state regulators or as wilful law-breakers were canvassed. Government measures to weaken unions were seen as likely to adversely impact labour standards. The chapter considered the effects of neo-liberalism and the meaning of precarious employment and contingent work. Campbell’s (2010) analysis of three types of precarious work was contrasted with the SER model prevailing during the long post-war boom. Kalleberg (2009) and Quinlan (2012) argued that ‘new’ practices represented a return to inferior working conditions previously banned. Quinlan’s (2012) view that precarious employment had remained a constant feature in the construction industry highlighted a research issue, as did Burgess and Campbell’s (1998) suggestion that three cornerstone factors fundamentally affect labour standards: employer strategies; the role of the state; and the condition of the labour market.

The chapter concluded by reviewing the literature on the three most common labour market strategies employers and governments used to advance their objectives in the construction industry. The literature evidenced long-standing concern by construction unions about self-employed contracting and explained measures taken to combat the trend. Vandenheuvel and Wooden (1996) showed that most growth in self-employed contracting was among dependent contractors. Underhill (2002) argued the growth was due to supply and demand and her contention that the problem predated neo-liberal changes to the labour market raised a further research issue. There was considerable literature on labour-hire growth in Australia and problems faced by the casualised workforce but the connections with or effects on the construction sector had been little researched.

There was likewise little research on the more recent guestworker phenomenon and two research issues were identified regarding changing wage/effort bargains in the construction industry.

This chapter reviewed existing literature relevant to the research question and subsidiary issues, identified research gaps and laid a conceptual basis for the later empirical chapters. The next chapter will examine production processes, workforce demographics and key stakeholders in the NSW construction industry during the review period.

______

Chapter 3 Industry Structures, Workforce Characteristics and Industrial Relations in the NSW Construction Industry 1980 - 2011

3.1 Introduction

This chapter outlines the production dynamics and structure of the NSW construction industry from 1980 - 2011. It charts the evolution of employer organisations, changing characteristics of the on-site workforce and examines workers’ organisations in detail with a view to understanding significant changes in union structures and policies.

The two preceding decades on the state’s construction sites were characterised by unprecedented technological change, industrial conflict and ideological ferment. During the 1960s and 1970s the Sydney skyline was transformed from low to high-rise. Large private sector construction companies implemented plans approved by pro-development governments, using new mechanised production systems and the labour of tens of thousands of construction workers.22 Many were post-war European migrants recruited for the Snowy Hydro and other major infrastructure, who subsequently worked on urban projects such as the Sydney Opera House.23 The industrial and ideological conflicts on construction sites were influenced by developments including: the federal reregistration of the BWIU in 1963; the democratisation of the NSW Branch of the Australian Building Construction Employees and Builders’ Labourers Federation (BLF) under a young militant leadership; growing factional rivalry within the Communist Party of Australia (CPA); and the abolition of penal powers in 1969.

These factors contributed to an upsurge of militant activity by construction unions in the early 1970s, including the famous ‘green bans’ by the Jack Mundey-led NSW BLF. Other major industrial battles included: the 1970 margins campaign (builder’s labourers sought to improve their pay relative to tradespersons); the successful accident pay strike in 1971 led by the BWIU to secure full pay on ‘compo’; the permanency campaign ; and the fight for portable Long Service Leave which was eventually secured in NSW in 1974.24

22 For evidence of the transformation of Australian cities see Boyd R (1991) and Neutze M (1981). 23 For more on the role of migrants in the construction of the Sydney Opera House see Gregson (2006). 24 For contemporaneous analysis of these events including an outline of the rival approaches of the NSW BLF and BWIU see Thomas P (1973) and Six Turbulent Years (1977).

In 1974 employer organisations successfully lobbied for federal de-registration of the BLF. With the co-operation of the major NSW employers, the Victorian-based federal office (led by Norm Gallagher) seized control of the NSW branch and installed a new leadership which achieved federal and state re-registration in 1976 and 1977 respectively.25 By 1980 these events were a fading memory. A deep recession limited job opportunities and constrained labour standards. Industrial disputation was influenced by an emerging rivalry between the NSW BWIU (the tradespersons’ union with leadership sympathetic to the USSR) and the NSW BLF (the labourers’ union with Maoist sympathies). The connection between these inter-union conflicts, the changing production systems and the employers’ new-found attraction to neo-liberal economic policies will be the subject-matter of this chapter.

3.2 Features of the Production System

3.2.1 Production Process

Co-ordination of discrete tasks and allocation of specialist trades and occupations are essential elements of the construction process (Woodward 1965:37-39 quoted in Frenkel and Coolican 1980:27). The project or ‘on-site’ nature of construction means that the controlled environment of the workshop is absent. ‘A unique design constitutes the basis for work organised in a sequential manner, with each trade completing its set of tasks according to a pre-determined, but not inflexible, programme’ (Frenkel and Coolican 1980:27). Change is constant on building sites as project managers attempt to juggle unpredictable elements such as weather, availability of building materials, availability of sub-trades (labour and equipment), design issues, client changes, stakeholder management and regulatory requirements. Production processes are labour-intensive and skilled workers exercise a high degree of autonomy, presenting challenges for close supervision. Underhill (1991:118) observed in the commercial sector:

….supervision is largely the domain of subcontractors, site supervisors being confined to safety, co-ordinating subcontractors, and industrial relations issues. Supervision by subcontractors encompasses quality, discipline and pace of work, but their preference is to often achieve this control through payments for completion of the job.

In comparison with industries like manufacturing, construction has experienced limited change in production methods (Toner 2000, McGrath-Champ and Rosewarne 2009). Toner (2000:300) argued

25 For differing accounts of the demise of the Mundey/Pringle/Owens-led NSW BLF see Mundey (1981), Mitchell (1996) and Elder (1994).

36 the structure of the industry has not been conducive to research and development (R&D) or innovation.26 He showed that in 1996/7 total public and private sector R&D expenditure on construction was 1.3% of national R&D spending. At this time the industry was contributing around 6.5% of gross domestic product (GDP). Of 15 major industries, construction had the second lowest proportion of firms undertaking innovation (2000:300).

There were significant improvements to construction equipment, power tools and building materials over the period 1980 to 2011. However the industry remained labour-intensive with minimal change in aggregate or relative numbers of trades and occupational groups.27 Production systems had proved resilient to major changes in the detached housing sector (Greig 1997:321-327). However McGrath-Champ and Rosewarne (2009:1117-1118) argued there had been changes to the division of labour with the well-rounded tradesperson a casualty of the industry’s poor training record. They suggested this was both the cause and effect of pyramid sub-contracting or the elongation of the sub-contracting chain.

3.2.2 Market Segmentation

In May 1980 the construction workforce comprised 476,000 persons or approximately 7.4% of a total national workforce of 6.24 million (ABS Cat. no. 6101.0). In 1976-78 the NSW construction workforce was just over 7% of the state-wide workforce (Frenkel and Coolican 1980:26). By 2010 the national construction workforce was around 1.04 million and the NSW component 292,000 (at December 2010) or 8.45% of the state workforce (ABS Cat. no. 6359; ABS Cat. no. 6291.0.55.003). Throughout the review period construction was Australia’s fifth largest industry, contributing an average 6-7% of GDP (Underhill 2002:116) and employing 7-8% of the workforce (Toner, Green, Croce and Mills 2001:106). From 1996/97 to 2006/07 the construction industry increased its importance to the overall economy by lifting its share of ‘gross industry value added’ from 5.6% to 7.3% (AIG 2008:18).These average benchmarks were subject to variations depending upon the domestic economic cycle. The industry is more volatile than most, fluctuating ‘strongly and quickly in response to changes in the level of macroeconomic activity and … considered a leading economic indicator foreshadowing wider trends’ (Underhill 2002:116).

26 Innovations such as pre-cast concrete panels and in situ tilt-up panels have impacted on traditional trades such as bricklaying and plastering. 27 See 3.3(2)(i)(b) on occupational mix

The construction industry can be divided into three sectors: commercial; residential and engineering. The commercial sector involves construction, alteration and demolition of office towers, retail developments, industrial facilities and public buildings. The residential sector was traditionally associated with the free-standing house, however by the later part of the research period the trend was towards medium and high density apartments. The engineering sector includes civil works (roads and bridges), heavy industrial structures (oil refineries, chemical plants, gas facilities) and mining (ore extraction and refining facilities). Construction contractors usually specialise within one sector although some large contractors perform work across several. Growth in high rise apartments has seen an increasing overlap between the residential and commercial sectors. Nevertheless specialisation and segmentation remain pronounced features of the industry:

This segmentation is partly a function of the product market, and especially the segmentation within and across residential, non-residential and engineering output. This reflects the specialised technologies required to produce these different structures. It is also highly geographically segmented, given that the final product is not mobile and the construction 'service' has to be provided on-site. (Toner 2000:294)

A significant change during the period under review was declining involvement by the public sector. State and federal governments traditionally designed, constructed and maintained public facilities, employing a substantial direct workforce. As part of a world-wide trend in construction (ILO 2001:25), public sector involvement declined rapidly with the onset of neo-liberal policies in the mid- 1980s. The combined effect of out-sourcing and privatisation saw a sharp drop in the number of construction personnel directly employed, particularly in manual occupations. ‘In 1987 the public sector accounted for 36 per cent of total construction output, by 2004 this had declined to 20 per cent’ (Toner 2005).

3.3 Industry Structures

3.3.1 Employers and their Organisations

In 1980 most building firms in the commercial and residential sectors in NSW employed fewer than five persons, relying instead on sub-contract labour. Five years earlier the Evatt Inquiry into permanency in the building industry estimated that half the construction workforce was engaged by sub-contractors (Evatt 1975). Large projects were typically undertaken by a small number of large contractors using a range of specialist sub-contractors to complete discrete parcels of work. The

38 subcontractors obtained their work by competitive tender - in the same way as the ‘head contractor’ won the project (Frenkel and Coolican 1980:27).28

The largest head or principal contractors in NSW at the time included: Civil and Civic; Concrete Constructions; Leighton Contractors; Fletcher Constructions; K B Hutcherson; Graham Evans; Multiplex (commercial); Thiess Contractors; Leighton Contractors; Costain; John Holland (engineering); A V Jennings; Masterton Homes; and Meriton Apartments (residential).

The largest organisation representing construction employers in NSW in the early 1980s was the Master Builders Association of NSW (MBA). Frenkel and Coolican (1980:28) estimated that only 40% of eligible building companies were members but that these accounted for 90% of the value of work performed (excluding the low rise residential and engineering sectors).

Other employer associations representing head contractors were: the Australian Federation of Construction Contractors (AFCC), including commercial and engineering contractors; the Employers’ Federation of NSW, a diverse membership including engineering contractors; the Metal Trades Industries Association (MTIA), members in engineering construction; and the Housing Industry Association of NSW (HIA), builders of low rise residential dwellings (Frenkel and Coolican 1980). A further organisation highly influential in industrial relations from its formation in 1974 until its demise in 1984 was the National Industrial Executive of the Building and Construction Industry (NIE) (Elder 1994:216). Its membership comprised the largest national companies who often simultaneously belonged to AFCC and MBA.

Trade and specialist contractor associations in NSW in the 1980s included:

 Master Painters, Decorators and Signwriters Association  Master Plumbers and Sanitary Engineers Association  Master Slaters, Tilers and Shinglers Association  Ceramic Wall and Floor Tile Merchants Association  Association of Building Lining Contractors  Subcontractors Association of NSW  Australian Building Trades Association

(Frenkel and Coolican 1980, Sutton 1979)

28 For an explanation of tendering in the industry see Productivity Commission (1999:12-15).

Reliance of head contractors on sub-contracting as a method of organising production and consequential decline in numbers of direct employees was a pronounced feature of the industry during the period under review.29 Some specialist subcontractors, such as air-conditioning installers, maintained a medium-sized workforce. However, most subcontractors were much smaller. In the early 1970s, subcontractors employing fewer than 10 persons employed approximately 5 per cent of the total workforce, while firms with more than 150 accounted for just under half the industry workforce (Evatt 1975). By the late 1980s, firms employing fewer than 5 persons had increased their share of industry employment to 43 per cent, and to 70 per cent by 1996/97 (Underhill 2002:119).

Toner et al. (2001) suggested that between the late 1980s to the late 1990s the proportion of companies directly employing less than 5 workers increased from 85.4% to 93.6% with the average number of direct employees dropping from 4 to 2.5 per firm (2001:116). Toner (2005) considered the industry-wide increase in subcontracting and the growth of self-employment in particular represented both cause and effect of the smaller-than-average firm size in construction (2005:504). This trend was mirrored by a decline over a similar period (1986 to 1998) in the number of large construction firms - those employing more than a thousand workers dropped from 23 to 17. Of these 17, only 6 operated in the commercial sector, with the others operating in the engineering sector (Toner, Cooper and Croce 2001:85).

McGrath-Champ and Rosewarne (2009:1116) suggested the hollowing-out of major construction firms, first identified by the International Labour Organisation (ILO: 2001), continued throughout the 2000s in Australia. Most major construction firms became sophisticated financial shells, merging to form partly or wholly overseas owned conglomerates, with development and financing taking precedence over employment of labour and project management.30 The following tables list the major construction companies at the close of the subject period, in the commercial/engineering and residential sectors respectively:

29 See Toner (2000), Underhill (2002), Toner (2005). 30 For more see Wilkinson (2013:6).

Table 3.1

(Wilkinson 2013:5)

Table 3.2

(Wilkinson 2013:7)

By the end of the period under review, the formerly pre-eminent MBA, despite still occupying a central role in the employer landscape, had declined in strength and influence. Its larger members from the commercial and engineering sectors had either disaffiliated or, if still retaining membership, were by now dual members following the policies of the newly-emergent Australian Constructors Association (ACA).31 A financial crisis which rocked the MBA in the early 1990s had been overcome by the end of the decade but the NSW MBA was not able to recover the dominant position it held in construction employer ranks in the 1970s.32 In residential construction the HIA had expanded its membership base of large building product suppliers and home and apartment building companies by successfully recruiting many thousands of small builders and subcontractors (including self-employed). Much of this recruitment was at the expense of the MBA. By 2010 the trade and specialist contractors associations in the industry included:

 The Master Plumbers Association  The Master Painters Australia NSW Incorp  The Master Roof Tilers and Slaters Association  The Civil Contractors Federation  Air Conditioning and Mechanical Contractors  National Electrical Contractors Association, NSW chapter  The Association of Wall and Ceiling Industries  The Australian Tile Council, NSW Division  Building Industry Specialist Contractors Organisation of NSW

3.3.2 Workers and their Organisations

3.3.2 (i) Labour Mobility

In comparison with other industry sectors construction is more affected by economic volatility and exhibits relatively sudden shifts in employment levels, as illustrated below:

31 The ACA had essentially replaced the AFCC. It was a more robust entity, formally linked with the Australian Industry Group (AIG). The AIG was formerly known as the Metal Trades Industry Federation (MTIA) and was one of the nation’s most influential employer bodies. The AFCC ceased to exist in the mid-1990s (McGrath- Champ 1996:10). 32 For more on the MBA’s difficulties see Rose (1987) and Elder (2013).

Figure 3.1 Annual changes in construction employment

The pronounced peaks and troughs of the construction industry were accentuated by the boom conditions in Sydney in the five years prior to the 2000 Olympic Games and by the prolonged bust that followed. Major infrastructure projects and an apartment-building surge tailed off quickly after the Olympic Games. In addition, the NSW Carr Labor Government was cautious about Sydney’s strong population growth and potential over-development,33 contributing to a subdued residential construction sector. This economic volatility was met in the usual way by a high degree of mobility amongst the construction workforce.

Peaks in the construction industry result in extensive overtime availability and new entrants are attracted from other industries by the high earnings. Conversely, when the cycle swings abruptly, labour drains from the industry (Underhill 2002:121). Workers move between the three construction sectors, between different states and regions, and between construction and other industries.34 Employment limited to the duration of a project is common (Toner et al. 2001:109). The Australian Conciliation and Arbitration Commission’s (ACAC) 1987 test case into redundancy entitlements for

33 Bob Carr was NSW Premier from April 1995 to August 2005. He professed to support ‘greenspace’ in and on the edges of the metropolis. NSW Labor lost power to the LNP Coalition in 2011. They proved much more ‘pro- development’. 34 Mining and meat processing are industries where construction workers commonly seek employment.

43 construction workers estimated average employment duration to be as low as 18 weeks (ACAC 1987:4). Other evidence including a 1995 national survey and a smaller Victorian survey in 1997 confirmed the general trend (Underhill 2002:122). A 1998 survey of CFMEU members in construction found that 38% changed jobs at least once per year (CFMEU 1999). The high degree of itinerancy among construction workers prompted the 1975 Evatt inquiry into decasualisation. The evidence suggests that little had changed during the period under review.

3.3.2 (ii) Workforce Size and Occupational Mix

The occupational mix in the construction industry, unlike other industry sectors, remained relatively stable from 1980 to 2011. Frenkel and Coolican (1980:27) noted that despite a five-fold increase in construction output in NSW from the end of WWII until the late 1970s, the workforce was little changed in the aggregate number of persons employed or in the composition of main occupations. Their research revealed a drop in the categories of carpenter, painter and builders’ labourer and a small growth in the trades of bricklayer, plumber and electrician. They attributed impressive growth in productivity to new technologies and materials (especially components manufactured off-site) and to efficiencies associated with use of specialist sub-contractors. Toner (2005:506) relying on Morgan (2004) showed in the 15-year period between 1986 and 2001 a 31% increase in construction employment Australia-wide compared to 27.6% for the total economy. The occupational mix showed: an absolute decline in the number of professionals (e.g. architects, engineers); an increase in trades and related workers (from 46.9% to 48.2%); a decrease in the size of the labourers’ category (13.2% to 11.7%) and relative stability in the category of intermediate and transport occupations (crane drivers, plant operators). An increase in the proportion of white collar employees (28% to 29.6%) was noted. The single largest occupation, carpenter, experienced a relative decline within the trades group, falling from 25% to 20%. Underhill (2002:124) and Toner (2005:506) identified a reducing trend in carpenter numbers relative to the other large trade of electrician, associated with the rise of pre-fabricated concrete products and other off-site components such as wall frames, roof trusses and modular kitchens. The rise in trades such as electrician and refrigeration and air-conditioning mechanic reflected ‘changes in technology and consumer tastes with more electrical, electronics and communications equipment incorporated into new and existing structures’ (Toner 2005:506).

Data from the 2011 Census evidenced continuing growth in the trades group which increased its share of the construction workforce from 48.2% in 2001 to 49.8% (48.5% in NSW) in 2011. White collar employment (managers, professionals, administrative, clerical and sales) conversely dropped from 29.6% in 2001 to 26.7% in 2011. The category of labourers also reversed its decline and rose

44 from 11.7% of the national construction workforce in 2001 to 14.9% in 2011 (15.1% in NSW). The occupation of carpenter regained lost ground to number 80,219 in 2011 (9.7% of the national workforce and 9.8% in NSW); the same percentage of the industry workforce as ten years earlier.35 The long term growth trend in electricians continued with 67,111 workers (8.1% of the national workforce and 8.3% in NSW) representing a substantial rise on the 2001 figure of 7.4%. All other building trades (painting, bricklaying, plastering and wall and floor tiling in particular) declined as a proportion of the 2011 industry workforce. Plumbing experienced a small decline, unlike the previously expanding trade of refrigeration and air-conditioning mechanic, which contracted in both relative and absolute terms. Changes in important sub-trade occupations like crane operators (fixed and mobile), scaffolder and rigger, hoist and lift operators and earthmoving plant operators were difficult to measure because of changing categories used in statistical collection (ABS 2001 Census, ABS 2011 Census).

3.3.2 (iii) Ethnicity, Gender and Age profiles

Significant change occurred in the ethnic composition of the construction workforce between the post-WWII period (Frenkel and Coolican 1980:27, Mitchell 1996:153) and the period from 1986 to 2001 (Morgan 2004). Frenkel and Coolican (1980:27) found ‘no substantial differences in the ethnic composition of the various trades’. However Morgan (2004) showed that overseas-born workers were disproportionately concentrated in particular trades (Solid Plasterer: 45.3%; Wall and Floor Tiler/Stonemason: 39.7%; and Painter: 38.7%), despite comprising 25.4% of the construction industry overall – corresponding to the all-industries average of 25.7%. Morgan (2004:18) also noted a shift in countries of origin with a ‘striking fall in the number (and proportion) born in Europe (down 16,000 or 27%)’. The growth zones were New Zealand/Oceania (up 82%), Asia (up 148%), Middle East (up 107%) and South/Sub-Saharan Africa (up 238%).

The 2011 census showed little change in aggregate terms from 2001; Australian-born workers constituted 75.6% of the construction workforce and overseas-born 24.4%. In NSW the overseas- born constituted a slightly higher proportion (26.1%) and those from non-English speaking countries constituted 17% compared to 12.4% nationally. By 2011 the UK, New Zealand and Ireland remained the main source countries for overseas-born workers. Southern European source countries like Italy, Greece, Portugal and Croatia had declined markedly while China, South Africa and Ireland increased

35 From the 2011 Census. An alternative source is the Labour Force Survey (Cat. no. 6291.0.55.003) which consistently showed higher aggregate numbers, although the percentages are very similar.

45 by 91%, 86% and 55% respectively. The effectiveness of the 2011 census in documenting the trend towards temporary migrant workers was limited by its exclusion of overseas visitors (persons usually or intending to be resident in Australia for less than 12 months) from its count of employed persons. There is also reluctance by some temporary visa holders and persons working illegally to complete a census form. Birrell and Healy (2013:14) estimated the size of the undercount at 250,000.

The gender composition of Australia’s construction industry is predominately male (Frenkel and Coolican 1980:27, Productivity Commission 1999:18). Females constituted 9.7% of the construction workforce in May 1980, peaking at 13.3% in May 1990 before dropping back to 11.7% in May 2010 (Cat. no. 6203.0, Cat. no. 6291.0.55.003). Anecdotal evidence indicates that female employees in construction were concentrated in white collar roles (administration, management, professional and semi-professional occupations) and that the proportion undertaking manual work was lower than the ABS aggregate figures suggest.36

An ageing demographic in the construction industry has been observable for some time (Productivity Commission 1999:18). Toner (2005:507) documented:

There has been a significant increase in the age of the construction workforce with the share of persons aged 45 or older increasing from one in every four persons in the construction industry in 1986 to one in three persons by 2001. The share of 15-19 year olds in the construction industry declined by 28.4% over the period from 6.7% of the total persons employed to 4.8%.

The proportion of persons 45 years and older in 2001 was 34.2%, representing a 33.1% increase on the position 15 years earlier. Contributing factors included a substantial decline in the intake of apprentices in the 1980s and 1990s and that young people were entering apprenticeships later (most post-HSC). This trend continued to the end of the period under review. By May 2010 35.2% of the workforce was aged 45 years and older (ABS Cat. no. 6291.0.55.003).

3.3.2 (iv) The Unions

There were two main construction unions in NSW in 1980, the BWIU and the BLF. The former had its origins in the 1942 amalgamation of the NSW carpenters’ and bricklayers’ unions. By 1980 the BWIU was Australia’s main construction union with its biggest branch in NSW. The BWIU had expanded its coverage since the 1940s - smaller craft unions (roof slaters and tilers, wall and floor tilers and

36 Burgmann and Burgmann (1998) examined actions by the Mundey-led BLF to increase women’s participation in manual construction jobs.

46 bridge and wharf carpenters) had amalgamated. The BWIU was also had a de facto marriage with the Operative Plasterers and Plaster Workers Federation (OPPWF) and the Operative Stonemasons Society.37 The industrial strategy of the BWIU was characterised as ‘united front’ (Frenkel and Coolican 1980:53), meaning that the preferred method of achieving gains was by multi-union actions organised through the Building Trades Group (BTG) of the Labor Council of NSW. Despite a firm commitment to anti-capitalist ideology (many leading officials had a ‘pro-Soviet’ outlook) it was noted for its pragmatic approach towards incremental gains (Frenkel and Coolican 1984).

The NSW BLF had its origins in the breakaway Builders’ Labourers Union that formed in 1902. It federated with other state-based builders’ labourers unions in 1910 and was first registered as the Australian Builders’ Labourers Federation (ABLF) in the federal arbitration system in January 1911

(McQueen 2011:66-72). As noted earlier, radical change under a new leadership in the 1960s had re- oriented the NSW branch away from a ‘Tammany Hall’ legacy from the 1940s and 1950s (Mundey 1981:27-33).38 By 1980 the NSW BLF was rebuilding its strength and profile under the new Steve Black-led team that had been installed by the federal office. The union’s coverage of unskilled and semi-skilled workers included: general labourer, tradesperson’s labourer, demolition worker, scaffolder, rigger, dogman, hoist driver, steel-fixer, concreter, powder monkey, shotcreter, stressor, and drainer. The new Black-led BLF was attracted to direct industrial action, with minimal notice to employers or co-ordination with other building unions.39 Frenkel and Coolican (1980:50) described the union’s industrial strategy as being one of ‘militant independence’. Their analysis of disputes in the period 1976-78 showed a clear difference of approach between the BWIU and the BLF – the former mainly involved in multi-union struggles and the latter in frequent short duration single- union disputes (1980:36).

Other building unions of the time included: the Operative Painters and Decorators Union (OPDU); the Plumbers and Gasfitters Employees (PGEU); the Amalgamated Society of Carpenters and Joiners (ASC&J); the OPPWF; and the Stonemasons. The OPDU NSW Branch was industrially close to the BWIU who supported the state secretary, Sid Vaughan, as secretary of the BTG. The PGEU NSW Branch was aligned with the right-wing Labor Council of NSW – but estranged from the left-aligned federal office based in Melbourne under national leader George Crawford. The ASC&J NSW Branch

37 These two small craft unions had their offices in the BWIU’s Sydney headquarters. Their industrial and administrative functions were primarily carried out by the BWIU. 38 For more see Burgmann and Burgmann (1998), Elder (1994), Mitchell (1996), Mundey (1981), Thomas (1973) and Six Turbulent Years (1975). 39 For more see Elder (1994:208-209).

47 was part of a federal organisation of carpenters and joiners that existed in four states, established in 1949 to confront the pro-communist BWIU. The product of cold war politics inside the labour movement, it consolidated its industrial position during the federal deregistration of the BWIU from 1948 to 1962. While it became the major carpenters’ union in its strongholds of Victoria and South Australia (until the late 1980s) it never challenged the BWIU as the main carpenters’ union in NSW. The OPPWF and the Stonemasons were small unions linked to the BWIU but politically aligned with the right-wing Labor Council and NSW ALP leadership.

There were other unions strategically more important than the small craft unions but their membership coverage extended beyond the construction industry: the Electrical Trades Union (ETU); the Federated Engine Drivers and Fireman’s Association (FEDFA); the Amalgamated Metal Workers and Shipwrights’ Union (AMWSU); and the Australian Workers’ Union (AWU). The ETU NSW Branch was a major union in 1980; its leadership closely connected with the leadership of the Labor Council and the NSW ALP. By craft union standards it had a large membership in the building industry (predominantly licensed electricians), however this did not represent a majority of its overall multi- industry membership (Frenkel and Coolican 1980:60). It was industrially moderate, averse to industrial disputation and inclined to act independently of the construction unions despite its membership of the BTG.

The FEDFA although small in membership was a powerful union in the many industries where its members worked. Its semi-skilled members operated power-driven machinery – critical equipment in construction such as tower cranes, mobile cranes, hoists and earth-moving machinery. The union had a militant industrial posture with state and federal leaders active in the refashioned Communist Party of Australia (CPA).40 The AMWSU was one of the largest unions; however it played only a peripheral role in the construction industry. Trades such as boilermakers, welders and air- conditioning/refrigeration mechanics were prominent on civil and mechanical construction projects but played a minor role on building projects. On civil works sites AMWSU members maintained earth-moving equipment and in mechanical construction (like oil refineries and chemical plants) welders and boilermakers were critical trades. The metal-trades assistants’ union, the Federated Ironworkers Association (FIA), also played a role on major mechanical construction projects. The AMWSU leadership like the FEDFA had political linkages to the CPA and a left/militant orientation.

40 In 1971 a factional split in the CPA led to the formation of a separate ‘pro-Soviet’ Socialist Party of Australia (SPA). Jack Mundey remained with the CPA, which became increasingly aligned with ‘Eurocommunist’ and ‘New Left’ policies.

The AWU was the largest general union with a substantial membership in non-trades work on civil engineering projects. Its NSW Branch was politically conservative and linked with the Labor Council and the NSW ALP. An aberrant attempt at amalgamation with the NSW Branch of the BWIU in 1977 under Secretary Charlie Oliver was short-lived. By 1980 the status quo of industrial and ideological tension between the two organisations had resumed.41 The AWU dedicated minimal resources to organising construction workers. Standards for their members lagged behind those achieved by the main building unions (Frenkel and Coolican 1980:53).

This union landscape prevailed throughout the early 1980s. Deregistration of the BLF in 1986 provided the stimulus for major change. Under the federal leadership of controversial figure Norm Gallagher the BLF was deregistered in NSW, Victoria and the ACT in 1985 and federally in April 1986.42 The Hawke Labor government introduced special legislation to deal with the BLF rather than the existing deregistration provisions in the Conciliation and Arbitration Act.43 Ancillary legislation reallocated the occupations previously covered by the BLF in NSW, Victoria and ACT to the BWIU, FEDFA and PGEU. In 1990 deregistration instruments covering the affected states and the Commonwealth were extended until 1996. Tom McDonald, former BWIU federal secretary, stated:

By the mid-1980s, Gallagher’s endless demarcation disputes, anarchistic industrial tactics, corruption, repudiation of agreements and contempt for decisions of the trade union movement had led him to a position where he was in conflict with not only the BWIU, but the metal industry unions and the other building industry unions, the AWU and the FIA, ACTU, NSW Labor Council, the Victorian, NSW and Federal Labor Governments, and the Industrial Relations Commission, not to mention the employers (McDonald and McDonald 1998:233).

Differing perspectives are to be found in McDonald and McDonald (1998:295-318), Elder (1994:208- 212), Mitchell (1996:280-310), Ross (2004) and Boyd (1991). Ross was supportive of Gallagher and BLF’s actions, while Boyd, a former prominent Victorian BLF official, was critical. The decision of the BWIU and the other unions to enrol builders’ labourers had a marked effect on union structures. BWIU membership swelled to 71,000 members in 1989 (Underhill 1991:127) before the economic downturn of 1990 reduced membership numbers. The FEDFA strengthened its strategic position by enrolling crane crews and other mechanical-lifting workers (hoist, forklift and bobcat drivers). BLF deregistration provided a catalyst for the BWIU, which had long advocated industry unionism, to accelerate union consolidation (Mitchell 1996:310). Within two years the BWIU and the FEDFA

41 For further detail see McDonald and McDonald 1998:228. 42 For a chronology of these deregistration events see Elder (1994: 208-212). 43 For more see Bennett L (1991:26-36).

49 announced amalgamation plans and obtained regulatory approval for a membership ballot. The 1989 ballot was carried by BWIU members but narrowly rejected by FEDFA members (principally in Victoria and Queensland). BLF activists angered by the 1986 deregistration and opposed to the super-union strategy of the Australian Council of Trade Unions (ACTU) campaigned successfully against the initial BWIU/FEDFA amalgamation attempt (Boyd 1991:306).

In the late 1980s the union movement came under attack from the ‘New Right’ in the form of a series of militant actions by large employers (e.g. SEQEB, Mudginberri, Dollar Sweets, Peko Wallsend).44 The response of the 1989 ACTU Congress, based largely on recommendations from a union study mission to Western Europe45 and on a report by Tom McDonald of the BWIU46 was to advocate the creation of twenty ‘super unions’ including a major construction union, to be known as the Construction Forestry Mining and Energy Union (CFMEU). The first union to join the BWIU- initiated amalgamation convoy was the Australian Timber and Allied Industries Union (ATAIU). Despite strong opposition from BLF supporters, the amalgamation was approved by a membership ballot of both organisations (McDonald 2010:34-38). The new entity came into existence on 25 October 1991. A chain of events quickly followed; the United Miners Federation of Australia (UMFA) amalgamated with the ATAIU/BWIU on 10 February 1992. This brought the CFMEU into existence but with the ‘E’ standing for ‘employees’ since the amalgamation with the FEDFA, with a strong membership base in the energy-generation sector, had not yet been achieved. On 23 September 1992 amalgamation with the FEDFA and the OPPWF took legal effect and the Construction Forestry Mining and Energy Union was formed. A significant number of other unions joined the CFMEU in the 1990s, including:

 Operative Stonemasons Society of Australia (OSSA) 11 September, 1991;  Operative Painters and Decorators Union (OPDU) 26 March, 1993;  Federated Furnishing Trades Society (FFTS) 26 March, 1993;  United Timber Yards, Sawmillers and Woodworkers Union (WA), 1994;  Victorian State Building Trades Union (VSBTU) 1995 (an amalgam in the late 1980s of four craft unions: Victorian Operative Bricklayers Society; Victorian Plasterers Society; Plaster Industry Workers Union; Victorian Slaters, Tilers, Roofing Industry Union).  Federated Brick, Tile and Pottery Industry Union (FBTPIU) 31 May 1998;  The Builders Labourers’ Unions from SA, TAS, QLD and WA amalgamated with the CFMEU on March 31, 1994.

44 For more on the employer strategies see Bennett (1994:165-191), Cahill (2010:7-24) and Hearn Mackinnon (2009:75-96). 45 The mission’s findings were in Australia Reconstructed: ACTU/TDC Mission to Western Europe, AGPS, Canberra, 1987. 46 This was called The Future of Trade Unions in Australia.

The decision of the remaining state-registered BLF branches to amalgamate was a key factor in dissipating residual BLF opposition to the new organisation. Negotiations involving CFMEU leaders, the remaining BLF leaders and the Federal Minister Peter Cook (a friend of BLF WA leader Kevin Reynolds) helped achieve this outcome. Another important factor was CFMEU’s decision to provide positions inside the organisation to Victorian BLF activists who had abandoned their former leader Norm Gallagher (John Cummins, Dave Pillar, John Loh and John Setka). Following amalgamation with the FBTPIU in May 1998, the internal structure of the CFMEU remained essentially unchanged throughout the period under review. Based initially on the idea of four largely autonomous industry divisions (covering construction, forestry, mining and energy), these were soon reduced to three with the merging of mining and energy into one.

Amalgamation moves by construction unions that remained outside the CFMEU were more limited. In the early 1990s the electricians’ (ETU) and plumbers’ (PGEU) unions decided to combine with several communications unions creating the Communications, Electrical and Plumbing Union (CEPU). Their motivation for remaining outside the CFMEU was to protect the skilled trade aspect of their members’ work and strategically to embed in the electronics field. Electricians and plumbers were regulated by mandatory licensing systems and their unions were anxious to avoid linking with an industry or general union that might dilute this status. The plumbers’ union attempted in the early 1990s to sponsor a broader building industry union by amalgamating with the painters. However, negotiations collapsed before being put to a ballot.47

In the musical chairs process that characterised rapid amalgamations in the early 1990s the ACTU sought to ensure that the two big left blocs created (CFMEU and AMWU) were counterbalanced by a major right bloc. This was formed in November 1993 as the Australian Workers Union/Federation of Industrial Manufacturing and Engineering Employees Amalgamated Union (AWU/FIME). FIME was the result of an amalgamation around the same time of the Federated Ironworkers Association (FIA) and the Australasian Society of Engineers (ASE). The ASC&J that had long been in competition with the BWIU also amalgamated with FIME and provided an entry point to building industry coverage for the new right-wing conglomerate. AWU/FIME shortened its name to the AWU in 1995 and continued to represent: the former AWU’s coverage of non-trades in civil engineering; FIME’s coverage of trades and non-trades in mechanical construction; and the ASC&J’s coverage of carpenters and joiners. The newly merged entity capitalized on its strengthened construction

47 This information is from personal knowledge. I was conducting merger negotiations with the OPDU on behalf of the CFMEU at the time.

51 coverage by establishing a National Construction Branch (NCB) in 1994 and attempted to compete with the CFMEU. This initiative, led by former WA AWU official Bruce Wilson, quickly petered out amid internal warring for ascendancy between the two major amalgamation partners.48

Membership levels in Australia’s construction unions, as for unions generally, declined markedly between 1980 and 2011. In 1982 membership density in construction was 50% (ABS Cat. no. 6325.0); in 1995 it was 30.6% and in 2010 it stood at only 16.8% (ABS Cat. no. 6310.0). It must be noted that for much of this period, the ABS included employees only, deeming other categories such as OAWs, subcontractors or independent contractors irrelevant or ineligible to be union members. This limitation and others in ABS data will be discussed further in Chapter Four.

3.4 Conclusion

This chapter outlined the key structural features and actors shaping the NSW construction industry during 1980 - 2011. It showed that turbulent industrial relations on building sites in the 1960s and 1970s, especially the events surrounding the rise and fall of the Jack Mundey-led NSW BLF, influenced industry dynamics in subsequent decades.

Unique aspects of the construction process were outlined, including: task sequencing; co-ordination of trades; and loose supervision of skilled workers on large worksites. The ongoing labour-intensive nature of the construction process and the limited commitment by construction employers to innovation and R&D was touched upon - cost reductions being achieved primarily through the use of specialist sub-contractors and payment-by-results.

The changing landscape among construction employer organisations was traced. The NSW MBA declined in strength and influence while the HIA grew, particularly in multi-storey residential construction and among major supply companies. A new organisation, ACA, emerged, representing the largest construction companies. Enduring features in the employer landscape included: commitment to sub-contracting; reduction of direct employees; and a trend among the largest companies to become lean organisations with large balance sheets and revenues yet comparatively few employees performing manual work.

48 The only other union whose coverage in construction remained essentially unaffected by the amalgamations was the AMWSU, who after mergers (with the automotive and food unions) became known as the Amalgamated Manufacturing Workers’ Union (AMWU).

The main characteristics of the construction workforce were: continued high labour mobility; a relatively stable occupational mix; and demographic change away from southern European migrants towards workers from developing Asian countries. Workers’ organisations, having overcome internal warring between the BWIU and BLF in the 1980s, were ostensibly successful in consolidating in accordance with ACTU strategy. The CFMEU became the pre-eminent union, with the CEPU (electrical and plumbing divisions) and to a lesser extent the AWU and AMWU also representing particular construction workers. Notwithstanding radical restructuring, union membership levels in the construction industry (like most others) continued to decline throughout the three decade period; from 50% in 1982 to around 17% in 2010. The next chapter will examine the main non-SER arrangement used by employers to impact labour standards, self-employed sub-contracting.

______

Chapter 4: Use and Abuse of Self-employed Sub-Contracting in the NSW Construction industry 1980-2011

4.1 Introduction

The focus in this chapter is on self-employed sub-contracting – was it an important element in the changing labour market structures in the construction industry and, if so, how significant in affecting labour standards? The chapter explores the motives of key actors – in particular, is there evidence of a deliberate strategy to drive down labour standards? The chapter commences by examining growth trends in self-employed sub-contracting over the period under review. How significant a component of the construction labour market did it become, in comparison with the traditional approach of employees working directly for a principal contractor or specialist sub-contractors? The complexities of identifying this labour market structure, including the sub-set of dependent or sham contractors will be explored.

The chapter analyses twelve public inquiries, the first commencing in 1979 and the last concluding in 2011, focused on the industry’s productivity, efficiency, industrial relations and union activities. Interim and final reports, submissions, witness evidence, findings and recommendations are examined to shed light on the research question and subsidiary issues. This evidence, illustrative of the motives and actions of key industry players and their political allies, forms the bulk of the chapter.

4.2 Growth trends in self-employed sub-contracting 1980-2011

Buchanan and Allen (2000), Underhill (2002) and Toner and Coates (2006) agree that self-employed sub-contracting in Australia’s construction industry expanded during the period under review, however the precise extent is difficult to establish. Until the ABS established the Forms of Employment survey (FOES) in 1998, there were no reliable measures of self-employment in the economy generally or specific sectors within it.49 Prior to 1978, the ABS Labour Force Survey (LFS) did contain ‘status in employment’ data by industry sector, using the descriptor of ‘self-employed’. From 1978 to August 1994 the descriptor changed to ‘own-account worker’ (OAW), being ‘a person who operates his or her own unincorporated economic enterprise or engages independently in a

49 Waite and Will (2001:55) show consistent time-series data on self-employed contracting is non-existent. Other ABS time-series data have to be dissected and assumptions made to form estimates.

54 profession or trade, and hires no employees’ (ABS Cat. no. 6203.0). However, this definition (and the resultant data) was deficient in that it excluded owner managers who operated their own incorporated businesses - they were treated as employees of their own businesses.

Employment Status Trends in the Australian Construction Industry, 1981-2010

80%

70% 60%

50% 40% Self-employed/OAW 30% Wage and Salary Earners 20% Proportion of total workforce total of Proportion 10%

1983 1987 1981 1985 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Year

Figure 4.1: Sources ABS Cat. no.6203.0 (1981-03); ABS Cat. no. 6105.0 (2003-10), May each year except November 1981

While reservations exist (O’Donnell 2004:8-11) about the reliability of LFS data on self- employed/OAWs as a measure of self-employment in construction, a number of observations can be made. A spike in the numbers of self-employed/OAWs in the recession of the early 1990s might be explained by the decline in full-time employment and need for workers to be more flexible to access limited opportunities. A decline in the proportion of self-employed/OAW workers in 2000 coincided with an attempted crack-down on sham contracting through the introduction of the new Alienation of Personal Services Income (APSI) rules. After successful lobbying by construction employers the new tax requirements were watered down – this coincided with the proportion of self-employed jumping markedly in 2001. Finally, an apparent decline in the proportion of self-employed from the mid-2000s appears anomalous but might be explained by weakness in the LFS which excludes owner

55 managers of incorporated businesses.50 Further, the LFS data contrasts markedly with FOES data from 2008 onwards which show high independent contractor levels, rising strongly in 2009.

Vandenheuvel and Wooden (1995:265) in research for the ATO51 defined ‘self-employment’ by emphasising the factors of ‘operating an enterprise’ and ‘providing a defined service for a specified period’. They identified three main weaknesses in the way self-employment was previously measured, resulting in the ABS figures being ‘too low’. Firstly, there are instances where the worker believes they are an employee but the employer treats them as self-employed (e.g. by not deducting PAYE tax). In other cases, the only employees are family members (e.g. tradesperson employs spouse as bookkeeper) and it may be more appropriate to treat the tradesperson as self-employed. Thirdly, an individual might treat themselves as an employee of their own company, yet they are the only person providing services.

Vandenheuvel and Wooden used data gathered by the ABS in May 1994 to test earlier research52 regarding the incidence of self-employment. They concluded that 7.5% of non-farm employment was comprised of self-employed contractors, significantly higher than earlier estimates. Their methodology resulted in 21.1% of construction workers being classified as self-employed contractors (1995:275). Waite and Will (2001) used a slightly different methodology and data from the first FOES series in 1998:

Between 1978 and 1998 the shares of own-account workers and employers in total employment rose, while the share of employees fell. Using this information, and assuming that the shares of self-employed contractors in each type of employment were the same in 1978 and 1998 as those reported by Vandenheuvel and Wooden (1995a) for 1994, the share of self-employed contractors in total employment rose from about 7.3 per cent in 1978 to 8.4 per cent in 1998 — a 15 per cent increase (2001:27).

Waite and Will argued that own-account employment growth was higher in industries like construction, where self-employment was common. They demonstrated (2001:48) that in 1998, 33.7% of the Australian construction workforce could be classified as self-employed, with direct

50 The HIA (2005:1) submitted to the Making it Work inquiry (2005) an ‘estimated 80 per cent of the 394,000 people working in the (housing) industry are contractors’. This equates to 315,200 persons in this sector alone and undercuts evidence of a decline in the trend towards self-employment. 51 The ATO was concerned about tax leakage from increasing numbers of self-employed. It commissioned the National Institute of Labour Studies (NILS) to examine the issue. 52 The 1989-90 Australian Workplace Industrial Relations Survey (AWIRS) suggested that 3.3% of work across Australian industry was performed by self-employed. Like Bennett and Quinlan (1992), Vandenheuvel and Wooden were critical of the AWIRS research.

56 employees at only 42.8%. If these figures were correct 23.5% of persons were employers - a remarkably high figure for construction or any industry.

Waite and Will’s figures contrast with the LFS estimate of 25% OAWs for the same period, lending credence to Vandenheuvel and Wooden’s view that the LFS are too low. When the ABS introduced the new category of independent contractor in the 2008 FOES series, a marked divergence from LFS data became evident: FOES material (below) evidenced percentages in the low-to-mid 30s for the remainder of the decade, while LFS data had shown percentages in the low 20s.

Table 4.1: ‘Independent contractors’ as proportion of total construction employment, Australia

Year Percentage (%)

2008 31.6 2009 35.7 2010 32.7 2011 32.0 Source: ABS Cat. no. 6359.0

Other LFS data shows Owner Managers of Unincorporated Enterprises (OMUE) and Owner Managers of Incorporated Enterprises (OMIE) in construction from 1994 – 2010 (see Table 4.2). The owner managers’ share of total construction employment is a potential proxy for self-employment, though clearly not all owner managers are ‘self-employed’. Many persons in these employment types, particularly the OMIE category, are employers in the traditional sense. ABS FOES data for 2013 across all industries indicates that 36% of OMIEs were classified as independent contractors and just over half (51%) of OMUEs were similarly defined. 1.2% of employees were classified as independent contractors (ABS Cat. no. 6359.0). Corresponding figures for construction are not published, but would certainly be higher.53

53 For instance, self-employment is higher amongst males and construction is a male dominated industry. Similarly occupations with a high proportion of self-employed, such as the Trades and the Labourers categories, are more prominent in construction than the ‘all-industries’ average.

Table 4.2: Owner managers as % of total construction employment, Australia 1994-2010

Year % Year %

1994 49.3 2003 47.4

1995 51.2 2004 48.7

1996 48.8 2005 46.5

1997 48.7 2006 45.7

1998 47.7 2007 41.8

1999 46.7 2008 42.7

2000 48.5 2009 43.1

2001 48.2 2010 38.9

2002 49.9 Source: ABS Cat 6105.0 Australian Labour Market Statistics Note: 1994-2007, August each year; 2008-2010, November each year. ‘Owner managers’ includes both: Owner managers of incorporated enterprises  Persons who work in their own incorporated enterprise, that is, a business entity which is registered as a separate legal entity to its members or owners (also known as a limited liability company). Owner managers of unincorporated enterprises • Persons who operate their own unincorporated economic enterprise or engage independently in a profession or trade.

Due to difficulties in measuring and classifying persons working in industries like construction, researchers now distinguish between ‘dependent’ and ‘independent’ contractors (Vandenheuvel and Wooden 1995, Waite and Will 2001:2).54 Attempts have been made to estimate the proportion of dependent contractors in the self-employed contractor cohort in Australian industry (Vandenheuvel and Wooden 1995:273; Waite and Will 2001:35-36). The former estimated 38.3%, while the latter were more cautious, estimating 25.5% - 41.4%. Using the tests in Table 4.3 below Waite and Will suggested that dependent contracting had probably increased since Vandenheuvel and Wooden’s research in the mid-90s and argued their own more conservative approach accorded with the common law courts and the ATO. Waite and Will (2001:49) estimated that 12% of all dependent contractors worked in construction, comprising approximately 4% of that workforce.55

54 For a discussion of the legal application and merits of the ‘dependent contractor’ concept see ABCC (2010:16-17). 55 This appears to be very conservative, particularly compared to Buchanan and Allan (2000:71) who interpret the FOES data to arrive at 24.1% of dependent contractors being in construction.

Table 4.3: Tests designed to identify dependent contractors in FOESa

CFMEU (2011) examined sham contracting56 in the construction industry and arrived at a higher estimate, with the caveat:

Because the arrangement is designed to disguise an employment contract, the true nature of the relationship is not always immediately apparent. There are also contractual relationships that fall well within the grey area between employment and a bona fide contract for services. It is however possible to arrive at reasonably accurate estimations (2011:23).

The CFMEU applied Waite and Wills’ tests to the FOES category of independent contractor, finding three main occupational groups accounted for approximately 90% of the category in the construction industry in 2009: technicians and trades workers (62%); labourers (15%); and managers (13%). These three classifications represented 299,100 workers from a total independent contractor cohort in construction of 335,800 workers – some 35.7% of the total Australian construction workforce of 940,500 in 2009. Approximately 49,000 independent contractors were in the ANZSCO major occupational group of ‘labourer’. As Roles and Stewart (2012) noted, ‘Labourers performing work at the direction of another, with no ability to delegate the performance of their work and no capacity to create their own goodwill, can hardly be regarded as running their own businesses’

56 The terms ‘dependent contractor’, ‘person working in an employee-like relationship’ and ‘sham contractor’ are used interchangeably.

(2012:273). In March 2009 the ATO announced that Australian Business Numbers (ABNs) would no longer be issued to labourers or trades assistants because ‘by their very nature, they are considered employees for Commonwealth taxation and superannuation purposes’ (CFMEU 2011:89).57

The approach adopted by the CFMEU resulted in a range of estimates of sham contracting numbers, from 86,000, representing 25.6% of independent contractors, up to a possible 177,000, representing 52.7% of all independent contractors. The union’s preferred figure was 154,000 (45.9%), representing 49,000 labourers plus 105,000 persons from other classifications. There is an element of extrapolation in the figure of 105,000 - it is based on the 21% of independent contractors who ‘reported they were not able to subcontract their own work’ in the November 2008 FOES data. Based on November 2010 FOES data, the CFMEU reported further growth in the incidence of sham arrangements. The union estimate at this time was that sham contractors comprised between 92,000 and 168,000 persons - that is, between 27% and 50% of all independent contractors in the industry and 10-18% of the construction workforce (CFMEU 2011:11-29).

The ABCC (2011:67-73) dismissed the CFMEU’s approach and estimates as unreliable. Major employer groups (AMMA, MBA and CCF) joined with the ABCC in pointing to alleged technical deficiencies, arguing it was possible for an individual to be a bona fide independent contractor for tax purposes but not for industrial law purposes. For example, being granted or denied an ABN was not a definitive indication of employment status. Other criticisms included the MBA/CCF contention that FOES data was unreliable because it involved self-reporting by individuals, further the union had failed to take into account the full complexity of the multi-factorial test applied in the courts. The ABCC indicated it would commission research to establish estimates of the extent of sham contracting.58

Roles and Stewart (2012:272-273) adopted a more sanguine approach to the CFMEU research and concluded that the criticisms of the ABCC were overstated. At the conclusion of the period being researched the November 2010 FOES figure of 340,800 independent contractors (32.7% of the

57 Apprentices were included in the announcement on the ATO website in March 2009. 58 TNS Research undertook quantitative research for the ABCC in 2012 and reported that one in eight or 13% of independent contractors might be involved in sham arrangements. The results appear low compared with earlier estimates and might have been affected by methodological deficiencies or mandatory taxation reporting arrangements introduced for the industry by the Gillard government in 2012 (see ATO 2012). The latter had a substantial impact. $2.3b in additional tax was raised from transactions in the construction industry in the first year of operation.

60 construction workforce) and the CFMEU estimate that between 92,000 and 168,000 of these were dependent or sham contractors, were on balance the best data available.

4.3 The Body of Evidence – Public Inquiries

4.3.1 From Burns to Gyles (1979-1992) – the spread of self-employed sub-contracting

The Burns Inquiry,59 established by the Wran Labor Government following lobbying by the building unions60, commenced in 1979. It sat in Sydney for 52 days, heard from 126 witnesses and took evidence from 26 organisations. Ex-arbitration Commissioner George Burns was appointed to address nine Terms of Reference (TOR) including, ‘undesirable practices relating to employment’ and ‘the effects of the labour only or substantially labour only contract system’ in the NSW housing industry.

The strategy of the building unions was to oppose the spread of the contract worker system in the commercial building industry and to establish contract rates for workers in the housing industry (McDonald 1980:45). The unions attempted to convince Burns that legislative changes were needed to civilize undesirable practices which included lower pay rates for contract workers than equivalent employees (TOR 5). The unions’ main objective was the creation of legally enforceable standards including collectively negotiated contract rates. The unions’ case was presented by BWIU senior official, Don McDonald. Unfortunately for the unions acrimony quickly developed between McDonald, the employer representatives and Commissioner Burns.61 Early in his report, Burns articulated what he understood to be the union case:

Essentially, Mr McDonald’s case has been an effort to show that present practices surrounding what he called ‘the contract worker system’ are productive of injustice to building tradesmen and have a destructive effect on the industry of cottage building to an extent which demands that corrective action be taken (Burns 1981:18).

Burns ultimately rejected most of the evidence brought by the unions, forming the view that any evidence of injustice, such as it was, did not warrant the remedy proposed. Burns suspected that the unions’ real position was to drive self-employed sub-contractors out of the housing industry

59 It was formally known as the Commission of Inquiry into the Nature and Terms of Employment in the NSW Housing Industry. 60 The BWIU started publicly agitating for the inquiry in 1977. 61 As an Honours student I attended 12 days of hearings and witnessed the acrimony. Burns’ displeasure with McDonald is evident in the Report. See for instance pages 109/110 where he thanks the employer advocates but declines to thank McDonald. Further see Elder (2013:233).

(1981:113-114). He adopted the view that self-employed sub-contracting had naturally evolved and displaced the use of day labour. He believed that the two systems (employer sub-contractors and the self-employed) could not co-exist because by their nature they were in competition and incompatible (1981:114).The unions cited the existence of the Housing Commission of NSW Agreement under which contract rates were negotiated for building workers performing contract work on welfare housing projects.62 However Burns believed any attempt to establish fixed standards or pay rates was an attempt to introduce piecework into the housing sector. ‘I am convinced that the real question ….is “whether or not what has been shown during the hearings demands or justifies replacing self-employed tradesmen with pieceworkers”’ (1981:22). Burns could not conceive of an approach where workers received collectively negotiated contract rates for particular tasks and had any legal status other than employee.

The other major stumbling block for the unions’ case was Burns’ view that he was, in effect, being asked to overturn an approach adopted in 1970 by the Industrial Commission in Court Session, following a three year inquiry into self-employed transport owner-drivers.63 The Commission there had considered the provisions under the NSW Industrial Arbitration Act (1940) for addressing demonstrated injustices against self-employed transport workers, namely: s.88E (providing for certain classes of workers to be deemed employees); and s.88F (the harsh and unconscionable contracts provisions). The Commission concluded that, ‘as a legal and practical matter, the concept of ‘deemed’ employment was not a satisfactory means of regulating industrial relations in the (transport) industry. It would, their Honours said, be better to deal with such persons ‘in their true colours’’ (1981:19) and recommended that new architecture be established. Nine years later the NSW Labor Government sponsored legislation establishing contract regulation tribunals for non- employee transport workers. This coincided with the commencement of the Burns Inquiry and became a ‘front of mind’ consideration for the Commissioner.

Through McDonald and barrister Jeff Shaw (later NSW Attorney-General) the unions submitted64 that ss. 88E and 88F were flawed mechanisms for providing general standards and argued for legislative provisions to facilitate binding contract rates for building workers. Burns objected that he

62 The Housing Commission Prices book was first negotiated in 1963 and was regularly renegotiated between the parties until it ceased in the late 1980s. I was responsible for negotiating the contract rates, from the union side, when BWIU decided to let the arrangement lapse. 63 Industrial Commission (1970) Report to the Honourable E A Willis on Section 88E of the Industrial Arbitration Act 1940-1968 in so far as it concerns Drivers of Taxi-Cabs, Motor Omnibuses, Public Motor Vehicles and Owner-Drivers – Volume 2, Sydney, 23 February. 64 See Burns Report, Appendix to Chapter 2.

62 was being asked to pursue a different policy direction from that just legislated for transport workers. He concluded that ‘consideration of section 88e and section 88f was irrelevant to what I must do’ (1981:20). Despite deferring so consistently to the views of the Industrial Commission and the NSW parliament regarding the transport industry, Burns departed from that example when he concluded the evidence ‘has established beyond reasonable doubt that though it has faults, self-employed subcontracting in the cottage industry operates satisfactorily and to the general benefit of all concerned’ (1981:118). He considered the unions’ attempt to create general awards for contract workers was likely to create ‘chaos’ and ‘industrial Bedlam’ (sic) (1981: XVIII, XIX).

The unions’ decision to agitate for a public inquiry had backfired. In addition their industrial campaign lost momentum during the lengthy delay before publication of Burns’ report in May 1981.65 Despite the setback, the BWIU increased its efforts in the field and by early 1985 was able to achieve what Burns had rejected – changes to s.88F permitting the Industrial Commission to make general rulings (awards) applicable to self-employed sub-contractors. Under a new provision, s.88FA, the BWIU promptly obtained approval of a schedule of rates for hard-floor (vinyl) layers. The schedule had existed for some years as a private agreement between the union and employers. A similar attempt to establish contract rates for self-employed bricklayers proved more difficult. The employers through the MBA and HIA used legal technicalities to block the union application before the Industrial Commission.66 When the Greiner LNP government was elected in NSW in 1988, s.88FA was repealed and the unions lost their mechanism for establishing regulated contract rates for self- employed building workers. The employers through their efforts before Burns, in the Industrial Commission and ultimately through their political allies in Macquarie St. were able to preserve the system of self-employed sub-contracting in the NSW housing industry

In late 1987 the Full Bench of the Australian Conciliation and Arbitration Commission (ACAC) established a National Inquiry into the Building and Construction Industry, prompted by ACAC’s concern that arrangements between building unions and key employer associations to establish a severance pay scheme ($20 per week severance allowance) potentially lay outside existing wage fixing principles. Commissioners Grimshaw and Smith were tasked with comprehensively examining industrial relations practices across the industry.67 While self-employed subcontracting did not come

65 From July to November 1980, as a BWIU ‘field organiser’ I visited cottage sites in Sydney and the Illawarra to recruit and organise self-employed tradespersons. A key ‘selling point’ to these workers was the union’s advocacy at the Burns’ Inquiry for enforceable minimum rates. 66 See Bray (1987:12). 67 The Inquiry commenced on 21 December 1987 and the report published on 9 September 1988.

63 under direct scrutiny, the Commissioners inquired into industrial relations in the housing sector and whether work arrangements should be subject to regulation by federal or state jurisdictions. Acknowledging major differences between the housing sector and the commercial and civil construction sectors, the Commissioners relied on evidence from the major building unions to describe industrial relations in the housing industry. The salient features included:

 the sector is about 20 to 30 per cent unionised (p.2789);  subcontracting is used extensively and unions do not object to the subcontract system (p.2795);  unions argue that many subcontractors are employees and should be treated as such by the Commission rather than as self-employed individuals (p.2796);  there is a payment-by-results system operating in the cottage sector which unions do not seek to upset or overturn (p.2800);  The provisions of the Income Tax Assessment Act 1936 encourage persons to become self- employed contractors (p.2790 and 2831) but this also leads to non-observance of industry standards (p.2839) (ACAC 1988:15-16).

The building employers did not object to the unions’ characterisation of the housing industry and were silent about industrial relations issues in the sector. It was indicative of the building unions’ confidence and ascendancy that they raised no issue about pyramid sub-contracting and ‘all-in’ payments in the commercial construction sector. Formal agreements between the employer associations and the unions banning these practices (and ratified by the ACAC) were in effect at the time. 68 The construction unions considered they were successfully resisting the spread of non-SER arrangements in the commercial sector of the industry.

In late 1989, the federal Labor government asked the Industry Commission to conduct an inquiry called Construction Cost of Major Projects. The agency was in sympathy with the Hawke government’s economic direction and applied the yardsticks of micro-economic reform and deregulation to the unionised construction sector. In the Commission’s report of March 1991, industrial relations featured prominently amongst identified impediments to efficiency. The Commission supported Accord initiatives such as award restructuring, elimination of rigid skill demarcations and union amalgamations (Industry Commission 1991:3) and argued for a more competitive labour market:

A strongly competitive labour market is most evident in the USA where the level of unionisation of the construction workforce is low – about 22 per cent – and where completely non-union sites are common, even for major projects. Within the Australian

68 See Appendix 1, page 1-2.

construction industry, and in the construction industries in some other countries, competition with the unions is provided by the self-employed subcontracting sector. In Australia this is strongest in the domestic housing market (1991:86).

The Commission described union action to limit self-employed or labour-only subcontracting as one of the restrictive work practices afflicting the industry. At the same time it acknowledged the adverse impact on workers of the unstable nature of the industry:

The temporary nature of sites and of work relationships, together with the cyclical nature of construction activity, result in a casual and itinerant workforce with little long-term loyalty to companies … From the employees’ point of view, there is an incentive to extract high payments in good times and, in bad times, to prolong jobs and then leave the industry (1991:72).

The Commission suggested the ‘strong campaign by the building unions in the late 1970s to ensure that all subcontractors on site were union members and that award wages and conditions applied …. was largely in response to an increase in self-employed subcontracting’ (1991:76). Despite acknowledging the perspective of organised labour, the Commission singled out the housing industry as an exemplar, ‘having a low level of disputes and as being very efficient with high productivity based on informal multi-skilling and payment by results’ (1991:76). The Commission in effect applauded the basis on which self-employed workers were paid – in contrast to employees with guaranteed award and statutory rights. Neo-liberal ideology could be seen here impacting public policy with self-employed sub-contracting a key policy tool.

The background to the establishment in 1990 of the Royal Commission into Productivity in the Building Industry in NSW under Roger Gyles QC is outlined in Appendix 1. The TOR were narrowly cast: to inquire into matters that may affect productivity and efficiency on the one hand and into illegal activities involving criminal conduct on the other. With the exception of safety, Commissioner Gyles did not regard labour standards or union policies directed towards their protection as proper concerns for his inquiry.69 In contrast, the productivity and efficiency of self-employment and other flexible work arrangements were matters of particular interest.

Gyles criticised union actions against practices such as multiple and pyramid subcontracting and all- in payments (Gyles 1992: Vol. 6, Sec. 19, ‘Union Interference in Subcontracting Arrangements’). He considered that industry-wide agreements banning such practices had more limited scope than was applied by unions. In Gyles’ view, the agreements affected only MBA and AFCC members and in any

69 Of 62 recommendations in the Final Report, 18 related to OHS.

65 event inappropriately restricted employer freedom. Union-imposed restrictions were driven by a desire for increased membership and control (Gyles 1992: Vol. 6, Sec.19, p.42). The prohibition on multiple contracting was aimed at preventing competition between work gangs which would allow ‘comparisons of productivity’ and expose ‘unproductive workers’ (p.46). Gyles took a dim view of union motives in opposing pyramid subcontracting (p.49-50) and on union policy against all-in payments he concluded:

I have no doubt that the union’s objection to all-in payments is also linked to the adverse effect of such arrangements on its capacity to organise and control the workers on a site. If a worker only gets paid for hours worked, he or she is far less likely to support a strike. Indeed, the BWIU Delegates Manual states ‘…. organisation is the worker’s most effective weapon. Labour-only sub-contracting breaks down organisation and this weakens the trade union movement (p.50).

Union arguments about the difficulty of monitoring and enforcing labour standards on commercial sites with large numbers of subcontractors fell on deaf ears. Gyles quoted from BWIU correspondence explaining its opposition to all-in payments70 but found only proof that the union and its members were suspicious of workers who worked too hard or were too diligent (p.50). Gyles allowed that there were employers who breached obligations to workers, however:

More often than not the (union) claim has not been established, but I do not doubt that breaches of this kind occur with some regularity.71 As I have already pointed out, procedures are available to enforce the law, and unions have locus standi to bring such proceedings (1992:Vol.4, p.178).

The BWIU submitted that the most practical way to deal with employer breaches of awards and statutes was directly on the site:

Many jobs are of short duration. Many sub-contract employers are on site for a brief period of time. To suggest that a prosecution should be mounted each and every time there is a menial breach or a major breach … is to recommend that mountains of litigation be commenced by armies of lawyers.

Neither the union movement nor the government apparatus charged for (sic) the responsibility of enforcing standards in our industry has the resources to conduct such litigation. The threat of industrial action or actual industrial action remain the most immediate and necessary way to tackle recalcitrant employers (1992:Vol.5, p.117).

70 The writer, as an Executive Officer of the NSW BWIU, authored this letter. 71 Gyles noted further on p.178 that such breaches were likely to increase as ‘demand for labour declines’ in the industry downturn.

Gyles ignored arguments about the impracticality of a legalistic approach and, focusing on the last sentence only, concluded that unions ‘reject action within the formal legal structures’ (p.117).72 This view of union lawlessness and references to commitment by building unions to ‘direct action’ were central to Gyles’ conclusions73 and formed the basis for his most significant recommendation – deregistration of the CFMEU.74

Gyles dealt briefly with tax evasion and the housing industry in NSW. He gave the ‘cottage industry’ a clean bill of health, declaring there were minimal problems and ‘it has been acknowledged in a number of recent studies that the extensive subcontracting network which is involved produces a very time and cost effective product’ (1992:Vol.7, p.107). Gyles was alive to the issues of tax evasion and sham contracting, noting ‘evidence indicates that cash in hand payments are common in the industry, and that there may be exploitation of the PPS system’ (1992:Vol.4, p.155) but produced no corresponding recommendations.

4.3.2 From the Productivity Commission to Cole (1999-2003) – restricting union responses

The 1999 Productivity Commission inquiry Work Arrangements on Large Capital City Building Projects was one of four requested by Treasurer Costello into work practices in key industry sectors - the others being coal, stevedoring and meat processing. The Howard government earmarked these four strongly-unionised industries for workplace reform (Prince and Varghese 2004). ‘Working arrangements’ for the purposes of the inquiry included an examination of how work was performed, wages and working conditions, and how job rules and regulations were determined (1999:XVIII). The overarching theme from the Commission’s report was that working conditions and job rules imposed by unions hampered productivity. The more freedom employers had to determine these matters, the greater would be the productivity benefits. The Commission noted with favour that fewer restrictive labour practices were in place than at the high water mark of union influence in the 1980s (1999:133) and with disfavour that it could list seven examples of remaining inefficient work arrangements. It proposed remedies for these, four of which involved individualisation of workers’ pay arrangements by ceasing restrictions on performance related (piecework) payments and ending limits on self-employed subcontractors, casual and labour hire workers (1999:138).

72 The BWIU was active in bringing prosecutions before the Chief Industrial Magistrate at the time but did not believe this was the optimum way to address systemic industry issues. 73 See Gyles 1992: Vol.5, page XVIII where conclusions 2, 3 and 4 make reference to ‘direct action’. 74 See Gyles 1992: Vol. 7 page XII

The Commission attributed growth in pyramid sub-contracting to a benign origin - ‘gains from specialisation’ in the commercial building sector. Undaunted by the consequent emergence of artificial labour-only contracting arrangements, cash-in-hand and poor OHS practices (1999:98), the Commissioners found that pyramid subcontracting could co-exist with bona fide labour-only contractors. Proposals to ban labour-only operators with poor OHS practices (as two industry-wide agreements, signed in 1984 and 1987, had attempted to do) was outweighed by ‘gains to the industry’ from smaller ‘more specialised parcels of work’ being tendered down an elongated contracting chain (1999:99).

With regard to alternative pay schemes, the Commission concurred with major employer associations (MBA and HIA) that a self-employed labour force resulted in superior outcomes. Self- employed workers were more motivated because ‘they have a greater influence over their output and potential remuneration’. In a remarkable passage the Productivity Commission stated:

Self-employed workers could also lead to lower unit labour costs in the industry. In part this is because self-employed workers have an incentive to capture the taxation advantages associated with PPS taxation arrangements. The lower taxation levels and more opportunities for claiming deductions that PPS can present could lead self-employed workers to bid down labour costs below those in agreements. In addition, contractors engaging self-employed labour may not be required to meet some of the on-costs usually associated with employed labour (1999:131).

Here a key government agency embraced the concept that self-employed workers could pay less tax and use the advantage to undermine prevailing labour standards.75 Further, that companies engaging such workers could save on-costs (like holiday pay, sick leave and worker’s compensation), thereby gaining a competitive advantage over firms that met legislated employer obligations. The Commission endorsed steps being taken by the Australian government to ‘prohibit the current restrictions’ on self-employed workers in commercial construction. Nor should there be restrictions on performance-related pay (1999:139).

The Commission recognised ‘the taxation advantages of self-employment have often been abused … some construction workers appear to be claiming to be self-employed when in actuality they are employees’ (1999:143). No action was necessary however because the Commission was satisfied the ATO and employer associations were co-operating to address the issue. In the light of advantages to employers from worker self-employment so eloquently expressed by the Commission, the unions may well have feared the fox had been put in charge of the henhouse. A magnanimous note was

75 Leading neo-liberal, Professor Judith Sloane, served as a commissioner on this inquiry.

68 struck by the Commission in concluding that most, ‘parties (including employers) consulted for this study also considered that unions can play a useful role in constraining less scrupulous employers in building and construction’ (1999:142). How useful a role the unions could play would likely depend in inverse proportion on the success of the Productivity Commission in pushing through its deregulatory prescriptions.

The Howard government was narrowly re-elected at the 1998 election with a mandate to introduce a Goods and Services Tax (GST). This was the most controversial element in a package of changes known as ‘A New Tax System’ (ANTS). The legislation stalled in the Senate where the government lacked a majority. A Senate Select Committee on A New Tax System was established to examine the proposals. A key selling point for the government was the concept of ‘revenue neutrality’ - cuts in direct taxes and reductions in government revenue would be offset with new measures, including rules to recoup revenue from tax avoidance and the cash economy. The ANTS bills contained provisions to remove tax withholding arrangements, notably the Prescribed Payments System (PPS), which captured payments to sub-contractors in the construction industry. ANTS proposed an alternative system where businesses with Australian Business Numbers (ABNs) would report quarterly and remit GST to the ATO. The CFMEU warned that misclassification of employees as subcontractors would be exacerbated - the PPS introduced in 1983 had made initial headway against sham arrangements but increasingly ‘employers and workers could see advantages in switching the work-force over to the PP system and away from the PAYE system’ (Senate Committee Transcript 1999, 5 March 1999, p.1). 76

The CFMEU introduced a witness, Dan Murphy, of NSW bricklaying company, Fugen Holdings:

You will hear more from Dan Murphy about the impact (of self-employment) … in many parts of the country and in certain occupations – such as bricklaying, plastering, painting, scaffolding and various other trades, including carpentry … you will not be employed in this industry, unless you agree to be a PPS worker. The advertisements in the paper say ‘PPS workers only’ and when you go for the job it is made clear to you that that is the basis on which you will be employed’ (1999:1-2).

Murphy had established Fugen 15 years earlier from ‘a mixer on the back of a ute’. His successful business employing 300 bricklayers was at risk from competitors with a lower cost structure owing to their misuse of bogus self-employed contracting:

76 The writer, as National Secretary, CFMEU Construction and General Division, gave this evidence.

If this week I wanted to change our company to PPS, I could save $3.74 million on our turnover. That is some 15 to 20 per cent … I want to be able to sleep at night knowing that we do pay our legitimate taxes, everyone is covered for workers compensation, and we do pay our fair way in this industry (1999:3)

Murphy believed that eight out of ten on PPS ‘should be under wages’ (1999:3). He provided an insider’s insight into how the industry worked and competition he faced from firms misclassifying workers as subcontractors:

I would price a job for $1 million; they would price it for $800,000. The builder is going to take the $800,000 price and think, `Well, if I get away with it, I have got away with it.' If they get caught out by the union or by somebody else, the tax office, who do not seem to care, they will think, `Well, I might have to pay an extra $50,000 to get the job finished. I have done my job for $850,000 whereas Fugen wanted to charge me $1 million.’(1999:4).

The CFMEU’s immediate concern was large building projects with contractors who ‘employ 50, 80, 100, 150, 200 men and that have got every one of their men characterised as a subcontractor to them when in fact they are, pure and simple, black and white, employees’ (1999:5). The Committee reported on 30 April 1999, voicing concerns about whether the issues highlighted by the CFMEU and Murphy would be addressed in the ANTS legislation.77 In May 1999, the Howard government navigated the ANTS bills through the Senate after striking a deal with the Australian Democrats on GST details. There was no change of substance to removing the PPS and introducing ABN provisions. Instead, the issue of tax treatment of personal service companies and interposed entities was referred to another inquiry to be conducted by Mr John Ralph.

The Ralph Inquiry,78 announced in November 1998 by Treasurer Costello, was established to support the strategy outlined in the government’s 1997 business taxes policy document.79 The CFMEU lodged a formal submission80 and engaged former Labor Treasurer, Ralph Willis, to assist with representations.81 Willis tabled a 1995 ATO discussion paper, ‘Taxation of alienated personal services income’, and provided a submission based on the ATO proposals (CFMEU 1999:13). These representations made an impact on John Ralph, who reported in July 1999 that:

77 See Chapter 14, ‘The Cash Economy/Tax Evasion’, Item 14.3. 78 It was formally called the Review of Business Taxation. 79 It was called ‘Tax Reform – not a new tax, a new tax system.’ It was the blueprint for the government’s GST and ANTS legislation. 80 CFMEU (1999a). 81 Ralph Willis and I presented evidence on behalf of the CFMEU to the Inquiry.

There is evidence of a significant and accelerating trend for employees to move out of a simple employment relationship to become unincorporated contractors or the owner- managers of interposed entities while not really changing the nature of the employer- employee relationship. This process is known as the alienation of personal services income (Ralph 1999:49).

The inquiry recommended legislative change to prevent the alienation of personal services income where the ‘service provider’ received 80 per cent or more of their income from one ‘service requirer’ – the ’80:20 test’.82 The HIA and MBA made strong opposing submissions during the Ralph Inquiry and to a subsequent inquiry into Ralph’s recommendations by the Senate Standing Committee on Finance and Public Administration.83 The HIA argued the Ralph proposals, if legislated unamended, would ‘put at risk the efficiency of the industry and the affordability of homes’ (HIA 1999).

Nonetheless on 11 November 1999, Costello announced the Ralph recommendations would proceed (Costello Press Release: November 1999). In April 2000 Costello reaffirmed his commitment, stating that revenue of approximately $1,430m would be recouped over four years and this was a critical element in the revenue neutrality of the ANTS package. In June 2000 the APSI legislation passed, coming into effect on 1 July 2000. However the political battle had only just begun.

The Minister for Employment, Peter Reith, and Costello were in competition to succeed John Howard as Liberal party leader. Reith proved receptive to the strident complaints of construction employers and a political showdown with Costello ensued. The Treasurer was anxious to realise taxation revenue gains from the Ralph recommendations but lost the contest on the floor of the Coalition party room. By press release on 9 July 2001 Costello announced that APSI legislation (passed only one year earlier) would be amended. The amendments84 had retrospective effect from 1 July 200085 and substantially watered-down the 80:20 test.

Subsequent public inquiries86 lamented the amendments. The Queensland Government submission to the Cole Royal Commission in 2002 argued dilution of the Act in 2001, ‘raises serious questions about the efficacy of its objectives and clearly a tightening … is required if problems identified within

82 Two additional proposals from Ralph were: the service provider acting in an ‘employee-like manner’; and the taxpayer being unable to obtain an exemption from the new APSI rules. 83 Ralph Willis also lodged a submission. He indicated the Keating Labor government had prepared draft legislation tackling the taxation consequences of bogus contracting before the 1996 election. Labor lost the election and the new LNP government declined to progress the legislation. See Willis letter dated 7 November 1999. 84 Taxation Law Amendment Act (No.6) 2001. 85 Building contractors under the old PPS system were exempted from the APSI rules until 1 July 2002. 86 See Senate Committee Report – Beyond Cole (2004), Board of Taxation Review (2009).

71 the BCI in the Ralph Report are to be remedied’ (Royal Commission 2002, Discussion Paper 11:24). The HIA though expressed to the Cole Royal Commission its satisfaction with the amendments, stating there should be ‘no doubt that from 1 July 2002 in the building and construction industry, there will be no avoidance (emphasis added) of tax by contractors who are not entitled to the deductions they claim, or by employees claiming to be contractors’ (Discussion Paper 11:24).

Appendix 1 outlines the background to the Royal Commission into the Building and Construction Industry under Terrence Cole QC, established in August 2001, and summarises key recommendations from its Final Report dated February 2003. This inquiry overwhelmingly focussed on the industrial conduct of Australia’s construction unions, however it also undertook the most thorough examination to date of self-employed subcontracting in the industry. The inquiry invited input from stakeholders to a series of discussion papers; including on the reasons for and issues associated with the trend towards high levels of self-employed subcontracting. The HIA submitted:

Legitimate self-employed workers are likely to be more motivated because they can have a greater influence on their own output and potential remuneration. Furthermore they are likely to have choice over their system of remuneration. This can be expected to increase their productivity and lead to improvements in timeliness (Discussion Paper 11:11).

The HIA articulated a cost savings argument:

For a business owner, subcontracting provides flexibility and saves on costs and other employee entitlements such as annual leave, sick leave, leave loadings, public holidays, termination and redundancy payments, payroll tax, workers compensation, superannuation contributions and fringe benefits tax. Costs of hiring, training and firing workers can be saved … all replaced by a flat hourly ‘all in’ payment (p.11-12).

Major contractor Hansen Yuncken (2002:1) contended, ‘subcontracting is a benefit to all parties. It rewards productivity, innovation and quality. It makes individuals responsible for their own well- being’. The Queensland Government considered there was more involved, including substantial ‘opportunities for tax minimisation’ (Queensland Government submission 2002: para 40). Professor Andrew Stewart’s concerns included:

There are many genuine contractors … who quite clearly run businesses of their own and provide services to a range of different clients. They are not the concern. Rather, it is the “dependent contractor” who as a matter of practical reality is indistinguishable from an employee … many (though certainly not all) dependent contractors quite happily accept their status. They may believe that they will be better off in financial terms, especially if they are unconcerned with (or fail to take account of) the value of leave entitlements, superannuation contributions and the like (Stewart 2002a).

The CFMEU took issue with HIA’s contention the self-employed had ‘choice’ about working arrangements:

A profoundly undemocratic situation currently exists in various parts of the industry where many construction workers cannot follow their vocation or calling if they want the reasonable right to work on wages and conditions. For plasterers, painters, bricklayers etc. to want to work on wages and conditions in various cities and towns in this country is simply impossible … to insist on wages and conditions from prospective employers would be a one-way ticket to permanent unemployment (CFMEU submission 2002:7). The CFMEU outlined its estimate of the geographic and occupational spread of the ‘all-in payments system’: Geographic (graded according to frequency)

Northern Territory - almost universal Tasmania - very high occurrence WA and Queensland - high tendency (probably 70% plus) NSW and ACT - serious concentrations Victoria - common occurrence

Occupational (graded according to frequency)

Finishing trades (painters, plasterers, fit-out carpenters) - very high concentration Earthmovers, tilelayers, roof tilers, roofing carpenters etc - high concentration Bricklayers, steelfixers - very common (probably 70% plus) Scaffolders, formwork carpenters - common Concreters - frequent General labourers, apprentices - not unusual Crane crews - not usual Other relevant aspects were that the phenomenon was almost universal in country areas and very frequent in the regions. It was also the predominant form of employment on small apartment construction in the suburbs (2002:6).

The Commission acknowledged some concerns:

Employee welfare issues apply to both incorporated and unincorporated businesses. They involve questions about whether workers are making an informed decision on whether to become a subcontractor, the extent to which they are given a real choice and the consequences to the workers and the community of the workers’ loss of employee entitlements (Discussion Paper 11:14).

The Discussion Paper reviewed tax evasion in less detail, noting the research of Buchanan and Allen (1998) and relying heavily on the ATO submission (2002) which highlighted cash economy risks and increasing insolvencies associated with growth in contracting arrangements, including by ‘phoenix’ operators:

Over recent decades there has been an increasing tendency to engage labour under service or results-based contracts rather than employment contracts. This is consistent with labour market trends more generally. However, there has been an on-going need to ensure that contractor arrangements are genuine and that tax and superannuation obligations are properly met (2002a:1).

The ATO’s submission (2002:6) expressed optimism regarding the likely impact of the APSI rules and the Commission appeared encouraged by this, outlining the rules at length, and noting the view by major employer organisations that the rules would prove efficacious, as well as the diametrically- opposed view of the Queensland Government that the Ralph Report’s anti-avoidance approach had been undermined and the new rules were unlikely to work (Discussion Paper 11:24).87

The Discussion Paper canvassed a concern of long standing, namely the lack of a consistent definition of ‘employee’ and ‘employer’ across legislative instruments. There had been a ‘breaking down’ of accepted definitions and participants were ‘adopting the legal relationship most of benefit to them’ (2002:65). The paper quoted the MBA in Western Australia, ‘if legislatures cannot provide consistent direction on this vexed question, how can employees and building workers be expected to do so?’ (p.65). The Commission noted the difficulties already encountered in efforts to formulate a uniform definition. A working party comprising federal government departments and the ATO had consulted with small business representatives and been unable to achieve consensus. The ATO recognised:

Assuming a definition is established, it is likely that those keen to avoid an employment relationship would seek ways to arrange their affairs to escape the new definition. A standard definition may not remove the motivations that drive businesses to avoid an employer relationship (ATO 2002a:5).

The Royal Commission found a ‘high level’ of subcontracting in the industry and ‘payment of an all-in rate is common’ (Cole Final Report 2003, Volume 9:319). Further, ‘high levels of incorporation and possession of ABN’s ….support the view that there may well be significant illegitimate subcontracting’ (Vol.9:323). This acknowledgement amounted to a rejection of the HIA’s contention that ‘there was not a widespread problem of illegitimate use of subcontracting arrangements in the housing industry’ (Vol.9:323). Perhaps surprisingly then, the Commission concluded that contracting, notwithstanding a ‘number of allegations of sham contracting’ was ‘legitimate’ (Vol. 9:320). It found the ‘prevalence of contracting can have detrimental effects’ but declined to apportion responsibility. A ‘follow the money’ approach might have revealed the principal beneficiaries to be major firms

87 The CFMEU also argued that the new APSI rules would not work. See transcript p.14767-68

74 using large numbers of labour-only subcontractors on their sites. Instead, the Commission agreed with the ATO that a variety of drivers were at work: in some instances employees were unaware of changes instituted by employers; in others it was a ‘condition of engagement’ and in still others the driver was workers seeking ‘a wider range of business tax deductions’ (Vol.9:323).

The Commission considered proposals for reform and rejected those advanced by unions and the Queensland Government, preferring a narrower bureaucratic approach of providing additional assistance to workers after the fact of detriment experienced due to illegitimate arrangements. Cole’s thinking is reflected in his statement that the best guard against sham contracting ‘is for the revenue authorities and the Government agencies responsible for recovering unpaid employee entitlements to perform their tasks effectively and promptly’ (Vol.9:325). This approach informed Recommendations 155 and 156 which urged the Commonwealth and states to provide recovery services for subcontractors earning less than $50,000 per annum (Vol.9:339).

Notwithstanding reservations from the industry about the likely effectiveness of a definitional solution to the employee/self-employed contractor divide, the Commissioner accepted Professor Stewart’s argument88 and remained wedded to the idea (Vol.9:341), reflecting this accordingly in Recommendation 164. The Report also evaluated the employers’ proposal to adopt all-in payments on an industry wide basis. The Commissioner initially appeared in favour but ultimately made no recommendation to collapse wages and conditions into a total aggregated payment (Vol.9:331-2).89

On tax evasion, the Final Report canvassed the range of stakeholder views: from the construction unions, that the problem was of ‘epidemic’ proportions (Vol.9: 53); from the MBA, that it was ‘not aware of any endemic problem of avoidance in the building and construction industry’ (Vol.9:55); from the HIA, that there is no ‘widespread problem’; and somewhat surprisingly from the Civil Contractors Federation (CCF), agreeing with CFMEU official Andrew Ferguson that ‘there has been a misuse of ABN’s’ (Vol.9:55). The Commission evaluated Buchanan and Allen’s (1998) research concerning lost taxation revenue. Whilst acknowledging the HIA view that the research was ‘without validity’ Commissioner Cole concluded that, ‘illegitimate use of contracting arrangements is likely to be designed to, and have the effect of, evading significant taxation revenue’(Vol.9:67).

88 Professor Stewart subsequently abandoned this view. See Roles and Stewart (2012) for the evolution of his thinking on the topic. 89 In Recommendation 98 the Commissioner indicated that legislation should limit to four the number of allowances construction workers could receive.

The Final Report reflected a shift in the position of some employer organisations in the face of the evidence. The MBA and the CCF conceded the existence of substantial problems:

MBA Inc has been informed that there is anecdotal evidence of tax avoidance in the industry. MBA Inc does not condone any participant in the industry – be it employer or union – failing to comply with its legal obligations. …. tax evasion places legitimate businesses at a significant competitive disadvantage … . It is unfortunate that some clients choose to turn a blind eye when accepting quotations for work to the fact that they can only be so significantly under-priced compared to others because of tax noncompliance practice (Vol.9:65-68).

MBA CEO Wilhelm Harnisch named the elephant in the room, ‘tax law had not evolved at the same speed as the development of subcontracting as an economic practice’ (Vol.9:85). Harnisch’s comment also raised causation issues. Had the expansion of subcontracting rendered tax law and practice inadequate or had an inadequate taxation regime facilitated the expansion of subcontracting across the industry? The Final Report reviewed recent changes to tax legislation (ANTS, APSI and ABN) and the Commissioner observed there appeared to be, ‘a very high proportion of the industry workforce that possesses ABN’s ‘(Vol.9:80). He noted the CFMEU criticism that ATO compliance activity had been inadequate, particularly in relation to sham contracting, and he outlined CFMEU’s proposed regulatory measures (Vol.9:85).

Yet in comparison with the significant, widespread tax evasion issues exposed during the Commission, the recommendations were mild, focusing mainly on: increased resources for ATO compliance activities; an audit of ABNs issued in the construction industry; and including construction unions in a new ATO consultative forum. The Commissioner believed it was too early to judge the effectiveness of the APSI regime, which should be reviewed 12 months after commencement (Vol.9: 89). The Royal Commission opted for a ‘light-touch’ regulatory approach to sham contracting – contrasting starkly with ‘command and control’ prescriptions it laid down to curb union power in the industry.

4.3.3 From Beyond Cole to the Sham Contracting Inquiry (2004-2011) – employer conduct under the spotlight

In response to Cole’s recommendations the Howard Government introduced its Building and Construction Industry Improvement Bill (BCIIB 2003). The ALP criticised the Royal Commission as an anti-union ‘witch-hunt’ and rejected the intended legislation. The government did not control the Senate and the Bill was referred to the Senate Employment, Workplace Relations and Education References Committee which commenced public hearings in December 2003. The eventual report

76 was known as Beyond Cole -The future of the construction industry: confrontation or co-operation? The ALP and Australian Democrats senators commanded a majority on the Committee and framed the TOR to focus on the ‘real’ issues facing the construction industry (Hansard Transcript, 11 December 2003: 1). Two were particularly relevant:

(g) (iii) the nature of independent contractors and labour hire in the industry and whether the definition of employee in workplace relations legislation is adequate to address reported illegal labour practices.

The Committee received 125 submissions and took evidence at public hearings. Submissions from employer groups followed a familiar pattern. The HIA asserted the superiority of the subcontract system and rejected the concept of ‘dependent contractors’ as a legal category (HIA 2003:5):

…calls for the extension of industrial regulation to contractors, such as that by Prof. Stewart in his evidence to the Royal Commission, are fundamentally misconceived. In the Housing industry at least, contractors do not need and emphatically do not want the so-called ‘protection’ of the industrial relations system. HIA members want to work as their own profit-making businesses rather than as employees on wages, and they are willing to accept the commercial risks involved in running a business. It is for that reason that they are members of HIA and not a union (2003:23).

On tax evasion the HIA expressed satisfaction with ATO compliance activities and the operation of the new APSI rules, which should be extended so that, ‘any worker who is regarded as a contractor pursuant to the APSI tests should be ineligible to be regarded as an employee for industrial law purposes’ (2003:20-21). In their view:

HIA members are frequently faced with a situation where a person who was happy to work for them as a contractor (with all its advantages of flexibility and access to business tax deductions) for many months suddenly claims to have actually been an employee all the time. The precipitating event in this change of heart is often an injury, giving rise to the desire to obtain benefits under Workers Compensation, or when the work runs out, giving rise to a desire to claim Unfair Dismissal and Award benefits such as redundancy and holiday pay due to employees (2003:19). During Committee hearings a lengthy debate ensued between Glenn Simpson of the HIA and ALP Senator Peter Cook on the topic of tax evasion. In opposition to Cook’s view that a culture of tax evasion was entrenched in the industry, Simpson countered that it was no worse than in the taxi and IT industries (Transcript p.26). Suggestions that it was ‘rampant’ had not been sustained before Cole. Nevertheless, Simpson did indicate that the HIA would agree with the Senator’s key point that, ‘when you save employers money at taxpayers’ expense, taxpayers pick up the cost. It might make the industry more efficient but this makes the economy less efficient ‘(Transcript p.30). Yet the

77 evidence over a long period is that employer groups90 like the HIA never accepted Cook’s argument, before or after this particular exchange.

In its submission, the MBA was silent on sham and dependent contracting, however indicated in an annexure support for Cole’s recommendation (98) that payments to construction workers should be streamlined:

…reduction in the complexity of workplace relations laws is highly desirable. Currently, the payment of an “all-in” rate is common, given the complexity of the calculation of the myriad of allowances and rates under, for example, the National Building and Construction Industry Award 2000….. Hence, MBA welcomes the Recommendation (MBA 2003, Attachment A, p.24).

The MBA showed less enthusiasm for Cole’s light-touch proposals to rein in tax evasion.91 It was unconvinced by Cole’s concern the ATO was under-resourced; nor that additional resources were needed to police the APSI rules; nor of the need for a formal review of APSI rules in 12 months. The MBA would support an ABN audit on condition of its own involvement; was opposed to Cole’s proposals to address payroll tax avoidance; was concerned about the ‘boundaries’ of increased information sharing between government agencies; and was opposed to unions being included in a new consultative mechanism (MBA submission, Attachment B:12).

In view of the above, the strong stance against tax evasion which MBA CEO Harnisch proclaimed before the Committee on 11 December 2003 may have come as something of a surprise.92 As the Committee Chair, Labor’s George Campbell suggested, enthusiasm expressed93 by the MBA for tackling disrespect for the rule of law appeared confined to ‘lawless’ unions. Campbell suggested the MBA (and indeed the subject BCII Bill) failed to demonstrate similar enthusiasm for tackling OHS issues, tax evasion, phoenix companies and non-payment of worker entitlements. Harnisch rejected the thrust of Campbell’s remarks (Hansard Transcript, p. 76-77). Yet like Simpson of the HIA Harnisch’s verbal evidence exhibiting concern about tax evasion was not reflected in his organisation’s formal submissions. Verbal concessions or ‘throw-away lines’ appeared to come easy to these employer representatives but a disjunction existed with the formal policy objectives of their

90 The HIA maintained it was not an employer association but an ‘industry association’ that represented everyone in the residential construction industry (See Beyond Cole transcript, Brisbane hearings, 24 February, p.2.) 91 The MBA submission was a copy of its correspondence to the Minister for Workplace Relations outlining its stance on Cole’s recommendations. 92 See Transcript, p.70, 76. 93 See MBA submission, p. 3-5.

78 organisations. Was this inadvertent or deliberate? Chapter 6 weighs the evidence and draws conclusions about motives and actions of employer bodies.

The CFMEU’s submissions on industry lawlessness largely replicated those in its policy paper on ‘illegitimate contracting’, provided to the Cole Inquiry:

The Government has a one-dimensional view of observance of legal obligations in the construction industry. When it comes to dealing with allegations of union ‘lawlessness’ its answer is to set up a new and powerful regulator backed up by highly prescriptive legislation and heavy penalties. But observance of taxation, corporation and workers compensation laws by employers is to be dealt with by existing Government agencies improving their ‘communication’ and ‘information sharing’ (CFMEU 2003:16-17).

On tax evasion associated with sham contracting the CFMEU accused the federal government of inaction and double standards and of having abandoned most of Cole’s recommendations to strengthen ATO processes (2003:163). An insightful submission came from Terry Hough, Managing Director of Sydney subcontracting firm, Walsos Bricklaying:

The biggest problem in construction today … is the “Sub Contractor (A.B.N. Worker) versus the legitimate employee. Our workers continually ask why they have to travel so far when there are so many projects in their own suburb. We tell them we cannot compete as these projects are being completed by A.B.N. companies.

Hough explained there were three types of contracting employers: those who employed all workers on wages and met all lawful requirements; those with a mix of employees and ABN workers and who partially cheated the system; and those who engaged ABN workers exclusively and who cheated the system in a major way.94 Hough argued this had serious consequences for regulators:

Workcover continues to sustain massive exposure to increasing debt due to legitimate operators being forced to close down and leave its workers compensation debt to be absorbed by the ever-diminishing legitimate employers left in the industry (Walsos Bricklaying submission, No.59, undated, p.1-2).

The Senate Committee’s report found the evidence from small contractors such as Walsos, QR Concrete and Action Construction Services illustrative of the prevalence of non-compliance with workers’ statutory entitlements and inappropriate use of the ABN system.95On tax evasion the Committee concluded:

94 See transcript evidence (3/02/04, p.79) from Terry Hough who suggests ‘illegitimate’ ABN workers cost the employer $35/hr while legitimate employees cost $47/hr. Hough says 70% of workers have ABNs. 95 See QR Concrete submission, No.73 and Action Construction Services submission, No.53.

…the current taxation system provides significant incentives for both employers and employees to engage workers as independent contractors rather than employees … employers are estimated to save on wages a minimum of 25 per cent on standard hours and 40 per cent on overtime hours. In addition they avoid payroll tax, workers compensation premiums, superannuation contributions and redundancy entitlements. … It also places enormous difficulties on honest contractors trying to compete in the market place and puts a further burden on taxpayers who are effectively subsidising employers in the construction industry (Beyond Cole 2003:92).

The Committee quoted the Queensland MBA conceding that unions were forced to resort to unlawful actions to recover workers entitlements (2003:98) and acknowledged that if government regulators did a better job of enforcement, the unions would not be called on to take industrial action:

The committee gives very little credence to the intelligence collected by the royal commission into alleged wrong-doing by employees. … More significant, in the view of the committee majority, is the widespread lack of compliance with current state and Commonwealth laws relating to WorkCover contributions, occupational health and safety, taxation avoidance, and the operations of phoenix companies (2003:98).

Two Minority Reports came out of the Senate Committee. The Australian Democrats issued a report proposing an additional 16 recommendations, including Recommendation 11 in support of Professor Stewart’s view that the government legislate a definition for the term ‘employee’ (2003:249). The government senators issued a brief Minority Report, essentially a polemic against the unions and the ALP Committee members. 96 It asserted that ‘lawlessness’ in the industry stemmed from the unions. It did not address sham contracting or tax evasion but noted that the majority report viewed tax evasion as an example of lawlessness (2003:191). The LNP senators argued the evidence had been ‘manipulated’ by the CFMEU (2003:198).They offered a single recommendation, urging the Senate to pass the BCII Bill.

At the 2004 election the Howard LNP Coalition made an electoral virtue of its support for independent contractors and promised legislation to ‘protect’ these Australians. John Howard announced at the Coalition’s policy launch:

…as a result of the ever-increasing contribution that independent contractors make to our economy, a re-elected Coalition Government will establish separate legislation to enshrine and protect the status of independent contractors.

96 The official report is 187 pages. The LNP report is 16 pages.

There are more than a million independent contractors in Australia …. They opt for freedom and flexibility but they are always under attack from unions. (Liberal Party policy statement 2004).

After Howard’s re-election, in December 2004 the House of Representatives Standing Committee on Employment, Workplace Relations and Workforce Participation Committee, chaired by Liberal Phillip Barresi, undertook an inquiry which became known as Making it Work: Inquiry into independent contracting and labour hire arrangements. The TOR were to examine and report on four related issues:

 the status and range of independent contracting and labour hire arrangements;  ways independent contracting can be pursued consistently across state and federal jurisdictions;  the role of labour hire arrangements in the modern Australian economy; and  strategies to ensure independent contract arrangements are legitimate

In a parallel development, the Minister for Employment and Workplace Relations, Kevin Andrews, established a separate departmental inquiry. The non-government members of the Committee criticised the Minister’s internal inquiry arguing it undermined their deliberations (Making it Work 2005:159). In March 2005 the government released a discussion paper 97 calling for responses by early May. In late May the government announced its intention to legislate in the latter part of 2005 to ‘protect the status of independent contractors’.

The Committee’s first public hearings were conducted in Sydney on 30 March 2005.98 The scope of the inquiry encompassed all industries and therefore did not examine dependent/independent contractor issues as comprehensively as the Cole Royal Commission or Beyond Cole inquiry. The HIA submission was consistent with its previous, though reflected an increased confidence that the policy process, with a conservative government majority in both houses for the first time since 1981, would unfold favourably.99 The HIA extolled the virtues of independent contracting, citing the

97 Discussion Paper: Proposals for Legislative Reforms in Independent Contracting and Labour Hire Arrangements. 98 There were eight public hearings across the major capital cities with 107 witnesses producing 94 exhibits. The inquiry received 77 submissions (plus 3 supplementary) and reported in August 2005. 99 The HIA was more politically aligned with the LNP Coalition than most employer groups, perhaps a consequence of the 1993 federal election, during which the HIA committed major resources to the defeat of the Keating ALP government, campaigning that Labor would let ‘union thugs’ control the housing industry. At the Beyond Cole inquiry the HIA confirmed they were consulted by the Coalition before the establishment of the Cole Royal Commission, the only industry organisation to be consulted (Beyond Cole transcript, 24 February 2004:5).

controversial Econtech report (2003)100, the Productivity Commission report (1999) and the Cole Royal Commission report (2003) as evidence of its efficiency as a form of work organisation and effectiveness in avoiding restrictive work practices (HIA 2005:3-4).

The HIA took issue with subcontracting’s critics, who advanced claims such as:

 contractors need protection from exploitation;  contractors compete unfairly with employees; and  payroll tax revenue and workers compensation premiums are reduced by the use of contractors.

The first was made by the ‘ill-informed’ such as ‘tenured academics’ who did not understand that such workers were ‘proudly independent’. The second was often made by unions with ‘hostility to individual bargaining’ and the last overlooked the fact, ‘contractors are not employees and are responsible, as business people, for managing their risks’ (2005:6-7). Dismissing concerns regarding the weakness of APSI rules, particularly the ‘self-assessment’ aspect, the HIA proposed that a combination of these and the common law test should be used to define ‘independent contractor‘.101 The HIA’s proposed principles for inclusion in new legislation were:

 A person who is an “Independent Contractor” should not be taken to be an employee for any purpose under any legislation, Commonwealth or State;  A person who contracts with a person who is an “Independent Contractor” should not be taken to be an employer for any purpose in relation to that person under any legislation, Commonwealth or State;  A contract with a person who is an Independent Contractor shall not be taken to be a contract of employment for any purpose under any legislation, Commonwealth or State (2005:14)

Although presented under the banner of protecting the rights and freedoms of independent contractors, a key aim of the HIA appeared to be shielding employers from any legal obligations towards their workers.102 The HIA expressed strong support for the mooted Independent Contractors Act and claimed it had ‘sought such legislation for many years and made extensive submissions on the subject to the Cole Royal commission and the Senate Inquiry which reviewed the Cole recommendations’ (2005:13). The evidence from these inquiries does not support this contention. The HIA did consistently call for abolition of ‘deemed worker’ or ‘deemed employee’ provisions which provided workers’ compensation protection for the self-employed in some states.

100 The Econtech report was commissioned by the Howard government in 2003 following dissatisfaction with Cole Royal Commission research. The methodology compared efficiency between the housing and commercial construction sectors and was criticised by Toner (2003). See also Allan, Dungan and Peetz (2010). 101 See page 47. 102 For more on the underlying interests served see Roles and Stewart (2012:9).

However, it did not agitate for federal circumvention of state industrial laws such as s.106 of the NSW Industrial Relations Act or s.275 of the Queensland Industrial Relations Act, which provided remedies for the self-employed. The call for the Independent Contractors Act came from a different source - the newly-formed lobby group known as the Independent Contractors Association (ICA).103 The ICA had close links with the HIA - its founding President in 2001, Bob Day from South Australia, was concurrently HIA President. Day’s business interests were extensive; he reportedly owned large home building companies in four states (McGarry, The Australian, 6 August 2007). Day’s activities on the extreme right of conservative politics were extensive: board member of the H.R.Nicholls Society; former board member of the Centre for Independent Studies; and later South Australian Senator for the Family First Party from 2013 to 2016.104

Like the HIA, the ICA made impassioned calls for freedom for independent contractors:

Independent contractors are, by definition, people who want and have achieved independence in their thoughts and actions in their working lives. They have adopted business attitudes as their working life’s motivations … in making use of the commercial contract they access the core basic protections afforded by the commercial contract. This is why, when independent contractors are attacked … the attacks are in effect attacks against freedom in society (2005:5-6).

The MBA did not wax lyrical but its submissions were similar in substance. The MBA supported the proposed Independent Contractors Act - it was, ‘extremely important that the industrial relations systems of the States are not used to undermine the status of independent contractors’ (MBA 2005:14). The MBA asserted the efficiency of self-employed sub-contracting by pointing to: low barriers to entry; motivation to increase earnings; reduced supervision costs; incentive to avoid delays; market-based price; results-based payments; mobility; and no industrial disputes (2005:5-6). The MBA argued stridently, though perhaps not cogently, against the concept of ‘dependent contractors’:

It cannot be the case that, say, one small independent software company would cavil at, for example, a five year Commonwealth Government contract. In some senses, that would be one of the most desirable outcomes for any small business – a long term, secure contract with a responsible principal. The same applies in the building and construction industry…… The basic assumption that they have, as a matter of fact, relatively less bargaining power than employers is flawed. (2005:16-17).

103 Stewart (2008:56) suggests the ICA was ‘especially influential’ in the Howard government’s decision to enact the legislation. 104 In early 2017 Day resigned his Senate position because of his financial interests in a commercial arrangement with the Commonwealth and the insolvency of his nation-wide housing company.

The MBA proposed the Independent Contractors Act incorporate a three-pronged approach to distinguish between an independent contractor and an employee. It should consider: common law tests; other ‘external indications’ such as APSI determinations; and a registration system for independent contractors with a dedicated government agency (2005:18). The registration system would ensure contractors could, ‘defeat the so-called “deeming” of allegedly dependent contractors to be workers’ (2005:15).

The Roof Tile Association of Australia Inc. (RTAA) represented concrete and terra cotta tile manufacturers as well as significant numbers of tile installation contractors. RTAA supported the Coalition Government’s policy direction:

Small (often family run) businesses in particular should not be subject to an unacceptable risk of a government instrumentality, industrial tribunal or court finding that their independent contractor arrangement is something other than what was expressly agreed and intended … It also creates unnecessary uncertainty around taxation, superannuation and workers compensation compliance issues (RTAA submission 2005:4).

Like the HIA, RTAA couched its concerns around risks for small businesses. In reality, larger companies using significant numbers of labour-only subcontractors stood to benefit most. By contrast, the Civil Contractor’s Federation (CCF), which purely represented subcontractors and not principal contractors such as builders or manufacturers, exhibited different concerns including the continuation of state-based ‘security of payments’ schemes and the need for parallel legislation at the federal level (CCF submission 2005:2). The CCF also saw merit in a settled definition of the term ‘independent contractor’ arguing the ATO criteria provided the basis for a ‘comprehensive legislative definition’ (2005:4).Unlike the big construction employer associations, CCF suggested that serious problems existed:

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 (2005:5).

The CCF supported the big employer groups in arguing against intervention by state tribunals to determine ’fairness’ in ‘freely entered’ work contracts (2005:7). The CCF agreed with MBA’s idea of federal registration for independent contractors and advanced their own detailed proposal (2005:8- 9) to address the current situation where, ‘individuals present themselves as independent contractors when they are not bona fide contractors, but prospective employees who hold an ABN’ (2005:8).

The CFMEU lodged a brief submission, outlining its broad concerns:

Bogus “independent” subcontracting is widespread within the building and construction industry. By classifying their workers as subcontractors, employers usually save on administration costs and avoid award entitlements. The workers involved usually pay a lower rate of taxation than like workers who are treated as employees. In our view, most of these workers are not truly “independent” and should instead be classified as employees at law.

The CFMEU identified three main consequences of ‘bogus’ contracting: workers involved received ‘lower overall remuneration’; employers who engaged workers lawfully were ‘undercut by unscrupulous operators’; and the Australian community was losing ‘billions of dollars in unpaid taxes’ (CFMEU 2005:4).

Among the unions the AMWU alone lodged a major submission. Its paper summarised the precarious employment debate and argued ‘both labour hire and contracting (especially dependent contracting) are part of the wider trend towards casualisation and intensification of the work effort’ (AMWU submission 2005:5). The paper mainly focused on the manufacturing industry and labour hire; however three points regarding self-employed subcontracting were relevant.

Firstly, the AMWU commissioned the National Institute of Economic and Industry Research to study consequences for taxation revenues of growth in contracting. The Institute reported $14.38 billion per annum was at risk across all industries through misclassification of employees. Its estimate for construction was $1.13 billion in 2001/2 (2005:64-70). Secondly, the detrimental impact of growth in contracting on skills and training formation was illustrated using a UK study from 2002/3. The study showed the UK construction industry was increasingly reliant on self-employed workers (over 40% of the workforce) and this was resulting in reduced commitment by employers to trades training (2005:58-60). Thirdly, the AMWU analysed a Liberal Party policy document which indicated, ‘a view in the community that these tests have gone too far … the honest intention of the parties are disregarded and overturned’.105 The AMWU responded it was ‘unaware of any significant view in the broader community that the judiciary’s efforts to uncover “sham” independent contractor arrangements have ‘gone too far’ (2005:74).

The recommendations contained in the Committee’s Majority Report issued in August 2005 were modest. The report weighed the advantages and disadvantages of self-employed subcontracting. It

105 From the Liberal Party policy statement ‘Protecting and Supporting Independent Contractors’ dated 26 September 2004.

85 collated employer-driven factors and employee or worker-driven factors (Making it Work 2005:23- 24). The Committee concluded problems were evident, including; workers were being pressured into contracting, ‘inappropriately categorised’ and unable to negotiate reasonable rates to meet legal obligations. It acknowledged state governments had introduced unfair contracts provisions and deeming legislation to protect these workers (2005:25). It referred to the Queensland Government submission (2005:81) to note adverse consequences for OHS. Yet despite these factual findings the Coalition committee members didn’t recommend anything beyond ‘light-touch’ regulatory measures. Of the twelve recommendations which related in whole or in part to self-employment, measures such as ‘increased data’, ‘national consistency’ of definitions, ‘improved education’ and ‘greater provision of information’ for independent contractors were typical of the suggested remedies (2005:xxi-xxv).

A minority report from the Labor members concurred with nine of the Committee’s recommendations but opposed the government’s push to collapse state-based protections. They viewed the traditional employment relationship as subject to frequent manipulation and believed a clear definition would assist.106 They recommended that national consistency should not be at the expense of state laws that, at least in some states, were providing effective remedies and ‘preventing exploitative arrangements’ (2005:164). These views cut no ice with the Howard Government, then enjoying a majority in both houses of parliament. The Independent Contractors Act 2006 and the Workplace Relations Legislation Amendment (Independent Contractors) Act 2006 came into effect on 1 July 2006. Forsyth (2007) considered the legislation a pale imitation of the protections previously available in NSW and Queensland. Others saw mitigation in the exemption from the new legislative regime of a range of state and territory laws, related to workers compensation, OHS, security of payments, outworkers and transport owner-drivers (Stewart 2008:58). The ICA continued agitating against the legislative package for not going far enough, while the HIA declared the outcome a ‘victory for HIA lobbyists and members’ (HIA President Brian Langford-Jones 2007 quoted in Stewart 2008:59).

On 3 June 2009, the Rudd Labor Government directed the Board of Taxation107 to complete by October 2009 a Post Implementation Review into the Alienation of Personal Services Income Rules. The TOR were narrowly cast to ascertain whether the APSI rules were achieving their objective and

106 They too were attracted to Andrew Stewart’s definition. See p.161. 107 The Board of Taxation is a government advisory body charged with contributing a business and broader community perspective to improving the taxation laws.

86 to identify any issues and options for improvement (Board of Taxation Review 2009:6). The Board received 13 public submissions. Apart from accounting organisations, the main industry sector to respond was building and construction. The HIA lodged a brief but unequivocal submission:

…there is currently no difficulty or dissatisfaction with the Alienation of Personal Services Income provisions of the Income Tax Assessment Act … the rules have worked well and have fully addressed the issues (originally raised in the Ralph Report in 1999) … there is no evidence to suggest that the provisions are not effective, have led to unforseen (sic) outcomes, or require improvement (HIA 2009:1)

The ICA made a longer but consistent submission – the APSI rules were working well and should not be disturbed. The CCF’s submission was similar. The MBA addressed the merits of self-employed contracting more broadly, asserting the structure was ‘not principally tax driven’ (MBA 2009:7). The MBA argued the ‘certainty and clarity’ that independent contractors had sought had ‘not been achieved’. The MBA reiterated the three-pronged approach earlier presented to the Making it Work inquiry, including registration of independent contractors to provide a ‘shield’ against taxation or other authorities (2009:8-9).

The CFMEU lodged an extensive submission arguing the APSI rules had failed to achieve their policy intent:

 revenue collected was unlikely to have matched initial government projections and the ATO had not published revenue data (CFMEU 2009:7-9).  the extent of bogus or dependent contractors in the construction industry had grown (2009:9- 12).  ABN’s were too easy to obtain and this had contributed to an industry culture of ‘No ABN No Start’ (2009:13-17).  failure to incorporate the Ralph Review’s ‘employee-like manner’ test had led to rules which were ‘inappropriate and defective’ (2009:17).

The CFMEU’s evidence of a ‘No ABN No Start’ culture struck a chord with the Board of Taxation.108 The CFMEU highlighted a 2002/3 report109 by the Australian National Audit Office (ANAO) which found ‘an increasing propensity in job advertisements for employers to require applicants to have an ABN’ (ANAO report 2002-03, p.61-62 quoted in CFMEU 2009:13).The ANAO found ‘a significant increase in the proportion of new ABN registrations coming from individuals and testing had identified registrants that appear to be employees rather than businesses’ (2009:13-14). Evidence

108 See Board of Taxation Review, p.22. 109 Australian National Audit Office (ANOA), Administration of Australian Business Number Registrations, Australian Taxation Office, The Auditor-General Audit Report No.59 2002-03, Performance Audit.

87 from CFMEU included a 5 page appendix of construction industry job advertisements (trade and non-trade) in the Daily Telegraph and Sydney Morning Herald from the weekend 25-27 July 2009. The advertisements demonstrated widespread use of expressions ‘must have ABN’ or ‘must have own insurances’ – signifying employers’ requirement to engage workers on a self-employed basis. The CFMEU also presented results of a Google search of construction job advertisements dated 28 July 2009 using the expression ‘must have ABN’, revealing approximately:

• 37,300 results for ‘plumber must have ABN’ • 120,000 results for ‘labourer must have ABN’ • 6,700 results for ‘tiler must have ABN’ • 12,500 results for ‘plasterer must have ABN’ • 122,000 results for ‘form worker must have ABN’ • 46,500 results for ‘concreter must have ABN’ • 9,300 results for ‘concrete worker must have ABN’ • 23,200 results for ‘carpenter must have ABN’ • 6,190 results for ‘scaffolder must have ABN’ • 4,940 results for ‘insulation installer must have ABN’ (CFMEU 2009:25-26).

The Board of Taxation concluded that though there had been some improvements to integrity and equity of the tax system under the APSI rules, these had been ‘inadequate’ (Board of Taxation Review 2009:25). Four key contributing issues were identified:

 poor compliance;  uncertainty about interaction of the rules with Part IVA and consequent continued reliance on Part IVA to address the alienation of personal services income;  lack of clarity around claimable deductions; and  difficulty in application of the rules, particularly the tests for a personal services business, and complexity of the PAYG withholding obligations on attribution (2009:25).

The Board recommended the establishment of reporting obligations when a business makes a payment for the provision of labour services. Payers and payees would have to supply ABN’s, transactional details and annual payment summaries to the ATO (2009:31). The option of a withholding regime was also proposed, similar to a scheme under consideration for the same reasons by the British Government. The Board suggested this might ‘reduce the incentive to be a contractor and acquire an ABN’ (2009:33) and it also favoured adoption of the Ralph Review’s 80 per cent test, which would:

…remove the ‘results test’ that is currently used by 88 per cent of personal services income taxpayers who self-assess as a personal services business. Compliance would be easier for the ATO to enforce if there was an objective test … rather than attempting to ensure compliance around a test that is surrounded by a large ‘grey area’ (2009:34).

The Board suggested a number of options – all aimed at strengthening the APSI rules. The Board of Taxation recommendations brought the policy argument full circle, arriving at a similar position to the Ralph Inquiry and the original APSI legislation in 2000, prior to amendments so successfully lobbied for by construction employers. The Board of Taxation Report was referred to the Henry Tax Review110 which accepted the findings in 2010 and recommended changes accordingly. This represented a turning point in the long debate about the link between tax evasion and sham contracting. Major employer groups argued forcefully for the tax laws to remain unchanged however an independent arbiter found they were not achieving their intent. The deficient laws, introduced at employer behest, had fostered the spread of sham contracting.

In November 2010, ABCC Commissioner Leigh Johns announced the Sham Contracting Inquiry. Johns, appointed by the Rudd Labor Government in October 2010, addressed a Senate estimates committee111 later that month, indicating the ABCC would become a ‘full-service provider’.112 It would now target breaches of law against workers including underpayments and sham contracting:

Decent employers in the building and construction industry are at a competitive disadvantage to those who seek to engage workers through bogus contracting arrangements. They are then faced with an invidious choice: join in the indecency of sham contracting or go out of business.

For workers, it means a reduced capacity to enjoy basic conditions of employment such as annual leave and sick leave … As a whole, there is reduced workplace health and safety performance and poor workplace relations. For government, sham contracting has implications for taxation revenue and the degree of equity in the tax system (Senate Estimates, 20 October 2010, p.2).

Addressing the Australian Labour Law Association in November, Johns analysed current legal remedies against sham contracting, described them as of limited utility and a key reason why so seldom used. Even when litigation was successful, the remedies, ‘are of necessity restricted to a result in a particular case, and at most give rise to an individual employer being fined. Civil penalty litigation … is unlikely, on its own, to generate significant change in the industry’ (Johns 2010:4). This contrasted with views expressed by Royal Commissioners Gyles and Cole, who believed that individual prosecutions of offending employers were sufficient. Johns went further in his address

110 Formally known as Australia’s Future Tax System Review, this inquiry was established by the Rudd Labor government in 2008 under the Chairperson Ken Henry with a remit to tackle comprehensive tax reform. See Recommendation Ten at p.82. 111 The hearing was known as the Senate Standing Committee on Education, Employment and Workplace Relations, Supplementary Budget Estimates for 2010/11, 20 October 2011. 112 This was a departure from the approach under former Commissioner John Lloyd who targeted union conduct only.

89 than any previous public official, characterising sham contracting as a ‘systemic’ problem requiring a ‘commitment to action’ (2010:13). Johns laid out eight TOR (2010:8), intending the inquiry to be a comprehensive examination of sham contracting and labour hire in the Australian construction industry. A Discussion Paper issued by the ABCC in December 2010 summarised the issues to date and the current state of the law. It presented the by now familiar positions held by industry parties and posed questions and options for tackling the problems associated with sham contracting. The ABCC inquiry received 21 formal submissions. Notably, the unions refused to participate (CFMEU 2011:4).113

The majority of submissions were from employer associations who, with minor exceptions, ‘held the party line’.114 There was no widespread problem; as illustrated by the limited number of prosecutions; the existing legal remedies in the Fair Work Act and the Independent Contractors Act were adequate115; freedom to contract without interference by third parties was essential; the descriptor ‘dependent contractor’ was invalid; an education program conducted by the ABCC could address any issues. The HIA baulked at participating in an inquiry headed by a Commissioner predisposed to regard sham contracting as a significant problem:

HIA considers that the ABC Commissioner is not a proper authority to carry out this investigation, misconceives his role, and is acting beyond his legal powers and functions. If there is to be an inquiry into sham contracting, it should be a properly constituted inquiry by an independent body with the appropriate powers and functions (HIA 2011:7).

The HIA contended in an often vitriolic submission that it was the most representative organisation in the housing industry, catering for the interests of all.116 However, the following points reflected the interests of its employer members more than those of its labour-only subcontractor members:

Another important unstated premise of the Discussion Paper is that employers exist only to provide jobs, and workers ought to be able to unilaterally choose the legal structure in which they perform work. All the focus of the Paper is on the rights of workers and none on the wider context in which work is performed. This is wholly out of touch with reality …It is for the builder to decide how many employees need to be engaged…The worker does not tell the builder what jobs are to be offered and under what legal structure (2011:11/12).

113 The boycott decision was driven by a changing of the guard inside the CFMEU. The ascendant state branches from Victoria and West Australia believed Johns was not genuine about tackling sham arrangements and was trying to legitimise an illegitimate organisation. ‘The ABCC ‘inquiry’ into sham contracting is a sham in itself’ (CFMEU 2011:4). 114 ACCI, AIG, CCF, CCIWA, NECA and Master Plumbers were in this category. 115 The ACCI argued they were too onerous. 116 HIA submission:7.

The HIA maintained that contracting parties make free choices in the housing industry and this freedom must be inviolable. Whether the HIA’s understanding of choice was even-handed may be judged from its statement below:

In Australia, a builder cannot be forced to take on a worker as an employee, nor can a worker insist they work as an employee. Industrial and political action aimed at reversing this position, and forcing builders to use employees rather than contractors, is an attempt to reverse fundamental laws of economics (2011:12).

The HIA conceded that most of these contractual dealings were ‘informal arrangements’ (2011:11) and that ‘the majority of contractors in the industry are not members of any organisation’ (2011:16) - interesting admissions that further clarify the HIA’s core constituency. The HIA went on to claim that ‘forcing people to work as employees’ would be a violation of the United Nations Declaration of Human Rights (2011:16); there were in the HIA’s estimation ‘at least, 830,000 contractors working in the building and construction industry in Australia, out of a total of about 940,000 workers’(2011:23); and ‘if the contractor is forced to be an employee’ spouses will become involuntarily unemployed’ and ‘if only 25 per cent of the approximately 840,000 contractors in the industry were affected in this way, that would still mean an increase in those seeking work of 210,000 persons’ (2011:34). A grain of salt may have been added by Commissioner Johns to these wild claims, when weighing them for his final report.

The MBA submission was more measured. It objected to the ‘conflating’ in the Discussion Paper of labour hire with sham contracting, pointing out that the former was a legal labour market arrangement (MBA 2011:7). The MBA defended the ‘choice’ of persons to work as independent contractors, ‘they can work and achieve more than they could within the rigid structure of permanent or other Award or agreement based employment’(2011:11). The MBA argued ‘dense and inappropriate workplace relations constraints’ were the main driver for employers’ use of self- employed workers, with many of their members unable to understand the ‘impossibly complex’ laws on workers’ entitlements and taxation (2011:15-16). The MBA pointed to shortcomings in the common law regarding the legal boundary between employees and the self-employed and continued to advocate for a three step process including registration with a Commonwealth agency (preferably the ATO) for each project undertaken (2011:24-27). The MBA claimed that registration would ‘assist with compliance with taxation laws’ – somewhat ironic in view of its insistence that there was no connection between sham contracting and tax evasion. ‘The subcontractor enters into the subcontract to obtain better reward for effort … The different tax rules which apply are a by- product of this choice and are not the primary driver, if at all, as implied in the Discussion Paper’ (2011:35).

The Australian Mines and Metals Association (AMMA) on behalf of owners and managers of large resource projects submitted that current laws were appropriate and an industry education program desirable.117 However its position on whether tax evasion was a driver of sham contracting differed markedly from the other employer groups. The AMMA acknowledged a link between ‘current tax incentives’ and sham contracting and was critical that ‘thousands’ of ABN’s issued every week allowed workers to be styled as self-employed contractors (AMMA 2011:11).

The Sham Contracting Inquiry final report in November 2011 included consideration of submissions received from a number of small sub-contractors. NSW bricklaying subcontractor Bob Wilkie from Bobrick Constructions Pty Ltd submitted:

Sham contracting has enabled businesses that continually flout the rules and pay vulnerable workers below Award rates to price jobs at extremely low costs … they are awarded contracts by large, principal contractors who wish the work to be done at the lowest rate … I come across other small contractors on a daily basis that use ABN people to by-pass having to pay correct rates … many of my employees tell me that they have been told when applying for work with other sub-contractors, that they have to get an ABN or else they will not be used (Sham Contracting Report 2011:53-54).

An anonymous subcontractor submitted his estimate that:

99% of houses built in Australia would not have had any super paid … The effect on the worker and the community is huge … From every ten people I ask nine are on the ABN system, owe tax and have no super … determining the difference between a contractor and an employee is what this discussion is really about and the attempts by Associations and employers to exploit this difference has reached epidemic proportions (2011:54).

The report highlighted three academic submissions. Stewart and Roles suggested that arguments for an unfettered freedom to contract came invariably from employers and their associations and were ‘squarely grounded in self-interest’. Limits to the practice were essential ‘if the integrity of our labour law system is to be protected’ (2011:57). Stewart and Roles assessed the prime remedy against sham contracting at s.357 of the Fair Work Act as ‘both ambiguous and inappropriately generous’ to employers. They proposed an amendment under which ‘an employer would have to show that they could not reasonably have been expected to know that the contract in question was an employment contract’ (2011:58). They argued a statutory definition of employment status should establish a

117 AMMA submission:9-10,18.

92 presumption a worker is an employee unless proven otherwise and criticised the unfair contracts provisions in the Independent Contractors Act as ineffective (2011:59).

Howe and Hardy (2011) identified ‘structural barriers’ such as tax avoidance and ‘fears for future work’ if workers complained about prevailing illegalities (Sham Contracting Report 2011:57). They considered the issues systemic and that ‘regulatory strategies and tools should be aimed at changing the behaviour of employers at the market level, rather than at the level of the individual workplace’ (2011:58). As Johns himself had identified in evidence to the Senate in February 2011, Howe and Hardy argued regulatory focus should be on industry sub-sectors, such as finishing trades, where sham contracting was most prevalent and workers most vulnerable. The third academic submission, from Dr Underhill, focused primarily on labour hire and made two points relevant to sham contracting. Firstly, that ‘economically dependent contractors’ should attract a different and higher standard of legislative protection than independent contractors and secondly, that non-compliance with OHS laws was one of the major effects of sham contracting and labour hire (2011:2-6).

Despite the union movement’s boycott, Johns took account of the CFMEU publication, ‘Race to the Bottom’, dated March 2011. Johns acknowledged CFMEU’s attempt to map the dimensions of the sham contracting problem but criticised what he viewed as three methodological weaknesses (2011:72-73). Johns found similar shortcomings in CFMEU analysis estimating tax revenue leakage at $2.475 billion per annum (2011:73). Johns noted without comment CFMEU views about employer culpability:

Major contractors in the Australian construction industry have been complicit in the practice of sham contracting for many years by either deliberately ignoring it or actively promoting it. They have accepted any benefit that might flow to them through the use of this system without any regard to the wider impact the practice has on workers, legitimate business operators, the public revenue or the industry generally (2011:68).

Johns noted CFMEU proposals to deal with taxation abuses (2011:69) and address the ‘wholly ineffective’ remedies against sham contracting in federal legislation (2011:70). Johns admonished the CFMEU for their boycott, described much of its material as anecdotal and concluded there was a need to commission research to determine the extent of sham contracting (2011:73). Johns accepted the views expressed by small contractors on the drivers of sham contracting:

…financial viability and competition induces employers to sham contract … penalties are insufficient to incentivise compliance … the industry is price driven and the lack of audits

means there is "no one backing you up".... "we are disadvantaged by doing the right thing” … A representative of the Master Concreters Association stated that there is a cost benefit to being considered a contractor … and, because there is minimal risk of being caught, individuals will take the more cost effective method (p.74).

Johns concluded that sham contracting could be driven by employers or workers depending upon circumstances – at other times it can result from ‘a meeting of minds’. A suitable regulatory approach could depend upon who is initiating and driving the sham arrangements (p.92). He made ten recommendations for future action: improved co-ordination among regulatory bodies (Rec.1); research to be conducted on the dimensions of sham contracting (Rec.2); improved education of industry participants (Rec.3, 5, 6, 7); improved consultation among stakeholders (Rec.4, 5 ,7, 9); enhanced enforcement mechanisms (Rec.8); undertake further consideration of the MBA’s national licensing proposal (Rec.9); and that the ABCC not pursue a labour hire code of conduct, the concept of joint employment or the concept of a dependent contractor (Rec.10)(2011:24-25).

Whether the recommendations, which had a distinctly ‘light-touch’ character, were consistent with the cultural change and real progress Johns had earlier argued was necessary (2011:14) was questionable. Whether union non-participation and failure to counter employer submissions or whether trenchant criticism of Johns and the ABCC by unions played any part in the final recommendations remain matters of conjecture.

4.4 Conclusion

This chapter used quantitative and qualitative methods to determine the dimensions and impact of self-employed sub-contracting in the construction industry over the period 1980- 2011. The proposition that self-employed sub-contracting has been extensively used, and the variant known as dependent or sham contracting much abused, can be drawn from qualitative evidence but not from statistical data.

Quantitative data on the dimensions of self-employed sub-contracting (independent and dependent) during the relevant period was problematic. While absolute numbers increased, ABS data did not take sufficient account of the complexities to produce reliable trend estimates. In 2008, a new ABS category ‘independent contractor’ was introduced in the FOES series, counting over 30% of construction workers working as self-employed. With regard to the prevalence of dependent or sham contracting arrangements, CFMEU research (2011)

94 appeared the most cogent available, estimating the figure in November 2010 at 10-18% of the construction workforce.

Qualitative research consisted of an examination of evidence submitted to and findings of twelve public inquiries. A close correlation was observed between the ideological stance of the government establishing each public inquiry, the findings reached and policy recommendations made. In only one case, the Burns Inquiry (1979), did findings and recommendations significantly depart from government expectations. Conservative political parties invariably appointed inquiry heads with a predisposition against unions and ‘interference’ in the labour market. These appointees regarded self-employment as a natural extension of a flexible and deregulated labour market. By contrast Labor governments generally appointed inquiry heads concerned about the capacity of self-employment to undermine labour standards and regarded unions as the legitimate representatives of workers.

The evidence demonstrated that in the 1980s self-employed sub-contracting was primarily confined to the housing industry; however following the Gyles Royal Commission and major economic recession in the early 1990s, spread into other construction sectors. Employers emboldened by the Gyles Royal Commission and the aggressive anti-union posture of the NSW Coalition Government were no longer constrained in their use of self-employed sub- contracting. The election of the Howard Government in 1996 and deregulatory recommendations flowing from its public inquiries pushed public policy towards precarious labour market practices. Employer policy positions in the 1990s and 2000s became more strident in support of unfettered use of self-employed sub-contracting. The HIA and right- wing think tanks such as ICA pursued a militant agenda in construction. Major groups including MBA, AIG (ACA), ACCI and AMMA all joined the fray. Old notions about freedom to contract were revived and became central to a neo-liberal project known disingenuously as ‘protecting the rights of independent contractors’.

The Productivity Commission inquiry (1999) and the Cole Royal Commission (2002) noted labour market problems (‘dysfunctionalities’) associated with the spread of self-employed sub-contracting. However, both were committed to free market solutions which abhorred interference with management’s prerogative to reduce labour costs. Dysfunctionalities were put to one side. Conversely, the Senate’s Beyond Cole inquiry (2004) and the ABCC’s Sham Contracting inquiry (2011) scrutinized self-employed sub-contracting from the perspective of

95 harm caused to standards and produced markedly different results. The former was overseen by a majority of ALP and Greens senators while the latter was conducted by a Commissioner appointed by the Gillard ALP Government.

The issue of lawlessness was considered by many of the public inquiries. Findings and recommendations were again influenced by the political predisposition of the arbiters. Royal Commissioners appointed by conservative governments alleged that industrial action by militant unions traduced the rule of law and assailed the unions with copious evidence of legal ‘infringements’. They recommended union deregistration and legislation to restrict construction union activities. Labor senators in the Beyond Cole (2004) report found employer complaints about union disrespect for the rule of law ‘rang hollow’ because of widespread employer non-compliance with federal and state laws in the industry. The Productivity Commission inquiry (1999), the Ralph Review (1999) and the Cole Royal Commission (2002) all acknowledged substantial tax evasion issues linked to the expansion in self-employed sub-contracting. Concerns about tax evasion and revenue shortfalls were overwhelmed by the political power of employer interests and their close connections with the conservative Howard Government – measures to tackle tax abuse were effectively buried. Not until 2009, when a federal Labor government established the Board of Taxation Review, was tax evasion back under the spotlight and employer complicity exposed. The Sham Contracting (2011) inquiry also demonstrated tax evasion was a critical driver.

The evidence demonstrated that substantial taxation revenue was lost to the public pursue due to alienation of personal services income. ‘Small business’ tax deductions functioned as a subsidy to the construction industry, mitigating the effect on workers’ standards. Without this factor, lower pay rates and non-existent protections would have been undisguised, likely pushing sham contractors to resort to collective labour market responses to produce better outcomes.

The next chapter analyses statistical data and material from public inquiries regarding the use of labour hire/agency workers and guestworkers in NSW construction during the relevant period.

______

Chapter 5: Other non-SER arrangements in the construction industry 1980-2011 – Labour Hire and Guestworkers

5.1 Introduction

Self-employed sub-contracting was the most prevalent non-SER arrangement over the period under review, however other changes in work organisation also occurred and will form the focus of this chapter. Labour hire accelerated from the early 1990s and temporary migrant workers – ‘guestworkers’ – increased during the 2000s. Together with self-employed sub-contracting, these were the principal methods by which employers and governments introduced labour market ‘flexibility’ (‘precariousness’ from another perspective) into the construction industry in NSW. This chapter, taking labour hire then guestworkers in turn, will follow a similar structure to Chapter Four, first considering data on growth, then material from public inquiries to illustrate the motives and actions of key industry organisations. As labour hire and guestworkers emerged more recently and were less entrenched than self-employed contracting the evidence is less extensive and four inquiries only are drawn from in relation to both phenomena.

5.2 Labour Hire

5.2.1 Growth

Many public inquiries highlighted shortcomings in statistical data on labour hire in Australian industry.118 Laplagne, Glover and Fry (2005) in a Productivity Commission working paper provided the most comprehensive data by analysing eight surveys between 1990 and 2002. They concluded that four provided a ‘sufficiently representative’ basis to determine the rate of labour hire employment between these years (2005:7). They estimated 270,000 labour hire employees in 2002, 2.9% of all employed persons in Australia.119 Using an alternative approach focusing on workplaces with 20 or more employees, they demonstrated a ‘five-fold’ increase in labour hire between 1990 and 2002 - from 0.8 to 3.9% - a substantial increase over the period (2005:4).

Cole Discussion Paper Eleven (2002:17) estimated 278,937 persons ‘on-hired’ as at June 1999 across all industries. This figure relied on material from the NSW Labour Hire Task Force report (2001:18)

118 NSW Labour Hire Task Force Final Report (2001:18); Making it Work: Inquiry into Independent Contracting and Labour Hire Arrangements (2005:44); Productivity Commission (2006:139) and ABCC (2010:12). 119 This data comes from the HILDA 02 survey which is largely consistent with the ESS 02 survey. See Laplagne, Glover and Fry (2005:7-8) for more.

97 itself drawn from ABS data that Laplagne, Glover and Fry (2005:7) assessed as unreliable. Cole’s estimate for the construction industry was that ‘the use of labour hire services is relatively low at 0.3 per cent of the workforce, compared with 1 per cent nationally’120 (Discussion Paper Eleven 2002:17). This estimate was drawn from the FOES 1998 survey, also judged by Laplagne, Glover and Fry as unreliable for the purpose. They preferred Productivity Commission research undertaken in 2005 that estimated the ‘rate of use of labour hire in 2002’ industry by industry (Laplagne and Glover 2005:27). For construction this yielded an average of 3.9%, a ‘moderate’ use.121 The ‘Making it Work’ (2005) inquiry largely adopted Laplagne, Glover and Fry’s approach, as well as AMWU data based on the HILDA 2002 survey which estimated 3.1% of construction industry workers in 2002 were ‘agency workers’ (2005:43).

The Sham Contracting Inquiry Discussion Paper (2010:10) noted the ABS included labour hire data for the first time in its 2008 FOES. This data revealed the ‘construction industry had the seventh largest proportion of workers hired through a labour hire firm or employment agency – equating to approximately 6.1 per cent of all labour hire workers’ (2010:13). Further, NSW, Victoria and Queensland used the greatest proportion, at 37%, 26.7% and 15.9% of all labour hire workers respectively (FOES 2008:42). 576,700 persons nationally in 2008 were hired through a labour hire agency, of which 213,500 were in NSW (FOES, 2008). Figures for individual industries were not collected, however applying the proportion of 6.1% to the aggregate figures yields approximately 35,179 in construction nationally, with 13,024 in NSW. Comparison with the total construction workforce at that time yields an estimated 3.6% of construction workers hired through labour hire firms in 2008. Labour hire data was not consistently collected in subsequent annual ABS FOES surveys – not until November 2011 were relevant questions again included.

A Productivity Commission staff working paper by Shomos, Turner and Will (2013) demonstrated that most non-SER arrangements increased markedly in Australia over the two decades to 2000 and levelled off thereafter. Significant growth in labour hire in the 1990s was not sustained; a slight decrease was noted in the decade to 2010 (2013:38). The paper acknowledged difficulties in measuring labour hire usage and quoted data sets for the period 2001-2011 whose estimates ranged from a high of 3.1% (HILDA 2001) to a low of 1.2% (FOES 2008:83). The paper noted the higher result was based on number of workers hired rather than the more valid measure of number currently paid by an agency (p.38). This paper and Laplagne et al. preferred the HILDA methodology, which

120 The term ‘nationally’ means all-industries. 121 See Glover et al. (2005).

98 estimated 2.3% or 260,000 labour hire workers in 2010. The research by Shomos et al. shed no light on the extent of labour hire in construction.

An issue was whether labour hire workers were employees of or contractors to the agency. Following the Odco controversy, both forms were possible.122 The Sham Contracting Inquiry Discussion Paper (2010:10) urged caution in relation to ABS FOES 2008 data because it related to persons who ‘found work’ through but was ‘not limited to those directly engaged by’ the labour hire firm. Such persons might be in an employment or contracting relationship with the agency. The Sham Contracting Inquiry paper considered labour hire ‘less common’ than self-employed contracting in construction and the incidence of labour hire workers being ‘independent contractors’ as likely more marginal still (2010:13). This proposition was contested. The CFMEU (2011:98) pointed to research by Brennan, Valos and Hindle (2003) indicating around 20%-25% of labour hire workers involved in ‘Odco-style’ arrangements. By contrast the NSW Labour Hire Taskforce Report (2001:6) concluded from AIG survey data in 2000 that self-employed labour hire arrangements were minimal, ‘less than 1%’. The unresolved issue was the difference between ‘de jure’ categorisation and actual treatment of labour hire workers by agencies and host employers.123

In summary: labour hire increased markedly across many industries in Australia in the 1990s but the growth trend did not continue in the 2000s; approximately 3% of the workforce obtained work via labour hire at the beginning of the 2000s; by decade-end this figure had fallen to around 2%. In construction the outcome appeared consistent with the all-industries trend however the decline was less acute. The number of labour hire workers who worked as independent contractors in the construction industry was likely to have been quite small.

5.2.2 The Body of Evidence – Public Inquiries

In May 2000, Minister for Industrial Relations Jeff Shaw QC established the NSW Labour Hire Task Force chaired by former ACTU President, Jenny George. Task Force membership comprised ten representatives from employer associations and unions, including some with construction industry experience (MBA, AIG, CFMEU, ETU). The TOR included: regulatory measures in other Australian jurisdictions; a legislative definition of labour hire; employer OHS obligations; and a cost-benefit

122 The practice has emerged in other industries. See Quinlan, Bohle and Rawlings-Way (2015) which deals with homecare workers. 123 Campbell, Watson and Buchanan (2004:133-135) argued that agencies often encouraged labour hire workers to believe they were self-employed, whereas they were often ‘disguised wage labourers’.

99 analysis of further regulation. In addition the Task Force considered methods for securing the standards of labour hire workers and for fostering their right to organise and collectively bargain (Task Force Report 2001:12). The Task Force considered 41 submissions (the majority from employer associations and labour hire agencies) and oral presentations from academics and practitioners. It presented its report to Minister John Della Bosca on 1 March 2001.

The report identified five factors underpinning growth in labour hire:

First, flexibility was a powerful attraction for employers. Labour hire ‘allows businesses to access a large supply of suitable labour to meet peaks and troughs of production, to outsource for specialist skills … to cover staff on leave and provides the opportunity to assess individuals before offering permanent employment’ (2001:15).The report stated a ‘large number of workers’ also ‘enjoy’ the flexibility and variety associated with labour hire; this type of temporary work could be a stepping stone back into the workforce and could assist with work/life balance. However it acknowledged that ‘worker attitudes’ could depend on their position in the ‘life cycle’ – those with family responsibilities seek security while flexibility often suited young workers (2001:16).

Second, risk management reflected the desire of companies to shift risks that accompany engagement of direct employees. The MBA submitted that ‘small businesses in the construction industry use labour hire predominantly for flexibility reasons while the larger companies use labour hire predominantly to devolve risk … associated with lack of control of movement on the job, union presence and workers compensation premiums’ (2001:16).

Third, employment opportunities: the ‘structurally unemployed’ could gain opportunities and work experience that might otherwise not be available. The MBA opined that labour hire ‘may provide greater continuity and ease of obtaining employment’ (2001:16), given the volatile nature of the construction industry.

Fourth, cost: unions submitted growth in labour hire was driven primarily by the desire of businesses to lower labour costs. This was being achieved by measures transferring industrial and social responsibilities disproportionately to workers and the community (2001:17).

Fifth, other motivating factors included: speed of obtaining labour; reduced administrative costs/responsibilities; and expertise in sourcing appropriate workers. The ACTU argued the last- mentioned factor reflected ‘an industrial strategy by employers to reduce union presence in the

100 workplace or to introduce change outside of the established processes of consultation and negotiation’ (2001:17).

The report examined the characteristics of the labour hire industry in NSW (chapter 2), the best and worst practices (chapter 3) and policy in other jurisdictions (chapter 4) and made six recommendations. In summary:

1 The Industrial Relations Act 1996 be amended to include labour hire companies and/or group training organisations in the definition of ‘employer’; 2 The Minister establish a licensing regime for labour hire companies and a working party to determine the mechanics; 3 An education campaign be undertaken on the rights and responsibilities of each party - host organisation, labour hire company and worker; 4 The Occupational Health and Safety Act 2000 to include provisions for joint responsibility between host organisations and labour hire companies; 5 An education campaign be conducted on OHS obligations of labour hire companies and host organisations; and 6 Legislation be introduced for joint responsibility by the labour hire company and host organisation for rehabilitation and return to work of injured workers (2001:43-68).

Recommendations 3, 5 and 6 were unanimous; the remainder more contentious. The MBA would accept recommendations 1 and 2 if group training companies were excluded.124 Building employers represented by the MBA objected to joint responsibility for OHS (Recommendation 4), arguing labour hire companies should be exempt from OHS obligations unless in control of the employee’s workplace. The report highlighted examples of regulatory difficulties associated with accidents involving labour hire workers on construction sites (2001:57).

The Task Force was unable to produce recommendations on the protection of wages and conditions, and the right of labour hire workers to organise and collectively bargain. The MBA expressed support for labour hire workers receiving site-equivalent standards but did not agree with this being a legislative requirement (2001:75). On this and most issues considered by the task force the CFMEU and other construction unions were silent, content to support Labour Council of NSW

124 A group training company centrally employs apprentices and is responsible for their training/welfare. Apprentices are hired-out to participating employers to obtain on the job training. The NSW MBA ran a large group training company at the time.

101 submissions.125 The Carr Labor Government made little progress in implementing the recommendations. In April 2002 the Labour Council of NSW commenced a test case in the NSW Industrial Commission aimed at enhancing the rights of labour hire workers (O’Neill 2004:18).

The Cole Royal Commission Discussion Paper Eleven devoted two pages to labour hire, reviewing legal issues surrounding the Odco dispute and summarising those dealt with by the NSW Labour Hire Task Force. In a possible nod to the case for more protection the paper acknowledged:

Hire of labour only services is a long way from the provision of specialist services by the classical independent contractor, particularly when workers perform lengthy periods of labouring duties on building sites … There are legitimate issues as to whether those workers should receive most of the benefits of employees (Discussion Paper 11, 2002:17).

On the other hand the paper recognised the importance of ‘flexible labour practices’ as outlined by the Commonwealth government (2002:17). It noted the emergence of ‘powerful’ labour hire firms and drawing on evidence from the Queensland MBA, suggested that building unions were complicit in this development. O’Neill (2004:16) made a similar observation.126 Union concerns were noted, particularly the lower level of scrutiny faced by labour hire firms supplying ‘supplementary labour’ compared with subcontractors through the tendering process. Concerns by the Commonwealth government that ‘labour arrangements dictating the source of supply can be anti-competitive’ were canvassed, together with its proposals for a code of conduct and for unions ‘to be excluded from owning labour hire firms or establishing business partnerships with such firms’(Discussion Paper Eleven, 2002:17). The paper pointed to increased regulatory protections recently legislated in Western Australia and under contemplation in NSW.

Cole’s Final Report recorded the proprietor of Odco’s view that workers with a ‘contractor’s mindset’ want to be self-employed and that union opposition was driven by ‘vested interest’ and quest for ‘control’ (Cole Final Report 2003, Vol. 8, Part 10:82). Similar arguments were advanced by the MBA (p.85-86). The AIG/ACA employer grouping argued current regulatory arrangements were sufficient and labour hire agencies already subject to ‘an extensive body of rules and regulations’ (p.85). Union submissions were outlined extensively. The CFMEU called for legislation to regulate labour hire;

125 The report records CFMEU advocacy for legislation to address under-payment of workers’ compensation premiums (p.68). 126 In the late 1980s some NSW construction union officials (e.g. BLF NSW Branch Assistant Secretary, Arthur Neeson, and BWIU NSW Branch senior official, Tony Bleasdale) left union roles and established construction industry labour hire businesses - not with union approval. Personal relationships with some former union colleagues were maintained which ‘muddied the water’ and militated against an unequivocal union response. This background is from the writer’s personal knowledge as a then senior BWIU NSW Branch official.

102 confusion surrounded the present arrangements – the worker was paid by one employer but took direction and control from another.

The union saw a capacity for statutory and award conditions to be eroded through the diluted chain of responsibility … the capacity of labour hire workers to refuse unsafe work was undermined by the inherently insecure and precarious nature of such employment. The CFMEU also referred to a capacity for fraud or phoenix-like practices by labour hire companies (p.82).

The CFMEU supported research by Dr Richard Hall demonstrating the deleterious effect of labour hire on training and skills development (Hall 2002). Hall argued labour hire was being used to ‘drive down labour costs and even to substitute existing workforces with lower cost, more compliant workers … the attempts by client employers to avoid or minimise their responsibilities and liabilities, has created an urgent need for policy reform (Cole Final Report 2003, Vol.9, Part 10:83).

Cole concluded that ‘bodies as diverse as the CFMEU, the MBA Inc and the Commonwealth have suggested that some issues concerning labour hire need to be resolved' (p.87). Cole listed several areas needing attention (identification of the employer, responsibility for safety and impacts on training) and recommended a Code of Conduct and Practice be developed for labour hire by the Workplace Relations Ministers’ Council. Cole’s recommendation of a non-legislative, ‘light touch’ regulatory remedy to issues affecting construction workers stands in stark contrast to the prescriptive statutory machinery he recommended to curb union power. There is no evidence that Cole’s recommendations in regard to labour hire were ever implemented.

Two TOR in the Making it Work Inquiry were pertinent to labour hire:

 the status and range of independent contracting and labour hire arrangements; and  the role of labour hire arrangements in the modern Australian economy.

The Inquiry drew on research by Brennan, Valos and Hindle (2003) to describe the operation of the labour hire sector and to identify five categories of service provided: 1. ‘labour hire employee services’: the agency employs the worker who is hired out to perform services for a third party client - the most common approach; 2. ‘labour services contractor services’: the hired worker is an independent contractor and not an employee of the agency or host; 3. ‘recruitment services’: the agency may ‘source and place’ workers for a client business which then employs the workers;

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4. ‘employment consulting services’: the agency provides advice to a client on employment related issues. The consultants may be employees of or independent contractors to the agency; and 5. ‘managed project/contract services’: the agency undertakes specific operational functions outsourced by the client. It may employ persons, use independent contractors or sub-let to other service providers (Making it Work 2005:33-35).

The Making it Work Inquiry agreed with submissions from the Skilled Group labour hire firm and the Department of Employment and Workplace Relations (DEWR) regarding the advantages of labour hire for:  clients ‘flexibility; specialist skills; access to skills – current skills shortage; cover peaks in business; outsource non-core areas; staff illness/leave; reduced costs; and manage key areas of expertise such as OHS’; and  employees ‘variety and diversity of work; flexibility of working hours; flexibility in choosing jobs; multi-skilling through broad experience; on-the-job training; superior wages and working conditions; rehabilitation and return to work policies’. Also a bridge to full-time employment (2005:37).

The Inquiry dealt with disadvantages of labour hire in a more cursory manner, drawing upon the Victorian parliament’s Economic Development Committee report (2005) and union submissions. The ACTU submitted:

Non-standard work arrangements are increasingly being used to undermine the employment relationship and the protections attached to it. The growth of these forms of work has also contributed to the lack of skills development and has serious implications for the management of occupational health and safety (Making it Work 2005:38).

The Inquiry acknowledged concerns about creation of a ‘two-tier workplace’, with labour standards for direct employees higher than those for labour-hire workers. The Transport Workers Union (TWU) argued labour-hire workers, ‘often do not know if they have work the following day’ (2005:38). The CFMEU cited an Auspoll survey of Skilled Group workers127 showing that ‘the least advantageous aspects of labour hire work were employee morale, security of income, wages and conditions and access to training’ (2005:39).

127 See Skilled Group submission (2005:6).

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The Inquiry examined structural features of the labour hire industry. In the top layer were seven to eight large agencies with the dominant share of the market, including Australian-owned operators like Skilled Group and global players like Adecco and Manpower (2005:39). Skilled Group (2005) described the industry as consisting of three tiers (see below) and stated it was difficult to estimate the number of operators in Australia because ‘barriers to entry are low’. Skilled Group considered ABS estimate of 2,704 such firms in 2001-2002 as conservative (2005:8).

Table 5.1 Labour Hire – Three tiered industry

Tier I Large reputable companies with good cash flow, OH&S, IR, Workers comp. Tier II Medium sized companies may provide some of above but unable to fund others. Tier III “Fly by Night” operators with questionable business practices.

(Source – Skilled Group 2005:9)

Skilled Group submitted:

We would classify SKILLED as a Tier I company that meets all its financial and ethical obligations to its staff, employees and the wider community. Some of the small players (Tier III) can set up shop with an office and a phone and may not adhere to all current legislation regarding OH&S, IR and taxation.

SKILLED is concerned about the failure to distinguish between the Tier III and the ethical operators in Tier I such as SKILLED. There is a perception that Labour Hire operators have been delinquent in their responsibilities to their employees (Skilled Group 2005:9).

The Inquiry canvassed issues including: the prevalence of casual labour; which major industries were using labour hire (estimating 3.1% of workers were in the construction sector); difficulties distinguishing between basic labour hire agencies and broader ‘employment services’ providers; current state-based inquiries; legislative and award regulations; and international codes and instruments (especially ILO conventions). Of particular note was discussion of Cole’s recommendation for a Code of Conduct and Practice (Making it Work 2005:45). The Inquiry received evidence from the MBA that: it supported a code, if developed by the labour hire industry itself; any code should apply to labour hire companies in all industries (not just construction); and should be a comprehensive national document (2005:45). The Inquiry noted the existence of a code of practice for Recruitment and Consulting Services Association (RCSA) members as well as the role of the Australian Competition and Consumer Commission (ACCC) in endorsing and overseeing the operation of voluntary industry codes. The Inquiry suggested voluntary codes could be made mandatory if the industry ‘does not readily accept or comply with a voluntary code’ (2005:92).

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The most significant recommendation made by the Inquiry on labour hire was for a voluntary industry code of practice. Five other recommendations for action by the Federal Government were:

 to ‘commission research on the prevalence of labour hire’ and improve ABS data;  to ‘develop a program of skills development and a best practice guide’ in consultation with relevant stakeholders;  to ‘improve’ OHS in the labour hire sector through: a) better collation of data on injury rates; b) requiring OHS training for workers by labour hire agencies and hosts; c) ‘monitoring and enforcing compliance’ with OHS regulations.

 to ‘more clearly delineate responsibilities’ between labour hire agencies and hosts in relation to OHS; and  to ‘review’ workers’ compensation schemes to ‘assess and improve’ the measurement of injury rates (p. XXI-XIII).

A minority ‘Dissenting Report’ from ALP members made six additional recommendations, summarised below:

 labour hire workers to have a legislated right to request permanent employment after 12 months continuous service with a host;  legislation to ‘ensure that both agency and host share joint responsibility’ for OHS;  legislation to ‘protect the effectiveness of industrial agreements and awards by prohibiting labour hire agencies from undercutting wages and conditions’;  legislation to outlaw the ‘so-called ‘ODCO’ arrangements’ as illegitimate;  no prohibition in WorkChoices legislation of clauses prohibiting labour hire in registered agreements; and  establishment by government of ‘a mandatory register to ensure that labour hire companies comply with proper employment and business practices’ (2005:157-173).

The recommendations of the LNP controlled report continued to embrace ‘light touch’ regulation. The Dissenting Report by contrast recommended more interventionist measures. The Howard government ignored the minority report and its recommendations lapsed. The modest recommendations of the majority report were also largely ignored. The labour hire industry insisted it was improving OHS compliance and DEWR expressed willingness to assist with development of a voluntary code – nothing tangible resulted (Underhill 2006:308-312).

Of the Sham Contracting Inquiry’s eight TOR, three addressed labour hire. Its Discussion Paper (2010:25-28) outlined the ‘Odco’ controversy and analysed subsequent court decisions. The notional benefits of labour hire were reproduced from the Making it Work (2005) Inquiry – the list for employers twice as long as that for workers (2010:28-29). The paper covered new ground, quoting

106 the ATO’s acknowledgement that ‘phoenix’ companies commonly used labour hire arrangements, ‘fraudulent phoenix arrangements typically involve one entity operating as a labour hire agency by providing labour to related entities (i.e. in the same corporate structure)’(p.30). The paper referred to a 2009 policy paper by the Commonwealth Treasury, indicating it was ‘monitoring’ examples of this conduct, which posed ‘a risk to revenue in the order of $600m’(p.30). Also canvassed was the concept of ‘joint employment’ as a way to identify the correct employer for labour hire workers. US law recognised more than one employer in certain circumstances.128 The paper examined relevant Australian cases, noting that while it had gained some acceptance in the AIRC and several state jurisdictions (including NSW Industrial Commission), it had never been incorporated into domestic law (p.31-32).

The Discussion Paper listed worker motivations for contracting and labour hire as: a) choice and independence; b) flexibility and convenience; and c) tax advantages and incentives for higher income and skilled workers. Employer motivations were: a) competitive pressures; b) flexibility and responsiveness to demand; c) reduced risks, costs and administrative burdens; d) workers with specialist skills; and e) method of limiting union presence (p.33-34). Evidence from the ATO illustrated motives behind ‘tax advantages’ and ‘reduced costs’ (from another perspective, tax avoidance and non-payment of worker entitlements):

…the ATO raised $26 million in tax and penalties as a result of an investigation which commenced in 1997 into bogus labour hire companies in NSW. In its submission to the 2003 Senate Inquiry, the ATO estimated that around 29 per cent of employers either fail to make superannuation payments, or pay less than the entitlement, attributing this, in part, to high levels of bogus contracting in the industry (p.37) … In 2008, the ATO reviewed 11,000 contractor entity records from labour hire firms…over 8000 (more than 72%) did not declare PSI in the income tax returns (p.44).

The Final Report summarised the views of responders to the Discussion Paper.129 Peter Bosa and Chris Mazzotta, directors of Troubleshooters Available, the original promoter of the ‘Odco’ model, submitted that the longevity of agencies like Troubleshooters Available was testament to the value of labour hire to the industry (p.62). ‘Labour hire arrangements allow workers to minimise their downtime [and] builders to maximise their operations by focusing on their field of expertise, rather than on recruiting and managing employees’ (p.66). They saw no need for any new regulatory measures and rejected proposals such as a code of conduct or joint employment. Due to the union

128 Source Texas World Service co, Inc v NLRB 928 F 2d 1426 at 1432 quoted in Sham Contracting Inquiry Discussion Paper (2010:31). 129 See p.58-59.

107 boycott, the CFMEU did not respond directly, however its ‘shadow’ report observed that labour-hire shared some commonality with sham contracting and was often ‘disguised employment’ (CFMEU 2011:99). The CFMEU urged adoption of the recommendations from the Making it Work Dissenting Report, as well as Cole’s 2003 recommendation for a code of conduct and practice (p.100-102).

The strongest academic voice was Underhill (2011), whose main points are summarised below:

● there is a strong perception amongst labour hire employees that hosts use labour hire to avoid unionisation and payment of minimum conditions and to circumvent unfair dismissal jurisdiction and return to work post-injury requirements; and ● there is no evidence that employees enter labour-hire arrangements to obtain tax benefits. The majority have no choice. Labour-hire was not their preferred mode of employment due to: lack of employment security; unpredictable earnings; lack of control over where and how they worked; lack of workplace voice; having to accept unsafe placements; hostilities experienced from direct-hire employees; and the lack of investment in skills (quoted in Sham Contracting Report 2011:59).

Underhill (2011) argued that the industry’s National Code of Practice should be amended to incorporate a requirement for registration of labour hire companies; a requirement that evidence be furnished showing that labour hire companies and host organisations met their respective OHS obligations; to include provisions encouraging permanent employment (by agencies and hosts) and a prohibition on the use of ‘hold harmless’ clauses (2011:60). 130 Howe and Hardy (2011) advocated a registration system for labour hire agencies modelled on the UK’s Gangmasters (Licensing) Act 2004. A similar system including mandatory pre-qualification, strong enforcement, and penalties including de-registration would lift standards (quoted in Sham Contracting Report 2011:60). Commenting on ‘Odco’, Stewart and Roles (2011) recommended legislated deeming provisions to make labour hire agencies the employer of on-hire workers (quoted in Sham Contracting Report 2011:60). Employer associations (AIG/ACA, CCF, RCSA), BHP Billiton and Peter Bosa were united in opposition to joint employment, arguing that it would cause uncertainty and confusion. Stewart and Roles (2011) were unconvinced of its merit. Most academic submissions and the CFMEU’s report were in favour, arguing that hosts have substantial influence over the activities of labour hire workers and should bear some of the legal responsibilities. The NSW government accepted the concept merited ‘further consideration’ (2011:66). In sum, employers and their organisations viewed labour hire as a

130 Contractual clauses preventing responsibilities transferring from the labour hire agency to the host.

108 legitimate business activity and believed there was no case for further regulation since the new national award covered labour hire firms.131 Labour market theorists however identified major problems and called for regulatory intervention (2011:44-53).

Johns’ findings dealt only briefly with labour hire, focusing on two possible remedial measures (code of conduct and joint employment), however declining to make recommendations for either. Johns accepted Bosa’s evidence that ‘those who wish to subvert the laws will continue to do so’ and the ACT government’s view, ‘there is a great deal of intentional activity’ which a code would not prevent (2011:104-105). Johns weighed these views against support for a code from key players including MBA and CFMEU. Johns acknowledged MBA’s argument for a code as a ‘moral guide or a moral compass for the industry’, however concluded that the new federal award had removed the ability of agencies to undercut award entitlements. While precarious employment might continue, this was outside the remit of his inquiry. Johns’ conclusions on both mooted remedies amounted to a recipe to do nothing:

The ABCC notes the comments of some participants that a voluntary code of conduct is unlikely to gain traction with those labour hire operators who are not currently meeting their legal obligations and may impose a burden on legitimate operators for a minimal improvement in compliance … Given the lack of issues that were raised with labour hire arrangements during the course of the Inquiry and the serious concerns that have been raised by parties to the Inquiry with any concept of joint employment, the ABCC should not dedicate resources to exploring this mechanism further (2011:106) .

5.3 Guestworkers

5.3.1 Growth

The Roach Inquiry (1995) signalled a major shift in Australia’s immigration policy from almost exclusively permanent migration to a greater reliance on temporary skilled workers. This has been well documented (Kinnaird 1996, Birrell and Healy 1997, Wright 2012, Hugo 2014). Neville Roach, former CEO of Fujitsu Australia132, was appointed by the Keating Government, however his recommendations were implemented by Howard’s LNP Government. Initial changes in the late 1990s were minimal (Wright 2014:403), however by 2002 independent and employer-sponsored skilled migration (permanent and temporary) had increased substantially compared with family reunion and humanitarian programs.

131 Building and Construction General On-Site Award 2010 Clause 4.6. 132 Currently advisor to Tata Consultancy Services (TCS), India’s largest IT company.

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These increases followed the expansion of visa categories requiring sponsorship from an employer, the regular adjustment of criteria for non-sponsored visas to prioritise young, English-proficient and highly-skilled applicants, the expansion of schemes encouraging foreign workers to settle in regional or low population growth areas and the relaxation of working holiday maker visa restrictions (Wright 2012:114).

Initial changes facilitating entry by temporary migrants with work rights focused on highly skilled workers, however requirements were diluted over the next ten years and increasing numbers were granted work rights across the skill spectrum. Figure 5.1 (from Wright 2012:114) illustrates the annual migration intake and split between temporary and permanent programs over a 14 year period.

Source: Immigration Department (2002, 2008a, 2010); Joint Standing Committee on Migration (2007).

Figure 5.1: Annual labour immigration intakes in Australia for main visa categories, 1995/96 – 2008/09.

The employer-sponsored subclass 457 (Business, Long Stay) visa, permitting the holder to work for a sponsor for up to four years (Hugo 2014:871) and their dependant/s to work without restriction for the same period, attracted most controversy. In response to a mooted skills shortage the Howard Government further relaxed s457 visa rules in 2005, resulting in a further surge. The s457 visa intake in 1995-1996 was 22,812 and peaked at 110,570 in 2007-2008, just prior to the onset of the GFC when the numbers fell back (see Figure 5.2 below).

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Intakes under other temporary visa categories with work rights increased over the same period:

 the Working Holiday Maker (WHM)133 or ‘backpacker’ program intake increased from 42,700 in 1995-1996 to 157,574 in 2007-2008, following a series of liberalisations: between 1980 and 2011, the number of partner countries increased from 3 (UK, Canada & Ireland) to 19 (including Japan, South Korea, Hong Kong, Taiwan and some European nations); in 2005, the permitted stay period was extended from one year to two for those able to demonstrate at least 3 months’ work in a regional area or in construction, agriculture or mining; in 2005, a second subclass (462) was added, allowing entry to limited (‘capped’) numbers from less developed countries, as well as unlimited numbers from the USA; and in 2006, the period of work permitted with one employer was extended from three months to six. Unlike the s457 visa, growth in WHM visas was only marginally impacted by the GFC134 and continued to accelerate reaching the unprecedented level of 258,248 entrants in 2012-2013 (Fig. 2 below);  overseas students have work rights in Australia (limited to 20 hours during term). Their presence in the workforce, particularly in low skilled jobs, increased significantly in the 2000s (see Figure 5.2 below) as a consequence of government policy to promote a growth industry and capture export earnings. Birrell and Perry (2009) showed that in 2008 there were 176,161 overseas students undertaking tertiary study plus 151,258 in the vocational education and training (VET) sector. The VET figure represented a 183% increase from 2005 to 2008. A sharp decline in overseas student numbers in 2009-2010 followed government reforms to tighten the program and prevent its misuse as a source of cheap labour and ‘backdoor’ permanent entry. The effects of the GFC and high Australian dollar also affected aggregate numbers (Hugo 2014:873).  New Zealand citizens enjoy unlimited work rights in Australia and consistently constituted a substantial section of the guestworker population.135 New Zealanders played a prominent role in Australia’s construction workforce throughout the period under review.136

133 Based on reciprocal arrangements with partner nations, allowing young people aged between 18 – 30 to work and holiday in Australia and comprised of ‘uncapped’ subclass 417 and ‘capped’ subclass 462. 134 The GFC hit other developed economies harder than Australia. Anecdotally, young people from the UK, Ireland and Europe continued to access Australia’s WHM program because of severe labour market conditions at home. 135 At 30 June 2000 there were around 435,000 in Australia. At 30 June 2009 there were 548,256. 136 My observations as a participant in the industry confirm this.

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 the pilot Seasonal Pacific Worker Scheme established by the Rudd government in 2008 allowed 2500 seasonal workers from Australia’s immediate region (Kiribati, Tonga, Vanuatu and PNG) to work for up to 7 months for regional horticultural employers;  lastly under the guestworker heading are non-citizens working without or in breach of their work rights. In 2010 DIAC estimated ‘between 30,000 to 76,000 non-citizens’ may be working illegally as at June 2009 (not including overseas students working over permitted hours) and construction is one of the three main industries where they are found (2010:4-5). In May 2010 the Department reported that over the ‘first nine months of 2009-10, 16% of all undocumented workers … were working in construction’ (quoted in CFMEU 2011:31).

Source: DIAC (2010b); Population Flows: Immigration Aspects, various issues; DIAC, 2010a; Annual Report, various issues. Figure 5.2: Australia: Temporary Migration 1986-1987 to 2012-2013

Important to an understanding of the evolving characteristics of guestworker usage were changes in source countries and destination industries. Initial implementation of the Roach recommendations saw highly-skilled persons sourced predominantly from Western Europe for professional roles. Ten years later developing countries in Asia were fast becoming the major source of an increasing number of trade-skilled workers for Australia’s construction industry. 137By 2006-2007 construction

137 See Chapter 2, p. 27.

112 had become one of the main industries hosting s457 visa workers (Figure 5.3 below). 138 By 2012- 2013 it was the leading industry for primary grants of s457 visas (Velayutham 2013:342).

Source: Immigration Department (2007)

Figure 5.3: Temporary sponsored visas (‘sub-class’ 457) granted, by industry sponsor and State, 2006/7.

5.3.2 The Body of Evidence – Public Inquiries

Early in Cole Royal Commission proceedings, several issues were identified of national importance to industrial relations in the construction industry, including ‘use of illegal immigrant labour’ – an issue raised by the CFMEU (Cole Transcript, 6 May 2002:6334). Illegal labour was of greater concern to unions and regulators at that time than the use of guestworkers. Discussion Paper Eleven (2002) contained a summary of information presented by CFMEU to the 1999 ‘Review of Illegal Workers in Australia (RIWA)’139, including that there was a strong connection between illegal labour, most prevalent in Sydney, Western Australia and North Queensland, and labour-hire agencies (2002:77). The paper reviewed legislation on work rights for temporary migrants, noting the ‘offence under the Migration Act 1958 for foreign nationals to work without permission, or to work in breach of their visa conditions’ (2002:77). Conceding the difficulty of accurately establishing the extent of the

138 Figure 3 is from Wright (2012:117). 139 Announced on 1 March 1999 by Minister Ruddock and conducted by the Immigration Department.

113 problem, the paper relied on Department of Immigration and Multicultural Affairs (DIMA) estimates, noting that compliance officers were co-operating with the CFMEU in NSW and since 2000 had investigated allegations in relation to 1620 construction workers, only 120 of whom were confirmed as working illegally (2002:77). The paper summarised RIWA’s recommendations for ‘stronger measures’: information and education; new sanctions underpinned by Illegal Worker Warning Notices (IWWNs); and a whole-of-government enforcement strategy (2002:79-81).

In response to the Discussion Paper, most employer associations endorsed RIWA’s recommendations and expressed ignorance as to the extent of illegal labour. The MBA agreed it was in evidence in Sydney and Darwin, however criticised the CFMEU for exaggeration and proposed that temporary migrants be required to meet a 100-point photo-ID test before progressing beyond probationary status (MBA submission:10). CCF members likewise conceded the existence of a problem and believed ‘tough sanctions’ were necessary to ensure reputable contractors were not undermined by ‘unscrupulous operators’ (CCF submission:16). The CFMEU response focussed on mistreatment of WHMs by ‘unscrupulous employers’ and expressed dissatisfaction with departmental safeguards. The union proposed six reforms: tracking of WHMs by DIMA and the ATO; six months maximum employment; mandatory fines for employers in breach; a dedicated compliance unit in the industry; focus on the labour hire sector; and education to include awareness about unions (CFMEU submission:12-13).

Cole’s Final Report included departmental data that: ‘between March 2000 and March 2002, 155 illegal workers were located by DIMIA compliance officers in more than 30 compliance operations in the building and construction industry in NSW’. Between 30 November 2000 and 30 June 2002, 65 IWWNs were issued to employers or labour suppliers in the NSW construction industry (Vol.8, Section 7:10). Cole also noted more recent compliance operations in September 2002 had detained 80 illegal workers on NSW construction sites (Vol. 8, Section 7, n.27:16). Cole acknowledged a problem existed ‘at least in NSW’ but rejected CFMEU criticism of bureaucratic inertia. Cole noted the discrepancy between the number of allegations made by the CFMEU and the number of confirmed illegal workers, however accepted CFMEU evidence140 that it could not know the visa status of overseas-born workers.

Cole’s Final Report was issued in February 2003, over three years after RIWA. The only RIWA recommendations implemented in the interim were ‘light-touch’ in nature (employer awareness,

140 See Sutton’s evidence, 25.09.02, transcript p.14771-73.

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IWWNs and a work rights verification service). No legislation for employer sanctions had been brought forward.141 The CFMEU implored Cole to recommend urgent and full implementation of RIWA’s recommendations. Cole rejected this entreaty and described the government’s approach as appropriate, stating there was no need for any further recommendations in this area. Cole also rejected CFMEU concerns that s457 visa schemes were open to abuse and departmental monitoring of sponsoring employers inadequate. Cole found no evidence of any ‘default’ by the department (Vol. 8, Section 7, n.27:14).

In April 2008 the Minister for Immigration and Citizenship, Chris Evans, appointed AIRC Commissioner, Barbara Deegan, to conduct a public inquiry into ‘exploitation of migrant workers’, the Visa Subclass 457 Integrity Review (Minister’s Media Release, 14 April 2008:1). The TOR in summary were:

 Measures to strengthen the integrity of the Subclass 457 visa program;  Employment conditions that apply to s457 workers;  Adequacy of measures to protect against exploitation;  Health and safety protections and training requirements;  English language requirements; and  Opportunities for Labour Agreements to contribute to program integrity.

Deegan invited input on three Issues Papers;142 conferred with the External Reference Group (ERG)143 and the Skilled Migration Consultative Panel;144 considered 150 submissions and made 68 recommendations. The Deegan Review covered all industry sectors using s457 visa workers and concluded that substantial exploitation was occurring and would continue unless changes were adopted.145

The two most important issues reviewed were wage rates for s457 visa workers and labour market testing (LMT). The union movement and employer organisations disagreed on both. With regard to wage rates, Deegan summarised the ACTU view:

141 Opposed by employer groups, sanctions were only introduced in 2007 in the final months of the Howard government and with the caveat that an offence was only committed if the employer ‘knowingly or recklessly’ employed illegal workers. In 2013 the Labor government amended the Migration Act to provide for ‘strict liability’. 142 On Labour Agreements and Minimum Salary Levels; English Language Requirement and OHS; and Integrity and Exploitation. 143 The ERG was established by the federal government in February 2008 to advise on ways to ‘fast-track’ temporary migrant worker visa applications for employers with a ‘low risk’ profile. 144 Established by the federal government in 2008 and comprised of key stakeholders and experts to advise on skilled migration issues. The writer was the CFMEU representative. 145 See Deegan’s view of the extent of exploitation at p.23-25.

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the current process for determining rates of pay for temporary overseas skilled workers through ministerial regulation should be abolished … the MSL [Minimum Salary Level] violates the basic human right to equal pay for work of equal value … workers on Subclass 457 visas should be paid the market rate, as established in collective agreements (2008:27)

Deegan accepted the union submission that the MSL had not ensured equal pay for s457 workers, even where employed in the same workplaces as Australians (p.27). On the question of an alternative mechanism, the main argument was between award and market-based rates. The MBA submitted:

a better indicator of appropriate value would be for employers to be required to pay the minimum Award rate. Where an employee category is not covered by an Award rate, it should be the highest Award rate in the most applicable Award that stands as the minimum to be paid to a 457 visa holder (p.29).

The AMWU and CFMEU submitted that employers should be paying a premium for guestworkers. According to the AMWU:

the establishment of a regime that requires Subclass 457 visa holders to be paid the actual market rate and places the obligation on employers to pay all travel, migration, health and other associated costs will create a premium and enable the policy aim of protecting the jobs of Australians to be achieved (p.29).

Deegan recommended that ‘market rates of pay should be paid to all temporary visa holders with salaries less than $100,000 per year’. In the event of a dispute about the true market rate the federal industrial tribunal with responsibility for the sector should determine the matter (p.31). Deegan observed that LMT had been abolished as cumbersome in 2001 in favour of the MSL system and that employers and some governments remained opposed to it (p.38-39). Deegan concluded:

There has been clear evidence presented to this Review that Subclass 457 visa holders have been sought to fill vacancies in situations where other employers paying the appropriate market rate have sourced labour locally. The integrity of the program is compromised if employers are permitted to source cheap labour from overseas rather than offer a wage sufficient to attract local labour (p.39).

Nevertheless, Deegan did not recommend re-introduction of LMT, accepting that previous attempts had been ineffective.146 Deegan limited her remedy to employers sponsoring more than 20 guestworkers.147The Deegan Review covered other issues beyond the scope of this research, however most of its 68 recommendations were directed at preventing the exploitation of vulnerable

146 Controversy continued to surround the s457 visa scheme, particularly the absence of LMT. It was reintroduced in 2013 by the Gillard Government. 147 For Deegan’s rationale see p.39-40.

116 s457 visa workers whose continued presence in the country was dependent upon their sponsoring employer.

The Sham Contracting Inquiry Discussion Paper (2010) made no mention of guestworkers and most submissions ignored the issue. Exceptions were those from Howe and Hardy (2011) and unofficially from CFMEU (2011). The former pointed to the ‘unique enforcement challenges posed by foreign or migrant workers engaged in the building and construction industry’ and raised concerns expressed by CFMEU and the Minister for Workplace Relations about exploitation of vulnerable foreign workers. The CFMEU (2011:29-34) provided an analysis of the numbers of guestworkers who were likely to be working unlawfully and/or as sham contractors in the construction industry nationally. The number of sham contractors was ‘between 5,200 and 9,200’ (p.30). The union provided an example of a worksite where eight different visa subclasses involved with sham contracting were discovered in 2011 (p.34). The CFMEU argued:

Temporary migrants … are especially vulnerable to sham contracting arrangements. Even more so are undocumented workers … Workers in these groups have greatly reduced bargaining power against employers prepared to offer work only on the basis that the workers enter into sham contracting arrangements (p.29).

Despite limited representations, Johns accorded the guestworker issue due consideration148 and recommended ‘the ABCC coordinate a more integrated whole of government strategy’ aimed at tackling sham contracting by co-operating the Department of Immigration and Citizenship (DIAC) in order ‘to better identify and protect vulnerable migrant workers from being involved in sham contracting’ (ABCC 2011:93).

The NSW Labour Hire Task Force touched on this issue briefly. Employers maintained that while many labour hire workers came from ethnic backgrounds, ‘recruitment and selection procedures mitigate against the recruitment of illegal workers through visa, passport and other checks’ (2001:24-25). The CFMEU maintained it was ‘aware of illegal immigrants and persons working contrary to visas in the NSW construction industry’ (p.24) and provided a recent on-site example where 35 ‘non-resident employees’ were working for a labour hire company on WHM visas and most were in breach of visa requirements (p.24). The Task Force did not address the issue in its recommendations.

148 See references to the arguments of Howe and Hardy at p.59 and CFMEU at p.69 of the Final Report.

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5.4 Conclusion

This chapter examined the prevalence and impact of labour hire and guestworkers in the NSW construction industry from 1980-2011. Less widespread than self-employed sub-contracting, these labour market structures attracted approval and support from employers, while contributing to increasing precarity and insecurity among construction workers.

Statistical data on labour hire is scant, however does show strong growth in the 1990s and a levelling off or decline in most industries in the 2000s. The pattern in construction was similar with 3.9% of workers finding work through labour hire agencies in 2002, moderating to 3.6% by 2008. All main forms of guestworker (sub-class 457, WHMs, international students, New Zealanders and illegals) increased during the 2000s, with the most dramatic growth among s457, WHMs and international students. Government measures to increase integrity in the late 2000s curbed growth in the s457 and international student programs. By 2012/13 the construction industry was the leading sector for primary s457 visa grants.

Public inquiries dealing with labour hire provided limited evidence specific to the construction industry. However a consistent feature was attraction to ‘light touch’ regulation by arbiters appointed by LNP Coalition governments. Cole considered a Code of Practice adequate to address labour hire abuses. The Making it Work (2005) report likewise proposed soft options such as additional research, education programs and a voluntary code. This accords with observations by Dabscheck (2005), Howe (2006) and Quinlan (2006) that contrasting approaches were taken to regulation of labour market abuses and construction union activities – soft tools for the former and hard for the latter. By contrast the ALP-appointed inquiry in NSW in 2001 under former ACTU President Jenny George recommended legislative interventions including a licensing system for labour hire agencies. The dissenting report by ALP senators in the Making it Work inquiry also recommended structural changes including mandatory registration. The Sham Contracting Inquiry (2011) was an exception to the rule. ALP appointee Johns took the view that measures such as registration, licensing or joint employer responsibility between labour hire agency and host were impractical or over-reach given the limited evidence of problems presented to his inquiry. The failure of unions to participate in this ABCC inquiry may have led to an imbalance in the evidence which justified, at least in Johns’ mind, the decision to reject new regulatory measures.149 The evidence

149 The vehement criticism the CFMEU levelled at Johns and the inquiry may have equally affected his final view.

118 was clearer that conservative governments, federal or state, were not inclined to redress problems caused for workers by the use of labour hire. ALP governments, though often expressing concern, did not demonstrate a will to confront employer interests and legislatively intervene in the labour market.

If labour hire generally received scant attention in official inquiries, this was even more apparent with the newer phenomenon of guestworkers. Cole (2003) took evidence about illegal immigrant labour on construction sites but was satisfied the bureaucracy and the Howard Government had the issues in hand, despite evidence to the contrary. Cole accepted government assurances that it would introduce sanctions against employers who breached obligations to temporary migrant workers (particularly WHMs and s457 workers) – a weak sanctions regime was introduced by the Howard Government in 2007. The Rudd ALP Government established the Deegan Inquiry (2008) to examine exploitative practices in relation to s457 visas. Deegan recommended the adoption of market rates but declined to support the reinstatement of LMT, except for employers sponsoring more than twenty guestworkers. The Sham Contracting Inquiry (2011) took limited evidence on this topic but did recommend a whole-of-government regulatory strategy ‘to protect vulnerable migrant workers’. The Rudd and Gillard ALP Governments introduced market rates and took some other initiatives150 in this policy area – but fell short of the comprehensive regulatory strategy recommended by Johns.

The final chapter draws together theoretical material from Chapters One and Two and empirical data in Chapters Three, Four and Five to discuss and draw conclusions about the use of precarious employment/contingent work practices in the NSW construction industry from 1980-2011.

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150 For example, they established the Howells Review into Employer Sanctions in 2010 and legislated for ‘strict liability’ in relation to employers engaging ‘illegal’ migrant workers in 2013.

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Chapter 6: Discussion and Conclusions

6.1 Introduction

This chapter evaluates the evidence and responds to the research question and subsidiary issues posed in Chapters One and Two. Chapters Four and Five described limitations in statistical data which made mapping of growth in non-SER arrangements and precise measuring of changes in labour standards problematic. The responses in this chapter therefore rely primarily on evidence submitted by key industry parties and findings from the public inquiries examined. By weighing this evidence, it was possible to construct a picture of growth trends and the impact of non-SER practices. The task of discerning labour market realities from official government inquiries was not always straightforward. Submissions from industry parties invariably followed the ‘party line’, painting a glowing or at worst benign picture of their members’ role. Consistent with the critical theory method, the analysis in this chapter goes behind the polished veneer of official submissions to find evidence of power relationships and labour market dynamics. Infrequent yet revealing admissions or unscripted candour from employer representatives also throw light on the underlying strategic aims of major construction employers.

6.2 Response to Research Question

What were the changing forms of work organisation deployed in the NSW construction industry in the period 1980-2011 and how did they impact labour standards?

Self-employed sub-contracting, labour hire and guestworkers were the three main non-SER arrangements used in the NSW construction industry from 1980-2011. The origins of the first predated the period under review.151 The second, labour hire, was limited to the margins of the industry in the 1980s but increased substantially in the 1990s. The use of guestworkers or temporary migrant workers emerged most recently; its genesis was in the early 2000s and it grew substantially throughout the decade. Between 1980 and 2011 it was rare for less than a quarter of the total workforce to be engaged as self-employed sub-contractors (whether legitimately or under a ‘sham’ arrangement) and common for around a third of the workforce to be so engaged. At the beginning of the 1980s self-employed sub-contracting was the dominant work arrangement in the NSW

151 Sutton (1979) showed that shortages of tradespersons in the post WW2 period prompted some to embrace self-employed sub-contracting, where for a time, they could out-earn wage workers. See also Greig (1997:324- 325).

120 housing industry. Attempts by the building unions to establish some control in this labour market through the Burns Inquiry (1979) and by means of enforceable contract rates failed when the ALP State Government was defeated in 1988. By the late 1980s, building unions were confident they had quarantined the sham contracting arrangements common in the housing sector (e.g. all-in payments and pyramid sub-contracting), from the commercial and engineering construction sectors. Union confidence was misplaced. Political forces driving the neo-liberal economic agenda were gaining momentum, especially on deregulation of the labour market. The Industry Commission (1991) report, for example, recommended removal of union-sponsored ‘restrictive’ work practices from the commercial building sector and more competition from self-employed sub-contractors.

In NSW the combined impact of the Gyles Royal Commission, which targeted the industrial bargaining power of the building unions, and the deep economic recession of the early 1990s weakened the capacity of the unions to resist the spread of self-employed sub-contracting. Employers, buoyed by the new environment, no longer saw need to adhere to old notions that all-in payments or pyramid sub-contracting were illegitimate. The election of the Howard Federal Government in 1996 advanced the deregulation agenda by introducing a construction industry procurement code preventing unions from restricting self-employed sub-contracting and labour hire. The recommendations of the Productivity Commission (1999) fuelled the spread of non-SER arrangements across the industry. The Howard Government-appointed Cole Royal Commission in 2001 mounted a major assault against the construction unions. Its key recommendation - that a government taskforce (forerunner to the ABCC) be established to counter union militancy - represented a further blow to the ability of construction unions to protect labour standards. By the mid-2000s, after a decade of anti-union measures – most notably the WorkChoices laws - the union movement was considerably weakened. Steps by the Rudd ALP Government in the late 2000s to limit the ABCC’s scope had minimal impact on the extent of non-SER arrangements since they were by now widespread.

In the event, it was not so much concern with erosion of labour standards which finally led to government action to curtail sham contracting but rather concern at loss of taxation revenue. Union- funded research by Buchanan and Allan (1998) demonstrated significant tax avoidance lay at the heart of the spread of sham contracting across the construction industry. The 1999 Senate Inquiry into ANTS and the Ralph Inquiry into business taxes in the same year produced compelling evidence to the same effect. Even the Cole Royal Commission acknowledged a serious problem of tax avoidance. However, major employer organisations consistently denied the existence of a sham contracting problem and worked to block measures designed to address the issue. It was not until

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2009, when the Board of Taxation was convinced by similar evidence as had persuaded John Ralph ten years earlier, that a shift in momentum occurred. In 2011, the Gillard ALP government introduced a mandatory reporting regime for all transactions involving the use of labour in the construction industry. This single measure raised an additional $2.3 billion in revenue in its first year of operation.

For construction workers in NSW, the spread of non-SER arrangements over the 30 year period affected labour standards significantly:

 large numbers of workers in an employment relationship were misclassified as self- employed sub-contractors;  remuneration of sham self-employed sub-contractors was by a payment-by-results method, strictly confined to productive hours. Costs associated with downtime (like sickness, injury, inclement weather, holidays, employer-caused delays, community-wide disruptions) were borne by the worker;  the most common payment method was the all-in payments system, under which the worker was paid a total hourly or daily rate (e.g. $22 per hour for a painter, $200 per day for a bricklayer). Some trades were paid under piecework arrangements (e.g. by the metre) and others by lump sum on completion of a discrete task;  the all-in rate was market sensitive, varying from job to job and thereby increasing income insecurity;  according to the employer’s arbitrary decision, the all-in amount could be supplemented by partial fulfilment of such statutory entitlements as workers compensation premiums or superannuation guarantee;  the all-in rate typically (and beguilingly) exceeded by a marginal amount the award/EBA minimum rate. However, the sham contractor was unequivocally worse off when all award/EBA conditions and statutory protections were taken into account;  the ‘cushion’ or compensation for the sham contractor consisted in substantially reduced taxation after business deductions, compared to award/EBA workers on PAYG;  many construction workers had little choice about the system they were employed under. Outside high-profile city projects or major infrastructure works and in particular trades (bricklaying, plastering, painting, tiling, carpentry finishing-trades), ‘No ABN/No Start’ became the reality;  highly-skilled tradespersons who commanded hourly rates well above the award/EBA (dependent on market conditions) sometimes preferred all-in payments because of substantial taxation advantages.

These changes in labour standards had more generalised effects. First, insecure work became widespread as bogus contracting spread from housing to the other construction sectors. Many workers in the commercial and engineering sectors came to accept sham arrangements as the norm given the unlikelihood of finding regular employment with a stable, long-term employer. For individual workers this meant take-home pay was more volatile because it was subject to a wide range of factors outside their control (e.g., job programming delays, bad weather, illness, injury, insolvencies). For construction contractors it became more difficult to operate an ethical, law-

122 abiding business. Competitors using the sham contracting model enjoyed a significantly lower cost structure and invariably won the battle for market share.

Second, OHS was compromised for workers involved in sham contracting. Researchers had long highlighted, in the residential building industries in Australia and Britain, a number of factors contributing to negative OHS consequences when work was performed by subcontractors working under payment-by-results. Labour hire workers vulnerable to poor OHS outcomes faced added risks in the construction industry. Several public inquiries confirmed in their findings a deleterious impact on safety outcomes.

Third, social protections were lost to those working under non-SER arrangements. By 2011, most construction workers did not possess equivalent superannuation balances, LSL accruals or redundancy payouts as enjoyed by workers in other industries. The benefits of existing (previously- won) portable industry-wide schemes were negated and workers left without the means to accrue long-term entitlements in a volatile industry. High labour mobility coupled with frequent exposure to sham contracting or labour hire meant that most construction workers lacked an adequate retirement nest egg. Shorter-term social protections (workers compensation, sick leave, RDOs & holiday pay) were similarly removed from many workplaces as sham contracting (and the fiction of contractor self-insurance) became the norm. The state was required to provide the basic social safety-net that would have otherwise have been met by more generously-funded employer obligations.

Fourth, work intensification (increased productive efforts without corresponding increases in remuneration) grew with the spread of non-SER arrangements. The prevalence of all-in payments tied productive efforts to informal market-based cash payments, negating the influence of traditional pay-setting concepts such as comparative wage justice and work value. Moreover the payment-by-results element of the all-in payments system required the worker to be producing to be paid. In the words of one construction employer, making ‘individuals responsible for their own well-being’.

These cumulative reductions in labour standards, losses in social protections, increases in job insecurity and intensity of work were lauded by major construction employers, various public inquiries and conservative governments during the period under review. So-called gains in efficiency and productivity in the NSW construction industry were often driven by lower labour costs and the transfer of responsibilities down the contracting chain.

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6.3 Response to Subsidiary Research Issues

6.3.1 Is Freiberg’s (2010) proposition that laws will not be complied with if the benefits of non- compliance exceed the costs of compliance supported by the experience of the NSW construction industry between 1980 and 2011?

A number of small employers provided evidence relevant to this question. Murphy of Fugen Holdings informed the Senate Select Committee on a New Tax System Inquiry (1999) that competitors regularly accepted prices around 20% lower than his because of treating their employees as self-employed sub-contractors. In the unlikely event that the union or ATO discovered the illegitimate arrangement the builder would simply find extra funds to remedy the non-payment of employee entitlements, regarding it as a risk worth taking [emphasis added].

In the Sham Contracting Inquiry (2011), Johns summarised the concerns of many small contractors stating, ‘financial viability and competition’ leads many to take the risks associated with sham contracting. Penalties were considered ‘insufficient to incentivise compliance’. A painting contractor stated those ‘doing the right thing lost out’ because there was no regulatory action against firms cheating the system. The Master Concreters Association similarly argued that industry participants weighed costs and benefits when taking a risk with sham contracting because many believed there was ‘minimal risk of being caught’.

Freiberg’s proposition was exemplified by the experience of the NSW construction industry between 1980 and 2011. Many building companies chose not to comply with employment and taxation law because they believed that the consequent competitive advantage was greater than the likelihood of regulators (government or unions) enforcing compliance.

6.3.2 Where does the weight of evidence lie concerning unlawful activities in the NSW construction industry? Were militant unions or non-compliant employers primarily responsible?

The Gyles and Cole Royal Commissions concluded that militant construction unions paid little heed to the rule of law and needed to be ‘tamed’ by state intervention. Accordingly, both recommended the establishment of dedicated government agencies to police union behaviour. In all the public inquiries examined, employers and their representatives highlighted union interference in the construction labour market as their primary concern and urged strong state intervention to penalise lawless unions.

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Differing perspectives, sometimes from unexpected quarters, also emerged:

 unions submitted to the Gyles Royal Commission that thousands of employers routinely breached legally binding industrial instruments. If workers received lawful entitlements, union-led disputation would be less. Gyles conceded that breaches occurred ‘with some regularity’, however insisted that unions had locus standi to prosecute and their preference for threatened or actual industrial action demonstrated disrespect for the rule of law. Union arguments that formal legal proceedings were impractical in the fluid worksite environment made no headway;  the Productivity Commission, in a report that was otherwise forthright in its support for deregulation and flexible work arrangements, acknowledged, ‘the taxation advantages of self- employment have often been abused’ and conceded that union intervention was performing a ‘useful role’ in ‘constraining less scrupulous employers’;  Cole was similarly satisfied there was ‘significant illegitimate subcontracting’ across the industry yet was highly critical of union ‘on the job’ solutions. Cole’s recommendations essentially sidelined the unions as regulators and elevated the role of the state– contrary to the historical pattern of award and statutory enforcement in the construction industry;  The ALP and Australian Democrat majority in Beyond Cole gave little credence to employer claims of union lawlessness. They found the ‘widespread lack of compliance’ by employers the more significant issue and accepted the union position that they had either to take immediate action in response to employer breaches or take none at all. The Queensland MBA conceded to Beyond Cole that unions had to resort to unlawful industrial behaviour to tackle in a timely manner breaches which denied workers their lawful rights;  Johns noted that Fair Work Act provisions designed to sanction employers using sham contracting had generated only modest amounts of litigation. He concluded, ‘relying solely on enforcing the FW Act provisions … is inefficient and unlikely, on its own, to significantly change the industry’. He found the problems so entrenched that cultural change was required for, ‘any real progress in stamping out sham contracting’. Johns’ approach demonstrated a broader understanding than the interested perspective of major employers and LNP governments.

Views on industrial lawlessness depend in large part on the interests of industry participants. The truth must be judged through the prism of class interests.

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6.3.3 Does the view of Goodwin and Maconachie (2010) that evasion of worker’s entitlements has often been a calculated business decision apply to the situation in the NSW construction industry from 1980 – 2011?

In 2011 Michael Baldwin, Industrial Relations Director of the ACT Office of the MBA said:

Sham contracting is one of the dominant issues affecting the building industry in the ACT and nationally. Members of the Master Builders Association are aware of the escalating importance of the issue. I do not think there was a day last year when I did not field an inquiry or give advice …. the practice makes it more difficult for law-abiding members to compete against competitors whose costs are illegitimately reduced (Canberra Times, 25 March 2011). This frankly-expressed view by an MBA official is consistent with evidence provided by small construction businesses such as Dan Murphy of Fugen bricklaying, Terry Hough of Walsos and Bob Wilkie of Bobrick, to different public inquiries. Wilkie told the Sham Contracting Inquiry, ‘Sham contracting has enabled businesses that continually flout the rules and pay vulnerable workers below Award rates to price jobs at extremely low costs…. As a result, they are awarded contracts by large, principal contractors who wish the work to be done at the lowest rate’. This evidence suggests that contractors, large and small, were making calculated business decisions to flout the law at the expense of construction workers.

The Beyond Cole Inquiry, despite the official views of the HIA and MBA that there was ‘no substantial problem’, concluded that a ‘culture’ of tax avoidance existed, which placed ‘enormous difficulties on honest contractors trying to compete in the market place’. The result was employers routinely made the calculated business decision to ‘jump on the treadmill of illegality’ rather than see their businesses marginalized.

6.3.4 If non-SER arrangements emerged and spread across the NSW construction industry between 1980 and 2011, what was the primary driver?

The evidence has established that non-SER arrangements increased significantly and became entrenched in the NSW construction industry between 1980 -2011. Several contributing factors have been identified, including: neo-liberal policies; intense competition; under-resourced enforcement agencies; supply and demand factors; industry volatility; and high labour mobility. Beyond all these, the evidence has shown that conscious and calculated protection and promotion of sham contracting by major employer associations was the fundamental element upon which others depended. Key to the success of the employer lobby was their ability to maintain widespread abuse of taxation laws in the construction industry and repel every attempt at reform.

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Employer groups such as MBA and HIA never altered the main thrust of their submissions that the use of self-employed sub-contracting should be protected and expanded. Whenever major employer groups were confronted with substantial evidence of problems associated with self-employed sub- contracting, such as widespread tax evasion, they repeatedly countered:

 by minimising the problem;  by maintaining that official responses were adequate or;  by shedding crocodile tears over the adverse effects on more reputable contractor members.

While the last-mentioned response conceded the existence of an issue to some degree, employer actions spoke louder than words. During every attempt by government agencies and politicians to address adverse taxation consequences of sham contracting, MBA and HIA intervened strenuously to protect ‘the goose that laid the golden egg’. For example, in 2000 Treasurer Costello met with fierce opposition from construction employers when he attempted to reform taxation legislation. The HIA fumed that tightening the law put at risk the efficiency of the industry and the affordability of homes. The employers did not merely object but marshalled the numbers inside the LNP government, in co-operation with the ambitious Minister for Small Business Peter Reith, to overturn Costello’s initiative and force him into a humiliating back-down.

In 2003 the MBA opposed almost every one of Cole’s recommendations to enhance compliance with APSI rules. The single recommendation in this policy area for which the MBA expressed support was legalisation of an ‘all-in’ rate across the industry. The success of the employer lobby in influencing the LNP government may be measured by the fact that nearly all of Cole’s recommendations going to taxation compliance were delayed or not pursued.

Infrequent representations made by the MBA that their members were disadvantaged by sham contracting appear in conflict with its overall position. A number of possible explanations exist:

 the MBA had more member companies prospering from the system of sham contracting than suffering from it;  fierce competition for members between MBA and HIA during the 1990s and 2000s forced the MBA, in the context of neo-liberal ascendancy in parliament and public policy, to ‘match it’ with

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the HIA, which historically was positioned to the right of the MBA as a more implacable opponent of unions and advocate for deregulation;152  influential voices on governing bodies of the MBA determined the overall strategy, regardless of occasional ‘off-message’ statements by paid officials. MBA decision makers were overwhelmingly medium to large building companies near the top of the contracting chain, employing relatively few direct employees, contracting out most of their work and hence directly benefitting from fierce price-based competition between smaller trade and specialist contractors.

It is true that, from Making it Work onwards, MBA incorporated into its submissions a proposal for registration with an appropriate Commonwealth agency of self-employed sub-contractors. Ostensibly this was to create certainty around an issue that was said to be surrounded by confusion. However the evidence suggests it was more about building a protective wall around self-employed sub-contracting and entrenching its place in the commercial building sector.

Control of the HIA’s governing bodies was even more concentrated than the MBA. Major corporate players including building supplies manufacturers, including multinationals, and large-volume home and apartment builders, constructing hundreds or thousands of dwellings per year were the dominant voices in the HIA. Such large companies invariably emerged winners from aggressive competition between sub-contractor members far below and were also well-insulated from risks associated with breaches occurring down the contracting chain.

Consistent advocacy by employer organisations in the interests of their most powerful member companies (whether this accorded with the interests of all members or not), combined with neo- liberal ascendancy in the political arena, was the winning combination which primarily drove the spread of non-SER arrangements and undermined labour standards during the period from 1980 - 2011.

6.3.5 Underhill (2002) argued that the construction workforce ‘has always been subject to a high level of employment instability, and deregulation does not appear to have influenced the magnitude of this instability’. Does the evidence support Underhill’s contention?

152 Another factor feeding the ‘rightward’ push was the establishment in 2001 of ICA, the ideological/political lobbying group with close links to the HIA. Purporting to represent the self-employed, this group played a substantial role at a state, federal and international (ILO) level in agitating for regulatory protections for the self-employed to be weakened.

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The evidence has shown that until the late 1980s (when neo-liberalism started to impact), construction labour market regulation in the form of both standard-setting and enforcement activities was critically reliant on unions. The Industry Commission (1991) found that ‘competition with the unions is provided by the self-employed subcontracting sector’. It recommended the removal of restrictive work practices including limitations on self-employment and singled out labour market practices in the housing industry as an exemplar of efficiency. Eight years later, reconstituted as the Productivity Commission, it went so far as to endorse tax avoidance and non- payment of workers’ entitlements as a means of reducing labour costs – remarkable propositions indeed from a government agency charged with advancing the public interest.

Gyles backed his policy prescriptions against lawless unions in the NSW building industry with new anti-union tools (taskforce, heavy fines) and a recommendation that the LNP government deregister the CFMEU in NSW. The union avoided deregistration by committing to a good behaviour agreement with the state government but was put on the defensive. The concurrent deep industry recession of the early 1990s combined to hamstring unions’ ability to police breaches. Statistical data from this period demonstrated a substantial increase of the proportion of workers engaged as self-employed sub-contractors.

A direct and observable effect of the changing balance of power was the withdrawal by major employer associations from industry-wide agreements struck in the 1980s, which had banned pyramid sub-contracting and all-in payments in the commercial building industry. No such ‘restrictive’ agreements were entered into again. The pendulum swung back somewhat following election of a NSW Labor Government in 1995 and increased demand for labour associated with the 2000 Sydney Olympics. However, this proved but a brief interruption in the continuing deregulatory trend embodied in the recommendations of the Cole Royal Commission. The subsequent introduction by the Howard Government of the BCIIA, the ABCC, the procurement code and the Independent Contractors Act constituted legislative and executive machinery of the most potent kind. By 2007 major employer groups expressed satisfaction that the government’s machinery had been highly successful in tempering the construction unions. Any employers desirous of co-operative relationships with unions faced significant financial penalties and loss of government contracts – sanctions few were prepared to risk. With the full power of the Commonwealth government, working closely with major employer interests, arraigned against them, construction unions’ capacity to combat the further spread of sham contracting was heavily constrained. This was reflected in high statistics for self-employed workers in the latter part of the 2000s.

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Underhill (2002) could not foresee the establishment of the ABCC and the series of measures directed against the construction unions in the 2000s. By the end of the decade the evidence points to the neo-liberal policy of labour market deregulation (particularly the heavy regulation of construction union conduct) playing a critical role in spreading non-SER arrangements in the NSW construction industry.

6.4 Conclusions

Non-SER arrangements increased and became prominent features of the NSW construction industry during the period 1980-2011. The most prevalent was self-employed sub-contracting. In both its legal (independent contracting) and illegal manifestation (dependent/sham contracting), the practice appeared to spread from the housing industry where it had been the dominant form of work organisation for decades, to become common across the entire NSW construction industry from the early 1990s.

Sham contracting was used by major employers to drive down labour costs (labour standards from the worker standpoint) and undermine union-negotiated provisions in awards, EBAs and industrial legislation. The lynch-pin of the sham contracting system was tax evasion. Substantial savings achieved by self-employed sub-contractors compared with PAYG tax amounts paid by employees compensated for the loss of immediate and long term industrial and social protections. In effect a wealth transfer mechanism was in action diverting taxation revenues from government to the construction industry and cushioning the impact of widespread precarious work arrangements. Large sums of taxation revenue were lost to the public purse over many years , while taxpayer funds, in the form of social security payments, had to make good the cost of social protections for workers that should have been met by construction employers.

Many construction workers had no choice but to work as dependent or sham contractors. A ‘No ABN/No Start’ rule took root in many parts of the industry, varying in degree according to occupational category, geographic location and size of project. Some employers, both specialist contractors and general building companies, expressed concern about sham contracting, however their voices were never loud enough to sway the major employer organisations from their course. Despite occasional crocodile tears under pressure, employer organisations fought hard and successfully protected and extended a system that was in the financial interests of their large corporate members.

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It was usual for public inquiries to support and encourage employers in their push to maintain and extend non-SER arrangements. Findings and recommendations were invariably coloured by the political outlook of the commissioners appointed and by the ideological framing of the TOR, both in the hands of the government of the day. Rather than bastions of objectivity and quasi-judicial independence, inquiries were often political exercises designed by and for governments prosecuting a specific ideological agenda. In the era of neo-liberal ascendancy, the drive to deregulate the labour market has involved governments confronting and weakening unions, as the main social agents protecting and advancing labour standards. The strategy of crippling unions by means of costly, long- running public inquiries, with the choice of commissioner or TOR typically exhibiting bias in favour of non-SER or so-called flexible work arrangements, has proved a powerful weapon for employer interests. Such was the case in the NSW construction industry between 1980 and 2011.

These conclusions are consistent with a body of national and international literature153 which has documented neo-liberal policies implemented by governments, designed to favour corporate interests and dismantle labour market regulatory structures. This research has shown how governments captured by construction industry corporate interests have entrenched and extended precarious work practices - arrangements that were against workers’ interests, the public interest and even government itself when it came to taxation collections.

6.5 Limitations and further research

A general limitation with the public inquiries which constituted the main data source was that potentially useful material such as transcripts and submissions was not accessible for earlier inquiries in the 1980s – final reports only were available. Comprehensive material was usually accessible for inquiries in the 1990s and 2000s, which added a richness and depth not always present in the official reports.

Inclusion of a third data source, particularly a quantitative measure such as a survey or questionnaire of affected construction workers, might have allowed triangulation with the evidence from official statistics and public inquiries. However, obtaining reliable data from industry participants (workers or employers) currently or formerly active at the margins of the law is problematic. The ABCC commissioned research on sham contracting in late 2012 - phone interviews with 900 construction workers and 450 employers. This produced an estimate that approximately

153 See for instance: Campbell (2010), Quinlan (2012), Kalleberg (2009), Vosko (2010), Appay (2010).

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13% of independent contractors were sham and 54% of workers were unaware of what was sham contracting. These results contrasted markedly with earlier research, ABS statistics and public inquiry evidence. The inference that ABCC research was affected by methodological weakness is strong.154

The ATO holds the optimum data on the extent of sham contracting and its link with breaches of tax law. It was sufficiently compelling, when obtained by the Keating and Rudd/Gillard Labor Governments, to prompt these administrations to action.155 However, strict privacy rules govern ATO data for good reason and it is rarely possible for private researchers to obtain access. Regular attempts by the CFMEU to have data on the operation of the APSI rules publicly released by the ATO in the 2000s were always unsuccessful.156

It did not prove possible to respond to issues identified in the literature review concerning super- exploitation of guestworkers or the impact of guestworker labour on job prospects for local construction workers. Data sources examined (public inquiries and official statistics) did not produce useful evidence. The issues remain relevant since construction is one of the main industry sectors employing subclass 457 visa holders (it was the leading industry in 2013). The Department of Immigration and Border Protection (DIBP) has detailed statistical data relating to temporary worker visa categories. Qualitative research could also be obtained from former guestworkers, former departmental staff and union officials active in combatting abuses. This is an area worthy of further research.

Another fertile area is labour hire/agency workers in the construction industry. This thesis has shown it was a negligible issue in the 1980s but one which ‘took off’ in the 1990s. The detailed story of the key individuals and companies behind its expansion to a prominent place in the industry today deserves to be told. A number of former union officials in Queensland and NSW were central to the growth and legitimisation of this form of work organisation in the industry. Most are still involved today.157 New entrants ranging from multinational corporations to prominent underworld identities are also active today in the labour supply business on Australian construction sites. It is common for these labour hire agencies to have lucrative contracts with some of the largest construction

154 See footnote 58 155 Treasurer Willis in the Keating government and Treasurer Swan in the Rudd government were both persuaded. In Willis’ case the administration lost office before it could pass legislation and in Swan’s case they established the mandatory reporting regime for labour transactions in the construction industry. 156 From personal knowledge. 157 From personal knowledge.

132 companies, who prefer this form of flexible labour to direct employment. This topic is worthy of a dissertation. ______

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Appendix 1: Key Industrial Relations Events in the NSW Construction Industry 1980 to 2011

From Centralised Wage Fixing to Enterprise Bargaining

As the 1980s opened economic downturn was afflicting the NSW construction industry, but the building unions were active on a number of policy fronts. The BTG, principally through the BWIU, was attempting to gain a foothold in the housing industry via an inquiry established in 1979 by the NSW Labor Government. The Burns Inquiry was asked by the unions to recommend the establishment of minimum ‘contract rates’ for self-employed tradespersons in the housing sector. Commissioner Burns firmly rejected the union proposals. This was a setback for unions who were determined to make breakthroughs in this largest industry sector - comprising 37.2% of total industry spending at the time (Frenkel 1980:25). The unions met fierce resistance from residential builders and their associations, however redoubled their efforts to strike contract rates agreements with major cottage builders and to recruit housing industry workers. The BWIU initially targeted builders who also had a commercial construction presence, such as A V Jennings and Costain. By the end of 1984 formal agreements had been signed with a number of housing builders.1 In early 1985 the unions persuaded the NSW government (with whom they had influence via the Deputy Premier, Minister for Public Works and former long-time BWIU official, Jack Ferguson) to legislate to permit the NSW Industrial Commission to set contract rates in the building industry. The new provision was known as s.88FA of the Industrial Arbitration Act (1940). It built on the pre-existing ‘harsh and unconscionable contracts’ remedy, s.88F, but proved highly problematic.2

At the same time unions were fighting to contain and eliminate the problem of self-employed sub- contracting in the traditionally unionised segments of the industry. After much on-the-job skirmishing in the late 1970s the BTG reached an agreement with the NSW MBA that pyramid sub- contracting (and by inference ‘all-in payments’) would be prohibited on its members’ projects. This breakthrough, together with the ATO decision to apply a new tax withholding mechanism to cash payments in the building industry (Prescribed Payments System or PPS), significantly enhanced unions’ ability to tackle the problem.3 Persistent efforts by union organisers in the early 1980s, particularly BWIU officers in areas like bricklaying where more workers were on the all-in than the

1 For more see Bray (1987:11). 2 For more see Bray (1987:12), Underhill (1991:135). 3 For more on the PPS system of tax collection see CFMEU (2011:8-9).

134 award, resulted in a shift back to union-negotiated deals.4 The ban on illicit practices was renegotiated with the NSW MBA in 1980 and 1982 and then extended to a national agreement in 1983. Ratification of the national agreement by the Australian Conciliation and Arbitration Commission (ACAC) in 1983 was combined with other elements such as a new $9 payment (the ill- fated Building Industry Recovery Procedures (BIRP) allowance). Despite employer consent the peace package was roundly rejected by the Commission as not meeting wage fixing guidelines (ACAC 1983:21).5 The national ban was ultimately ratified in 1987 as part of another package presented to the Commission (ACAC 1987).

The early 1980s saw construction unions winning major national campaigns for shorter working hours and universal superannuation. The 38-hour week campaign followed on the heels of the metal industry unions’ campaign which had achieved shorter hours and flowed the standard into the pacesetting federal Metal Industry Award (MIA). This was a time when centralised wage fixing was pre-eminent. Standards won through industrial battles flowed into major or parent awards and were spread to the industrially weak. The building tradespersons’ unions were strongly committed to the National Building Trades Construction Award (NBTCA), which they had established in 1975 as the first private sector national paid rates award. The BWIU placed priority on flowing over-award breakthroughs into parent awards, however this was only achieved in a minority of cases.6

The rejection of the BIRP allowance by federal Arbitration Commissioner, Justice Ludeke, prompted ACTU official, Gary Weaven, to suggest that if the amount could not be paid as wages, it could be paid into an industry-wide superannuation scheme covering all workers. This started the industrial struggle that provided the foundation for the industry super funds model that evolved in the 1980s.The BLF who arguably had done more to extract the $9 payment from the employers than the other building unions were not about to let the ACTU and other building unions decide what would happen – they argued vigorously that it needed to be paid in the hand to workers immediately and that superannuation was pie in the sky (McDonald and McDonald 1998:229).

A number of elements contributed to the construction unions’ victory on superannuation. An important aspect was the attitude of the Hawke Labor Government, elected in March 1983. Under the Prices and Incomes Accord developed by the ALP and the ACTU, wage restraint meant that only industrial agreements that satisfied ACAC’s restrictive wage fixing principles would be supported by

4 BWIU official and bricklayer Dennis Mathews led this campaign in the Sydney metropolitan area. 5 For more see Rose (1987:478). 6 See McDonald and McDonald (1996:198).

135 the Accord partners. The Labor Government was attracted to a universal superannuation model because it would avoid an immediate wage rise (inflation was running at 10%, which Labor attributed primarily to union successes) and because the new pool of savings would provide long- term economic benefits.

The BWIU was the driving force behind the development and implementation of the Building Unions Superannuation scheme (BUS), overcoming resistance from both the BLF and construction industry employers. The BLF was preoccupied at this time with criminal corruption charges against its federal secretary, Norm Gallagher (Boyd 1991:98-122), arising out of the Winneke Royal Commission.7 In February 1984, agreement was reached at an ACTU meeting that all building unions would support the immediate establishment of the BUS scheme. Construction employers held out for a further month. Under pressure from major non-construction employer groupings concerned about a flow- on of the superannuation claim, construction employers finally relented on 28 March 1984 and agreed to establishment of the superannuation scheme. On 13 June the BUS scheme was ratified by the ACAC together with a 4.1% wage indexation rise which had been pending the overall settlement in the building industry.

The June 1984 settlement marked only a temporary lull in an otherwise lengthy period of industrial and political disputation involving the BLF, whose central demands were abandonment of corruption charges against Gallagher, as well as deregistration proceedings against the union. In NSW relations between the tradespersons unions and the BLF branch steadily worsened in the early 1980s with regular inter-union disputes, particularly over demarcation (Elder 1994:209). Major inter-union disputes included the Sydney Police Centre dispute in 1984 (prolonged stoppages ensued after seven BLF members were accused of violence and intimidation towards other unionists) and the assault of three plumbers’ union officials by BLF supporters in early 1985. The climate of hostility contributed to the decision of the state government to deregister the BLF later in the same year (Elder 1994:210). Full federal deregistration followed in April 1986.

In the mid and latter part of the 1980s the labour movement came under increasing political pressure as each new stage of the Accord required more concessions from the unions and as the employers, citing real or perceived economic problems, advanced ever bolder demands. An emerging and ideologically-driven group called the ‘New Right’ urged employers to confront unions.

7 The Royal Commission into the Activities of the Australian Building Construction Employees and Builders Labourers Federation was established on 20 August 1981 and conducted by John Winneke QC.

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Under John Howard’s leadership, the Liberal Party gravitated to this approach and aggressively promoted policies designed to deregulate the labour market. A key element in this process was the Business Council of Australia (BCA) 1989 document ‘Enterprise Based Bargaining Units: A Better Way of Working’. The Hawke Government had long embraced neo-liberal economic policies in the financial and product markets but baulked at deregulation of the labour market out of reluctance to antagonise its Accord partner, the ACTU. Nevertheless the BCA’s lobbying and pressure from the Opposition led to a shift in the Labor Government’s approach. Not long after, the ACTU leadership was also persuaded it had to move away from wages being exclusively set by centralised wage fixing. Whether these seismic shifts by the ALP and ACTU were based on policy conviction or a desire to strategically outmanoeuvre opponents8 on the radical right, the consequences were far-reaching in terms of labour market regulation. After heated debates inside the ALP and the union movement from 1991, the Industrial Relations Reform Act passed the federal parliament in December 1993. The content has been described thus:

Its 1993 legislation sought to replace compulsory arbitration with decentralised collective bargaining. The federal tribunal’s role consequently contracted to annual adjustment of national minimum wages, setting ad hoc national employment standards and the vetting of collective agreements against award standards. Awards were relegated to the minor role of ‘safety nets’. Labor maintained collectivism by continuing to support unions, notwithstanding the creation of a new option for non-union enterprise agreements’ (Bray and Underhill 2009:376).

The surprise victory of federal Labor under Paul Keating in the ‘true believers’ election in March 1993 saw an emboldened Prime Minister announce within a month that he wanted to see enterprise agreements become a full substitute for awards. At the ACTU Congress in August 1993 the government’s proposals in regard to enterprise bargaining drew heated opposition spearheaded by the Transport Workers’ Union (TWU) from the right and CFMEU from the left. Nonetheless ACTU leader, Bill Kelty, supported by key leaders such as the AMWU’s George Campbell carried the day - Accord Mark 7 was waved through and the Keating Government given a green light to make swingeing changes to wage fixing.

The reaction of the construction unions, most particularly the CFMEU, was to regroup. Despite the union’s commitment to the parent building awards they were no strangers to single employer deals. There was a long history of project/site agreements and site allowance payments which differed from site to site, region to region and state to state. At different points in history, depending on the

8 See Cahill (2010:20) for an analysis of ACTU and ALP motivations.

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Commission’s wage fixing rules, these deals had sometimes been registered and formally binding – at other times they were simply informal deals negotiated on a site by site basis. From the late 1970s the building unions had been using site allowances to circumvent wage fixing restrictions (Rose 1987:484). In NSW there was a long history of the BTG negotiating project agreements containing provisions in excess of the relevant awards and statutes (Frenkel and Coolican 1980:47). Yet the timing for the introduction of enterprise bargaining could not have been worse from the building unions’ point of view - the industry was in severe recession.

In 1993 after protracted negotiations the CFMEU’ s building division was able to conclude national enterprise agreements with two of the largest companies (Civil and Civic/Lend Lease, Concrete Constructions) but only covering their direct employees. The weak economy and an untried wage fixing approach proved a sufficient disincentive to most builders and contractors – enterprise bargaining started with a whimper rather than a bang in the construction sector.9 A new phase commenced in June 1993 when the CFMEU began implementing its ‘pattern bargaining’ model. This model insisted on common commencement and finishing dates for individual agreements and uniformity of substantive provisions within the sub-trades. The union’s 1993 pattern bargaining campaign was only moderately successful. By 1995 however, the improved economic climate and a concerted national wages campaign saw enterprise bargaining via pattern arrangements take off and become ‘normalised’.10

Intervention by the State – the Gyles Royal Commission and its aftermath

The construction market in the late 1980s was booming with commercial property in ‘bubble’ like conditions. The largest union, BWIU, was swollen in size as a result of the 1986 BLF deregistration. In part, responding to pressure from the militant ex-BLF ‘conscripts’, the NSW BWIU was adversarial in its industrial relations posture. Industrial and contractual disputation was high and building contractors were able to pass increased costs on to clients. In an unheralded move11 the NSW LNP Coalition government led by Nick Greiner announced the establishment of the NSW Royal Commission into Productivity of the Building Industry which commenced in 1991 under Roger Gyles QC. The construction unions were not explicitly named as the target of the inquiry. However the

9 This was the situation Australia-wide. Even in Victoria with its history of over-award deals most building employers were initially opposed to enterprise bargaining. 10 For a more detailed analysis of the commencement of enterprise bargaining in construction and the 1995 wages campaign see McGrath-Champ (1996). 11 For a union account of the government’s motives see McDonald and McDonald 1998:319-323.

138 public hearings proved that industrial disputes and ‘illegal activities’ by unions were the main focus. Nevertheless other matters came unexpectedly to light, e.g.: collusive tendering practices by major builders and their associations; the use of ‘stand-over men’ by prominent companies such as Civil and Civic; irregularities in the functioning of the MBA’s Group Apprenticeship Scheme; and criticism of the state government’s building licensing authority, the Building Services Corporation.

Nearly two years after the Royal Commission was first announced Gyles’ final report was presented to the NSW Parliament. Among the significant recommendations were those to deregister the BWIU (which was transitioning to the CFMEU) and to extend the life and functions of the Building Industry Task Force (BITF) which had been established a year earlier after an interim report from Gyles. The BITF was a NSW government-backed police force for the industry – it was responsible for pursuing the criminal and civil law charges recommended by Gyles. In addition to the abovementioned ‘coercive machinery’ the NSW Liberal government also established the Royal Commission Implementation Secretariat and the Construction Policy Steering Committee. The major initiative of the latter was to develop a Code of Practice to guide industrial relations conduct across the industry. The principal method of enforcing the Code was to require compliance with it by tendering firms as a pre-condition to winning government contracts. The Code included many of Gyles’ prescriptions for improved industrial relations: voluntary unionism; outlawing of strike pay; banning of redundancy pay and the industry redundancy trust; banning over-award superannuation payments; banning top- up workers’ compensation arrangements; banning over-award payments including site allowances; banning union methods of enforcing OHS (McGrath-Champ and Thompson 1997:108).

The NSW government implemented this harsh medicine in 1992, a time of severe recession in all sectors of the NSW construction industry. In the previous year the Greiner government had legislated to prohibit compulsory unionism or ‘no ticket, no start’. The combined effect of the measures meant that industrial disputation largely ceased, long-standing union practices were abandoned and labour costs/standards were substantially reduced.12 At the same time the federal Labor government, in co-operation with the building unions, rolled-out a reform strategy for the industry led by a new body called the Construction Industry Development Agency (CIDA). Established in 1992 by Commonwealth legislation13the agency incorporated a Board and a Council drawn from representatives of the key industry stakeholders. In its three years of existence (CIDA closed on 30

12 Union officials in the mid-90s spoke of their members being ‘$150-$200 worse off’ than before the government intervention/recession. For more information see McGrath-Champ (1996:10).

13 The Construction Industry Reform and Development Act, 1992.

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June 1995) working parties developed action plans across key areas of commercial and industrial policy. One plan included model pre-qualification criteria that employers (initially the Commonwealth) would use to screen out undesirable conduct in OHS, restrictive labour practices and training. CIDA emphasised consultation and consensus-building around industry best practice. McGrath-Champ and Thompson (1997) compared the alternative approaches of the Commonwealth and NSW Governments, describing the former as a fostering and the latter as a forcing strategy. The authors attribute the alternative approaches to political and economic exigencies and decline to prefer either, merely noting that, ‘The initiatives taken by each of the two Governments reinforced each other and, once underway, gained a momentum that lasted for several years’ (McGrath-Champ and Thompson 1997:112).

Deregistration of the CFMEU NSW Branch, although threatened, never eventuated. The union negotiated a Deed of Agreement with the Fahey Liberal government in 1994 to ‘be of good industrial behaviour’, on the condition that the Government desist with its deregistration application. In April 1995 the Carr Labor Government was elected in NSW. The new Minister for Industrial Relations, Jeff Shaw QC (a former barrister with close links to the BWIU), disbanded the BITF and reworked the Code of Practice to remove most prohibitions on union-won standards. The political winds were changing in NSW and the construction industry was emerging from the economic doldrums. Major infrastructure projects related to the Sydney 2000 Olympics were underway and the construction unions were prosecuting a successful pattern bargaining campaign. In this improved climate in 1995 the construction unions led by the CFMEU staged the largest nation-wide strikes ever seen in the industry in response to a decision of the Keating Labor Government to tax the fares and travelling allowance of construction workers.14 However the election of the Howard Liberal/National party Government shortly thereafter gave the unions more to be concerned with than the fares and travelling allowance.

Intervention by the State – the Cole Royal Commission and its aftermath

John Howard was elected Prime Minister in March 1996 claiming a mandate to ‘free-up’ the labour market and to confront militant unions. His first major piece of legislation, the Workplace Relations Act 1996, sought to move in this direction, notwithstanding some concessions forced on his

14 The expense-related allowance covering construction workers daily travel costs was seen by construction workers as an important tax-free supplement to their wages. The decision to tax this payment generated widespread anger and resulted in the only truly national strikes the industry has seen. The issue was not resolved before the ALP government was defeated.

140 government because of its lack of control of the Senate. His first Minister for Workplace Relations, Peter Reith, prosecuted the agenda with vigour. In 1997 he nominated meat processing, coal mining, the waterfront and building and construction as industries targeted for workplace reform (Prince and Varghese 2004). The Howard government was signaling that it was serious about confronting unions in these sectors – as the infamous 1998 Waterfront dispute demonstrated. In 1997 the federal government also issued a new National Code of Industry Practice linking Commonwealth funding of construction works to the government’s workplace relations agenda. However big moves against construction unions only came after the Sydney 2000 Olympics were over.

In 2001 after internal ructions inside the CFMEU Construction and General Division (essentially a re- opening of the BWIU/BLF battles of times past) the federal government directed the Office of the Employment Advocate (OEA) to produce a brief assessment of industrial relations in the industry. On 26 July 2001, only months out from the federal election the then Minister for Employment and Workplace Relations, Tony Abbott, seized on sweeping, unsubstantiated allegations against the construction unions in the OEA’s ten page report to announce a Royal Commission into the Building and Construction Industry. Retired justice of the NSW Court of Appeal, Terence Cole QC, was appointed to conduct the inquiry, which ran from 29 August 2001 to 24 February 2003. The TOR encompassed ‘the nature, extent and effect of any unlawful or otherwise inappropriate industrial or workplace practice or conduct’ across the industry. However, as with the previous Winneke and Gyles royal commissions established by Liberal governments, the real target was again the construction unions.15

On two occasions during the life of the Cole Commission the CFMEU lodged judicial challenges to the processes adopted by the Commissioner including allegations of bias, however these applications were dismissed.16 Subsequent research demonstrated that over 90% of public hearing time was devoted to allegations against unions, with only 3.3% spent on allegations against employers.

Although the Commission’s TOR were very broad, its public hearings were focussed almost exclusively on unions, with issues such as occupational health and safety, tax avoidance, phoenix companies and employee entitlements dealt with by written submissions and private meetings, and allegations of penetration of organised crime in the industry not dealt with at all (ACTU 2003:37).

15 These parallels are developed in an article by Paul Robinson, The Age, 7 May, 2002. 16 Kingham v Cole [2002] FCA 45 (1 February 2002); Ferguson v Cole [2002] FCA 1411 (20 November 2002).

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Cole’s final report ran to 23 volumes, of which 22 were made public. The public findings concentrated on inappropriate or unlawful industrial relations practices. The confidential 23rd volume also contained findings and/or suggested further lines of investigation in relation to more serious ‘criminal’ conduct. Volume One of the report contained a summary of the instances of ‘inappropriate’ behaviour. Of 179 documented instances, 166 were committed by unions or unionists, 9 by government bodies because of pressure from unions, 4 other miscellaneous instances and 4 instances where employers were considered responsible for OHS breaches. Cole made 212 recommendations for ‘reform’. The major structural changes he suggested have been interpreted as:

 ensuring that bargaining occurs at the enterprise level, including the prohibition of pattern bargaining;  putting mechanisms in place to ensure that any participant in the industry causing loss to others through unlawful industrial action is held responsible for that loss;  implementing effective dispute resolution measures to replace ‘the application of industrial and commercial pressure’ as a method of dispute resolution;  establishing an independent body to ensure compliance with industrial, civil and criminal laws on building and construction sites; and  industry-specific legislation.

(Forsyth, Gostencnik, Ross and Sharard 2007:3)

As with the earlier Gyles Commission, Cole brought down an interim report (August 2002) in which he too recommended the establishment of an Interim Building Industry Taskforce (IBIT). This body was established in October 2002 to investigate and prosecute breaches of industrial laws in the building industry.17 In April 2003 the government extended the operation of IBIT, pending the establishment of the proposed Australian Building and Construction Commission (ABCC). On 25 March 2004 the Minister announced that the interim taskforce would become a permanent body (BIT); it would have new ACCC/ASIC style investigative powers18 and would continue until separate legislation was passed (the Building and Construction Industry Improvement Bill 2003) to establish the ABCC as the permanent regulator. However the government did not have a majority in the Senate. The Australian Democrats and the ALP combined to refer the Bill to a Senate Inquiry. The union movement continued to campaign against what they argued was draconian legislation (ACTU 2003). In July 2004 the Senate Committee rejected the intended legislation, with the Democrat

17 The timing of the announcement of IBIT by Minister Abbott coincided with the start of the unions’ enterprise bargaining round. Abbott declared BIT would be used to prevent an ‘outbreak of illegal practices associated with ….enterprise bargaining’ (Ross 2006:177). 18 The government allocated more than $136 million in the 2004/05 Federal Budget to the agency.

142 members concluding it was incapable of being ‘salvaged or amended’.19 The 2003 Bill lapsed in the Senate on 31 August 2004, when parliament was prorogued for the 2004 federal election.

The Mark Latham-led ALP lost the October 2004 general election decisively. Howard’s LNP Coalition achieved a majority in both houses and used it to pass a series of controversial industrial statutes from 1 July 2005 onwards, including: the Building and Construction Industry Improvement Act (BCIIA) 2005; the Workplace Relations Amendment (WorkChoices) Act 2005; and the Independent Contractors Act 2006. The BCIIA 2005 contained most of the prohibitions and penalties of the 2003 Bill and new ones such as restrictions on pattern bargaining were incorporated into the WorkChoices legislation. The BCIIA was passed into law in August 2005, followed by the establishment of the controversial ABCC on 1 October 2005. The new construction regulator was provided with extraordinary investigative and coercive powers under s.52 of the Act. ‘These powers enabled the ABC Commissioner and any delegates to compel a person to provide him or her with information or documents or to attend to give evidence. They could be applied to override basic legal protections, such as the right to silence and the privilege against self-incrimination’ (Williams and McGarrity 2008:247).

In addition, the government issued a revamped National Code of Practice and Code Guidelines which, together with the other measures, ensured only ‘code compliant’ contractors would be eligible to work on government funded projects. The combined effect of this extensive state intervention in the construction industry was profound. By May 2007 the employer associations were well satisfied with the impact of the government’s measures:

Their strong view is that BCIIA and ABCC have been critical factors in improving the industry’s culture, reducing lost time and other project costs, tempering unlawful union behaviour and limiting unlawful industrial action (especially through the prosecution activity of the ABCC and the availability of substantial penalties), and greatly increasing productivity’ (Forsyth et al. 2007:5).

Arguments linking the coercive powers to improved productivity (including special research commissioned by the ABCC20 have been subject to compelling criticism. However, the reduction in industrial action was undisputed (Allan, Dungan and Peetz 2010).

19 Beyond Cole — The Future of the Construction Industry: Confrontation or Co-operation? (2004). 20 See Econtech Report (2007).

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The establishment of the Independent Contractors Act 2006 was a blow to the industrial rights of the self-employed and others working under non-SER arrangements. Effective legal remedies contained in NSW and Queensland state-based legislation were circumvented by Howard’s new federal statute. The inferior protections arose essentially from the campaigning of ICA – an ideologically driven lobby group spawned by the HIA and the Centre for Independent Studies (CIS). The ALP federal opposition was concerned about the political clout of this group, with its rhetoric about freedom and independence for small contractors, and declined to promise major changes to the legislation if they won the 2007 election. The ICA reached agreement on these matters with ALP Shadow Minister for Small Business Craig Emerson. In the years after the Rudd Government came to power, Emerson as a Cabinet Minister and close confidant of the Minister for Workplace Relations Julia Gillard, played the central role in deflecting attempts by the CFMEU and others to strengthen protections for workers in the Independent Contractors Act.21

Prior to the 2007 federal election the ALP committed itself to abolishing the ABCC by 31 January 2010 and to transfer its responsibilities to a specialist division of the new umbrella regulator, Fair Work Australia (FWA). After winning the 2007 election, the Rudd Labor government tasked former Federal Court Chief Justice Murray Wilcox QC with inquiring into matters related to the creation of the specialist division, including its structure and investigatory powers. Wilcox subsequently recommended special penalties directed against building workers and their unions be curtailed to align with sanctions in the Fair Work Act 2009, but that coercive powers be retained with safeguards to prevent abuses. His rationale for retaining the coercive powers centred on the conduct of the CFMEU Victorian and WA branches (Wilcox 2009).

In late 2009 Labor’s Minister for Employment and Workplace Relations, Julia Gillard, incorporated these recommendations in a Bill designed to abolish the ABCC and transfer its functions to a new Fair Work – Building Industry Inspectorate. The Bill was blocked by an uncooperative Senate, however Gillard found an alternative method to temper the ABCC’s powers, by issuing Ministerial Guidelines concerning use of the coercive powers and also replacing the head of the agency with an appointee less wedded to the former government’s anti-union agenda.22 In early 2012 legislation to abolish the ABCC passed both houses of parliament. On 1 June 2012, a new independent regulator, Fair Work Building & Construction, took on the functions of the ABCC.

21 The writer participated in many high level meetings/negotiations on this matter between 2005-2010. 22 Leigh Johns was appointed ABCC head in October 2010 replacing John Lloyd who was appointed by the previous Liberal government in 2005.

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